As filed with the Securities and Exchange Commission on January 27, 2017   Registration No. 333-            
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

DYNATRONICS CORPORATION
(Exact name of Registrant as specified in its charter)

         
Utah
 
 
 
87-0398434
(State or other jurisdiction of
incorporation or organization)
 
 
 
(IRS Employer
Identification No.)
7030 Park Centre Dr.
Cottonwood Heights, Utah 84121
(801) 568-7000
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Kelvyn H. Cullimore, Jr.
Chief Executive Officer
7030 Park Centre Dr.
Cottonwood Heights, Utah 84121
(801) 568-7000
(Name, address, including zip code, and telephone number, including area code, of agent for service)


Copies to:
Kevin R. Pinegar
Wayne D. Swan
Durham Jones & Pinegar, P.C.
111 East Broadway, Suite 900
Salt Lake City, Utah 84111
(801) 297-1100 (Telephone) (801) 415-3500 (Fax)

Approximate date of commencement of proposed sale to the public : From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.   ☐


If any of the securities registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box.   ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐
If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box.   ☐
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box.   ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer
 
☐
 
Accelerated filer
 
☐
Non-accelerated filer
 
☐   (Do not check if a smaller reporting company)
 
Smaller reporting company
 
☒
CALCULATION OF REGISTRATION FEE
 
                 
 
 
 
Title of Each Class of
Securities to be Registered
 
Amount
to be
Registered(1)
 
Proposed
Maximum
Offering Price
per Security(2)
 
Proposed
Maximum
Aggregate
Offering Price(2)
 
Amount of
Registration Fee
Common Stock, underlying Preferred Stock
 
390,000
 
$2.65
 
$1,033,500
 
$119.78
Common Stock, underlying Warrants
 
585,000
 
$2.75
 
$1,608,750
 
$186.46
Total
 
975,000
     
$2,642,250
 
$306.24
 
 
 
 
 
 
(1)
This Registration Statement registers: (a) 390,000 shares of common stock of Dynatronics Corporation (the "Company") issuable upon conversion of 390,000 shares of the Company's Series A 8% Convertible Preferred Stock ("Series A Preferred Stock") and (b) 585,000 shares of Common Stock issuable upon exercise of common stock purchase warrants (the "Warrants") issued by the Company to the selling shareholders identified herein in a private placement. This Registration Statement also relates to an indeterminate number of additional shares of Common Stock:  (i) issued and issuable in lieu of cash dividends on the Series A Preferred, and (ii) issued or then issuable upon any stock split, dividend, or other distribution, recapitalization or similar event with respect to the foregoing.
(2)
Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) and (g) under the Securities Act, based on the average of the high and low prices reported for the shares of common stock as reported on the Nasdaq Capital Market on January 25, 2017.
 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 


The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
SUBJECT TO COMPLETION, DATED JANUARY [___], 2017
PROSPECTUS
DYNATRONICS CORPORATION

390,000 Shares of Common Stock Issuable upon
Conversion of Preferred Stock

585,000 Shares of Common Stock Issuable upon
Exercise of Warrants

The selling shareholders identified in this prospectus or their transferees may offer up to 975,000 shares of the common stock, no par value, (the "Common Stock") of Dynatronics Corporation (the "Company"), including up to 585,000 shares of Common Stock issuable upon exercise of our A Warrants and B Warrants initially granted to the selling shareholders on December 28, 2016 (collectively, the "Warrants"), and up to 390,000 shares of our Common Stock issuable upon conversion of our Series A 8% Convertible Preferred Stock (the "Series A Preferred Stock") from time to time under this prospectus and any prospectus supplement.  In addition, this prospectus relates to an undetermined number of additional shares of our Common Stock:  (i) issued and issuable in lieu of cash dividends on the Series A Preferred Stock, and (ii) issued or then issuable upon any stock split, dividend, or other distribution, recapitalization or similar event with respect to the foregoing that may be offered from time to time by the selling shareholders under this prospectus and any prospectus supplement. We will not receive any proceeds from the sale of shares of Common Stock by the selling shareholders. We will receive cash from the exercise of the A Warrants.
We have paid the fees and expenses incident to the registration of the shares of Common Stock for sale by the selling shareholders. Our registration of the shares of Common Stock covered by this prospectus does not mean that the selling shareholders will offer or sell any of the shares.
The selling shareholders may sell the shares covered by this prospectus in a number of different ways and at varying prices. For information on the possible methods of sale that may be used by the selling shareholders, you should refer to the section entitled "Plan of Distribution" beginning on page 10 of this prospectus.  You should carefully read this prospectus and any accompanying prospectus supplement, together with the documents we incorporate by reference, before you invest in any of our securities.

Investing in our securities involves risk. Please see "Risk Factors" on page 3 for a discussion of certain risks that you should consider in connection with an investment in the securities.
Our Common Stock is listed on The Nasdaq Capital Market under the symbol "DYNT."
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This prospectus is dated [                    ], 2017.


TABLE OF CONTENTS
 
         
 
  
 
 
About This Prospectus
  
 
1
  
The Company
  
 
1
  
Where You Can Find More Information
  
 
1
  
Cautionary Statements Regarding Forward-Looking Statements
  
 
3
  
Risk Factors
  
 
3
  
Use of Proceeds
  
 
3
  
Selling Shareholders
  
 
3
  
Description of Capital Stock
  
 
7
  
Description of Warrants
  
 
10
  
Plan of Distribution
  
 
10
  
Legal Matters
  
 
12
  
Experts
  
 
12
  
 

You should rely only on the information contained or incorporated by reference in this prospectus and any prospectus supplement. We have not authorized anyone to provide you with additional or different information. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus and any prospectus supplement are not an offer to sell or the solicitation of an offer to buy any securities other than the securities to which they relate and are not an offer to sell or the solicitation of an offer to buy securities in any jurisdiction to any person to whom it is unlawful to make an offer or solicitation in that jurisdiction. You should not assume that the information in this prospectus or any prospectus supplement or in any document incorporated by reference in this prospectus or any prospectus supplement is accurate as of any date other than the date of the document containing the information.
 





ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission, which we refer to as the "SEC," utilizing a shelf registration process. Under this shelf registration process, the selling shareholders may, from time to time, offer and sell shares of our Common Stock as described in this prospectus in one or more offerings. Specific information about the offering may also be included in a prospectus supplement, which may update or change information included in this prospectus. You should read both this prospectus and any prospectus supplement together with additional information described under the heading "Where You Can Find More Information."
Unless the context requires otherwise or unless otherwise noted, all references in this prospectus to "Dynatronics Corporation," "Dynatronics," "we," "us" or "our" are to Dynatronics Corporation, a Utah corporation, and its consolidated subsidiary.
THE COMPANY
Our principal business is the distribution and marketing of physical medicine products, many of which we design and manufacture.  We manufacture and distribute a broad line of medical equipment for physical medicine applications including therapy devices, medical supplies and soft goods, treatment tables and rehabilitation equipment.  Our products are used primarily by physical therapists, chiropractors, sports medicine practitioners, podiatrists, physicians and other physical medicine professionals.
Our principal executive offices are located at 7030 Park Centre Dr., Cottonwood Heights, Utah 84121, and our phone number is (801) 568-7000. Our website is located at http://www.Dynatronics.com . We make our periodic reports and other information filed with or furnished to the SEC available, free of charge, through our website, as soon as reasonably practicable. Information contained on our website is not incorporated by reference into this prospectus and you should not consider information contained on our website as part of this prospectus.
For additional information as to our business, properties, and financial condition, please refer to the documents cited in "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with the SEC (File No. 001-12719) pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). You may read and copy any documents that are filed at the SEC's Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates from the Public Reference Section of the SEC at its Washington address. Please call the SEC at l-800-SEC-0330 for further information. Our filings are also available to the public through the SEC's website at www.sec.gov .
The SEC allows us to "incorporate by reference" information that we file with them, which means that we can disclose important information to you by referring you to documents previously filed with the SEC. The information incorporated by reference is an important part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. The following documents we filed with the SEC pursuant to the Exchange Act are incorporated herein by reference:
 
 
•
 
Our Quarterly Report on Form 10-Q for the quarter ended September 30, 2016;
 
•
 
Our Annual Report on Form 10-K for the fiscal year ended June 30, 2016 (as amended by Amendment No. 1 to our Annual Report on Form 10-K/A for the year ended June 30, 2016 filed on October 26, 2016);
 
•
 
Our Current Reports on Form 8-K filed on September 30, 2016, October 27, 2016, December 21, 2016, and January 3, 2017 (in each case excluding any information furnished pursuant to Item 2.02 or Item 7.01);
 
•
 
Our Definitive Proxy filed on Schedule 14A on October 28, 2016, relating to our Annual Meeting of Shareholders held December 16, 2016; and
 
1
 
•
 
The description of our Common Stock contained in our registration statement on Form S-1, as amended, initially filed with the SEC and effective November 2, 1984 (No. 2-85045), including any amendment to that form that we may have filed in the past, or may file in the future, for the purpose of updating the description of our Common Stock.
In addition, we incorporate by reference in this prospectus any future filings made by Dynatronics Corporation with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act (excluding any information furnished and not filed with the SEC) after the date on which the registration statement that includes this prospectus was initially filed with the SEC (including all such documents we may file with the SEC after the date of the initial registration statement and prior to the effectiveness of the registration statement) and until all offerings under this shelf registration statement are terminated.
Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for all purposes to the extent that a statement contained in this prospectus or in any other subsequently filed document which is also incorporated or deemed to be incorporated by reference, modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus.
You may request a copy of these filings (other than an exhibit to a filing unless that exhibit is specifically incorporated by reference into that filing) at no cost by writing or telephoning us at the following address and telephone number:
Dynatronics Corporation
Attention: Corporate Secretary
7030 Park Centre Dr.
Cottonwood Heights, Utah 84121
(801) 568-7000




2

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus and in any prospectus supplement we may file constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Exchange Act. These statements relate to future events concerning our business and to our future revenues, operating results and financial condition. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "forecast," "predict," "propose," "potential" or "continue," or the negative of those terms or other comparable terminology.
Any forward-looking statements contained in this prospectus or any prospectus supplement are only estimates or predictions of future events based on information currently available to our management and management's current beliefs about the potential outcome of future events. Whether these future events will occur as management anticipates, whether we will achieve our business objectives, and whether our revenues, operating results or financial condition will improve in future periods are subject to numerous risks. There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. These important factors include those that we discuss under the heading "Risk Factors" and in other sections of our Annual Report on Form 10-K for the year ended June 30, 2016, and our quarterly report for the period ended September 30, 2016, as well as our Current Reports filed on Form 8-K from time to time with the SEC, that are incorporated by reference into this prospectus. You should read these factors and the other cautionary statements made in this prospectus and in the documents we incorporate by reference into this prospectus as being applicable to all related forward-looking statements wherever they appear in this prospectus or the documents we incorporate by reference into this prospectus. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.  
RISK FACTORS
Please carefully consider the risk factors described in our periodic reports filed with the SEC, which are incorporated by reference in this prospectus. Before making an investment decision, you should carefully consider these risks as well as other information we include or incorporate by reference in this prospectus or include in any applicable prospectus supplement. Additional risks and uncertainties not presently known to us or that we deem currently immaterial may also impair our business operations or adversely affect our results of operations or financial condition.
USE OF PROCEEDS
The selling shareholders will receive all of the net proceeds from the sale of their Common Stock underlying the Series A Preferred Stock and the Warrants. We will not receive any of the proceeds from the sale of the Common Stock by the selling shareholders.  
SELLING SHAREHOLDERS
This prospectus covers the offering for resale from time to time, in one or more offerings, of 975,000 shares of Common Stock, including up to 585,000 shares of Common Stock issuable upon exercise of the Warrants owned by the selling shareholders and 390,000 shares of Common Stock issuable upon conversion of shares of the Series A Preferred Stock owned by the selling shareholders. In addition, this prospectus covers an undetermined number of shares of Common Stock that may be offered from time to time hereunder by the selling shareholders (i) issued and issuable in lieu of cash dividends on the Series A Preferred Stock, and (ii) issued or then issuable upon any stock split, dividend, or other distribution, recapitalization or similar event with respect to the foregoing. The Series A Preferred Stock and the Warrants were purchased by the selling shareholders from us for cash in a private placement pursuant to a Securities Purchase Agreement dated December 28, 2016 (the "Purchase Agreement").  The purchase price was allocated under the Purchase Agreement entirely to the Series A Preferred Stock at $2.50 per share.  The terms of the Warrants provide that the Warrants may not be exercised until such time as the Company receives shareholder approval, if any ("Shareholder Approval") as may be required by the applicable rules and regulations of The Nasdaq Stock Market ("Nasdaq") from our shareholders with respect to the issuance of the Common Stock upon exercise of the Warrants.  Gross proceeds of the private placement were $975,000.  The closing of the private placement and the issuance of the Series A Preferred Stock and the Warrants took place on December 28, 2016.  Under the terms of the Purchase Agreement and related documents, we agreed to register the Common Stock underlying and issuable upon conversion of the Series A Preferred Stock and the exercise of the Warrants, as well as any shares of Common Stock (i) issued and issuable in lieu of cash dividends on the Series A Preferred Stock, and (ii) issued or issuable upon any stock split, dividend, or other distribution, recapitalization or similar event with respect to the foregoing. This prospectus covers the securities subject to the registration rights granted to the selling shareholders pursuant to the Purchase Agreement.
3
The following table sets forth information relating to the selling shareholders as of January 20, 2017, based on information supplied to us by the selling shareholders on or prior to that date. We have not sought to verify such information. Information concerning the selling shareholders may change over time, including by addition of additional selling shareholders and, if necessary, we will supplement this prospectus accordingly. The selling shareholders may hold or acquire at any time Common Stock in addition to that offered by this prospectus and may have acquired additional Common Stock since the date on which the information reflected herein was provided to us. Additionally, the selling shareholders may have sold, transferred or otherwise disposed of some or all of the Series A Preferred Stock, Common Stock or Warrants listed below in exempt transactions since the date on which the information was provided to us and may in the future sell, transfer or otherwise dispose of some or all of their Common Stock, Warrants or Series A Preferred Stock in private placement transactions exempt from, or not subject to, the registration requirements of the Securities Act. We are registering the shares to permit the selling shareholders to offer these shares of Common Stock for resale from time to time. Because the selling shareholders may sell all, some or no part of their respective shares of Common Stock covered by this prospectus, we cannot estimate the number of shares of Common Stock that will be held by the selling shareholders upon the termination of this offering.  Unless otherwise indicated in the notes to the Table, the mailing address of the selling shareholders is c/o Dynatronics Corporation, 7030 Park Centre Dr., Cottonwood Heights, UT 84121.
Selling Shareholder
Shares of Common Stock Beneficially Owned Prior to the Offering (1)
Number of Shares Being Offered
Shares of Common Stock Beneficially Owned After the Offering (1)
Number
Percent (if 1% or more)
Brian Baker (2)
225,840
40,000
209,840
 6.6%
Stuart M. Essig 2007 Family Trust (3)
2,503,799
472,000
2,315,799
 44.5%
T. Jeff Gephart (4)
8,244
14,000
2,644
 *
John Henneman and Keryl Rowden (5)
225,840
40,000
209,840
 6.6%
Brian M. Larkin (6)
118,626
20,000
110,626
 3.6%
James N. Ogilvie (7)
21,783
40,000
5,783
 *
Provco Ventures I, LP (8)
1,140,406
210,000
1,056,406
 26.4%
Douglas G. Sampson (9)
10,600
14,000
5,000
 *
Nicholas and Jennifer Stergis, Tenancy by the Entirety (10)
112,922
20,000
104,922
 3.4%
Michael D. Vermut (11)
30,000
75,000
0
 *
Christopher Von Jako (12)
112,922
20,000
104,922
 3.4%
David A. Wirthlin (13)
4,000
10,000
0
 *

4
(1)
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of Common Stock that can be acquired under Series A Preferred Stock, Warrants or options that are currently exercisable, or which will become exercisable no later than 60 days after January 20, 2017, are deemed outstanding for the purposes of computing the percentage of the person holding such securities, but not deemed outstanding for the purposes of computing the percentage of any other person. As of January 20, 2017, there were 3,001,306 shares of Common Stock of the Company issued and outstanding.  Except as indicated by footnote and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown beneficially owned by them. In each case, the number of shares of Common Stock shown in the table above includes Common Stock that would be held in the beneficial owner's name or jointly with others, or in the name of a bank, nominee or trustee for the beneficial owner's account. Table excludes an indeterminate number of shares of Common Stock that may be issued in the future at our discretion in payment of dividends on the Series A Preferred Stock, in lieu of cash dividend payments.
(2)
Shares owned prior to this resale offering include 200,000 shares issuable upon conversion of certain Series A 8% Convertible Preferred Stock and the exercise of related warrants acquired by Mr. Baker on June 30, 2015, plus 9,840 shares of Common Stock issued to date as dividend shares, plus 16,000 shares issuable upon conversion of the Series A Preferred Stock purchased on December 28, 2016, but does not include the 24,000 Warrants acquired by Mr. Baker on December 28, 2016, inasmuch as the Warrants are not exercisable until Shareholder Approval is obtained.  The "number of shares being offered" includes 16,000 shares issuable upon conversion of 16,000 shares of Series A Preferred Stock, 12,000 shares underlying A Warrants, and 12,000 shares underlying B Warrants.  The address of this shareholder is c/o Seaspine Holdings Corporation, 2302 La Mirada Drive, Vista, CA 92081.
(3)
Erin S. Enright is Trustee of the Stuart M. Essig 2007 Family Trust (the "Trust").  Ms. Enright is a Preferred Director and member of our Board of Directors (see "Series A 8% Convertible Preferred Stock" on page 9, below). Shares beneficially owned prior to this resale offering include 2,200,000 shares of Common Stock issuable upon conversion of Series A 8% Convertible Preferred Stock and the exercise of related warrants acquired by Stuart M. Essig, Ms. Enright's husband, on June 30, 2015, plus 108,195 shares of Common Stock issued to date as dividend shares, plus 188,000 shares of Common Stock issuable upon conversion of the Series A Preferred Stock purchased on December 28, 2016, plus 7,604 shares of Common Stock held of record, but excludes the 283,200 shares of Common Stock issuable upon exercise of Warrants acquired by The Trust on December 28, 2016, inasmuch as the Warrants are not exercisable until Shareholder Approval is obtained.  The "number of shares being offered" includes the 188,000 shares of Common Stock issuable upon conversion of 188,000 shares of Series A Preferred Stock, 141,600 shares underlying A Warrants, and 141,600 shares underlying B Warrants.  The address of this shareholder is 174 Nassau Street #320, Princeton, New Jersey, 08542.
(4)
Mr. Gephart is our Senior Vice President of Sales.  Shares beneficially owned prior to this resale offering include 5,600 shares of Common Stock issuable upon conversion of Series A Preferred Stock purchased on December 28, 2016, plus 2,644 shares of Common Stock held of record, but does not include the 8,400 shares underlying the Warrants acquired by Mr. Gephart on December 28, 2016, inasmuch as the Warrants are not exercisable until Shareholder Approval is obtained.  The "number of shares being offered" includes the 5,600 shares issuable upon conversion of Series A Preferred Stock, 4,200 shares underlying A Warrants, and 4,200 shares underlying B Warrants.  The address of this shareholder is 5808 Northshore Circle, Hixson, TN  37343.
(5)
John Henneman and Keryl Rowden:  Shares owned prior to the offering include 200,000 shares of Common Stock issuable upon conversion of certain Series A 8% Convertible Preferred Stock and the exercise of related warrants acquired by these selling shareholders on June 30, 2015, plus 9,840 shares of Common Stock issued to date as dividend shares, plus 16,000 shares issuable upon conversion of the Series A Preferred Stock purchased on December 28, 2016, but does not include 24,000 shares of Common Stock issuable upon exercise of Warrants acquired by these selling shareholders on December 28, 2016, inasmuch as the Warrants are not exercisable until Shareholder Approval is obtained.  The "number of shares being offered" includes the 16,000 shares of Common Stock issuable upon conversion of 16,000 shares of Series A Preferred Stock, 12,000 shares underlying A Warrants, and 12,000 shares underlying B Warrants.  The address of this shareholder is 1114 W 111 th Street, Austin TX  78703.
(6)
Mr. Larkin is a Preferred Director and a member of our Board of Directors.  Shares owned prior to this resale offering include 100,000 shares issuable upon conversion of shares of Series A Preferred Stock and the exercise of related warrants acquired by Mr. Larkin on June 30, 2015, plus 4,922 shares of Common Stock issued to date as dividend shares, plus an additional 5,704 shares of Common Stock held of record, plus 8,000 shares of Common Stock issuable upon conversion of the Series A Preferred Stock purchased on December 28, 2016, but does not include 12,000 shares of Common Stock issuable upon exercise of the Warrants acquired by Mr. Larkin on December 28, 2016, inasmuch as the Warrants are not exercisable until Shareholder Approval is obtained.  The "number of shares being offered" includes the 8,000 shares of Common Stock issuable upon conversion of 8,000 shares of Series A Preferred Stock, 6,000 shares underlying A Warrants, and 6,000 shares underlying B Warrants.  The address of this shareholder is 526 E. Evergreen Avenue, Wyndmeer, PA  19038.
5
(7)
Mr. Ogilvie is our VP of Business Development.  Shares beneficially owned prior to this resale offering include 16,000 shares of Common Stock issuable upon conversion of the Series A Preferred Stock purchased on December 28, 2016, plus an additional 5,783 shares of Common Stock held of record, but does not include 24,000 shares underlying the Warrants acquired by Mr. Ogilvie on December 28, 2016, inasmuch as the Warrants are not exercisable until Shareholder Approval is obtained.  The "number of shares being offered" includes the 16,000 shares of Common Stock issuable upon conversion of Series A Preferred Stock, 12,000 shares underlying A Warrants, and 12,000 shares underlying B Warrants.  The address of this shareholder is 360 West Broadway, #422, Salt Lake City, Utah, 84101.
(8)
The General Partner of Provco Ventures I, LP is Provco, LLC.  The sole member of Provco, LLC is Richard E. Caruso, Ph.D.  Mr. David Holtz, a principal of Provco Group Ltd., is a Preferred Director and a member of our Board of Directors.  Shares owned prior to this resale offering include 1,000,000 shares of Common Stock issuable upon conversion of Series A Preferred Stock and the exercise of related warrants acquired by Provco on June 30, 2015, plus 49,182 shares of Common Stock issued to date as dividend shares, plus 7,224 shares of Common Stock received by Mr. Holtz in payment of directors fees, plus 84,000 shares of Common Stock issuable upon conversion of Series A Preferred Stock purchased on December 28, 2016, but does not include 126,000 shares issuable upon exercise of the Warrants acquired by Provco on December 28, 2016, inasmuch as the Warrants are not exercisable until Shareholder Approval is obtained.  The "number of shares being offered" includes the 84,000 shares of Common Stock issuable upon conversion of 84,000 shares of Series A Preferred Stock, 63,000 shares underlying A Warrants, and 63,000 shares underlying B Warrants.  The address of this shareholder is 311 C, Enterprise Drive, Plainsboro, NJ 08536.
(9)
Mr. Sampson is our Vice President of Production and Research and Development.  Shares beneficially owned prior to this resale offering include 5,600 shares of Common Stock issuable upon conversion of the Series A Preferred Stock purchased on December 28, 2016, plus options to purchase 5,000 shares presently exercisable at $3.35 per share, but does not include the 8,400 shares underlying the Warrants acquired by Mr. Sampson on December 28, 2016, inasmuch as the Warrants are not exercisable until Shareholder Approval is obtained.  The "number of shares being offered" includes the 5,600 shares of Common Stock issuable upon conversion of Series A Preferred Stock, 4,200 shares underlying A Warrants, and 4,200 shares underlying B Warrants.  The address of this shareholder is 3436 S. Melvina Street, Salt Lake City, Utah  84106.
(10)
Shares owned prior to this resale offering include 100,000 shares of Common Stock issuable upon conversion of Series A Preferred Stock and the exercise of related warrants acquired by Mr. and Mrs. Stergis on June 30, 2015, plus 8,000 shares issuable upon conversion of the Series A Preferred Stock purchased on December 28, 2016, but does not include the 12,000 Warrants acquired by these selling shareholders on December 28, 2016, inasmuch as the Warrants are not exercisable until Shareholder Approval is obtained.  The "number of shares being offered" includes the 8,000 shares of Common Stock issuable upon conversion of 8,000 shares of Series A Preferred Stock, 6,000 shares underlying A Warrants, and 6,000 shares underlying B Warrants.  The address of these shareholders is 1075 Spanish Moss Trail, Naples, FL  34108.
6
(11)
Shares beneficially owned prior to this resale offering include 30,000 shares of Common Stock issuable upon conversion of the Series A Preferred Stock purchased on December 28, 2016, but does not include the 45,000 shares underlying the Warrants acquired by Mr. Vermut on December 28, 2016, inasmuch as the Warrants are not exercisable until Shareholder Approval is obtained.  The "number of shares being offered" includes the 30,000 shares of Common Stock issuable upon conversion of Series A Preferred Stock, 22,500 shares underlying A Warrants, and 22,500 shares underlying B Warrants.  The address of this shareholder is 235 Edgerstoune Road, Princeton, NJ  08540.
(12)
Shares owned prior to this resale offering include 100,000 shares of Common Stock issuable upon conversion of Series A Preferred Stock and the exercise of related warrants acquired by Mr. Von Jako on June 30, 2015, plus 4,922 shares of Common Stock issued to date as dividend shares, plus 8,000 shares of Common Stock issuable upon conversion of the Series A Preferred Stock purchased on December 28, 2016, but does not include the 12,000 Warrants acquired by Mr. Von Jako on December 28, 2016, inasmuch as the Warrants are not exercisable until Shareholder Approval is obtained.  The "number of shares being offered" includes the 8,000 shares of Common Stock issuable upon conversion of 8,000 shares of Series A Preferred Stock, 6,000 shares underlying A Warrants, and 6,000 shares underlying B Warrants.  The address of this shareholder is 7 Charing Cross, Lynnfield, MA  01940.
(13)
Mr. Wirthlin is our Chief Financial Officer.  Shares beneficially owned prior to this resale offering include 4,000 shares of Common Stock issuable upon conversion of the Series A Preferred Stock purchased on December 28, 2016, but does not include the 6,000 shares underlying the Warrants acquired by Mr. Wirthlin on December 28, 2016, inasmuch as the Warrants are not exercisable until Shareholder Approval is obtained.  The "number of shares being offered" includes the 6,000 shares of Common Stock issuable upon conversion of Series A Preferred Stock, 3,000 shares underlying A Warrants, and 3,000 shares underlying B Warrants.  The address of this shareholder is 2171 E. Sunnybrook Way, Holladay, Utah  84124.
The selling shareholders will be responsible for their own legal fees and expenses and for any underwriting fees, discounts and commissions due to brokers, dealers or agents. We will be responsible for all other offering expenses.
Each time a selling shareholder sells any securities offered by this prospectus, the selling shareholder is required to provide you with this prospectus and, to the extent required, a related prospectus supplement containing specific information about such selling shareholder and the terms of the securities being offered in the manner required by the Securities Act. Any prospectus supplement will, to the extent required, set forth the following information with respect to the selling shareholder:
   
•
 
the name of the selling shareholder;
 
 
•
 
the nature of any position, office or other material relationship that the selling shareholder has had within the last three years with us, our predecessors or any of our affiliates;
 
 
•
 
the amount of Common Stock owned by the selling shareholder prior to the offering;
 
 
•
 
the amount of Common Stock to be offered for the selling shareholder's account; and
 
 
•
 
the amount and (if one percent or more) the percentage of Common Stock to be beneficially owned by the selling shareholder after the completion of the offering.
No offer or sale may occur unless the registration statement that includes this prospectus has been declared effective by the SEC and remains effective at the time a selling shareholder offers or sells Common Stock. We are required, under certain circumstances, to update, supplement or amend this prospectus to reflect material developments in our business, financial position and results of operations and may do so by an amendment to this prospectus, a prospectus supplement or a future filing with the SEC incorporated by reference in this prospectus.
DESCRIPTION OF CAPITAL STOCK
The following descriptions are summaries of material terms of our Common Stock, preferred stock, articles of incorporation and bylaws. This summary is qualified by reference to our articles of incorporation, bylaws and the designation of our Series A 8% Convertible Preferred Stock ("Certificate of Designation"), which are filed as exhibits to the registration statement of which this prospectus forms a part, and by the provisions of applicable law.
7
As of January 26, 2017, our authorized capital stock was 150,000,000 shares. Those shares consisted of (a) 50,000,000 shares of preferred stock, no par value, of which 2,000,000 shares are designated as Series A Preferred and were issued and outstanding; and (b) 100,000,000 shares of Common Stock, no par value, of which 3,001,306 shares were issued and outstanding. In addition, as of January 20, 2017, (a) at least 2,000,000 shares of Common Stock were reserved for issuance pursuant to the conversion of our Series A Preferred Stock, (b) at least 3,000,000 shares of Common Stock were reserved for issuance pursuant to our Warrants, (c) 151,018 shares of Common Stock were reserved for issuance pursuant to unexercised options granted under our stock option plans with a weighted average exercise price of $3.57 per share, 102,251 of which are currently exercisable, and (d) 72,000 shares of Common Stock were outstanding but unvested pursuant to restricted stock awards.
Common Stock
Subject to any special voting rights of any series of preferred stock that we may issue in the future, each share held of record of Common Stock has one vote on all matters voted on by our stockholders, including the election of our directors. Because holders of Common Stock do not have cumulative voting rights, the holders of a majority of the shares of Common Stock can elect all of the members of the board of directors standing for election, subject to the rights, powers and preferences of any outstanding series of preferred stock.
No share of Common Stock affords any preemptive rights or is convertible, redeemable, assessable or entitled to the benefits of any sinking or repurchase fund. Holders of Common Stock will be entitled to dividends in the amounts and at the times declared by our board of directors in its discretion out of funds legally available for the payment of dividends.
Holders of Common Stock are entitled to receive dividends when, as and if declared by the board of directors out of funds legally available therefor, subject to any dividend preferences of any outstanding shares of preferred stock. Holders of Common Stock will share equally in our assets on liquidation after payment or provision for all liabilities and any preferential liquidation rights of any preferred stock then outstanding. All outstanding shares of Common Stock are fully paid and non-assessable. Our Common Stock is traded on the Nasdaq Capital Market under the symbol "DYNT."
Transfer Agent and Registrar
The transfer agent and registrar for our Common Stock is Interwest Transfer Company.
Preferred Stock
As of the date of this prospectus, we have 48,000,000 shares of authorized but unissued preferred stock that are undesignated, and 2,000,000 shares of authorized preferred stock designated as our Series A 8% Convertible Preferred Stock, as discussed below.
At the direction of our board of directors, we may issue shares of preferred stock from time to time. Our board of directors may, without any action by holders of our Common Stock:
·
adopt resolutions to issue preferred stock in one or more classes or series;
·
fix the number of shares constituting any class or series of preferred stock; and
·
establish the rights of the holders of any class of preferred stock.
The rights of any class or series of preferred stock may include, among others:  
 
●
 
general or special voting rights;
 
 
●
 
preferential liquidation or preemptive rights;
 
8
 
●
 
preferential cumulative or noncumulative dividend rights;
 
 
●
 
redemption or put rights; and
 
 
●
 
conversion or exchange rights.
We may issue shares of, or rights to purchase, preferred stock, the terms of which might:  
 
●
 
adversely affect voting or other rights evidenced by, or amounts otherwise payable with respect to, the Common Stock;
 
 
●
 
discourage an unsolicited proposal to acquire us; or
 
 
●
 
facilitate a particular business combination involving us.
Any of these actions could discourage a transaction that some or a majority of our stockholders might believe to be in their best interests or in which our stockholders might receive a premium for their stock over its then market price.
Series A 8% Convertible Preferred Stock
As of January 20, 2017, we had 2,000,000 shares of preferred stock designated as our Series A 8% Convertible Preferred Stock ("Series A Preferred Stock"), all of which were issued and outstanding. The liquidation preference is $2.50 per share of Series A Preferred Stock, plus accumulated and unpaid dividends. Dividends are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, beginning July 1, 2015 with respect to the first tranche of Series A Preferred Stock issued by the Company on June 30, 2015.  The date the shares of Series A Preferred Stock are first issued is referred to as the Original Issue Date.
As of the date of this prospectus, each share is convertible at the option of the holder into one share of Common Stock at any time, which is equivalent to an initial conversion price of $2.50 per share of Common Stock. At the Series A Preferred Stock shareholder's election, the Series A Preferred Stock held by such shareholder is subject to a provision prohibiting the conversion of such Series A Preferred Stock to the extent that, after giving effect to such conversion, the holder (together with the holder's affiliates, and any other persons acting as a group together with the holder or any of the holder's affiliates), would beneficially own in excess of 4.99% of our outstanding Common Stock.
We have the right to convert one-half of the then outstanding Series A Preferred Stock into Common Stock on a 1:1 basis if all of the following conditions have been met: (1) the Common Stock has a bid price of at least $7.50 per share on each of the 40 trading days  prior to the date in question; (2) the daily trading volume for the prior 90 trading days exceeds 30,000 shares; and (3) we are listed in good compliance on Nasdaq (or another national exchange) at the time of conversion, and certain other conditions have been met.  We have the right to convert all remaining outstanding Series A Preferred Stock into Common Stock on a 1:1 basis if all of the following conditions have been met: (1) the Common Stock has a bid price of at least $10.00 per share on each of the 40 trading days  prior to the date in question; (2) the daily trading volume for the prior 90 trading days exceeds 50,000 shares; and (3) we are listed in good compliance on Nasdaq (or another national exchange) at the time of conversion and certain other conditions have been met.
The Series A Preferred Stock votes on an as-converted basis, one vote for each share of Common Stock then issuable upon conversion of the Series A Preferred Stock, provided, however, that no holder of Series A Preferred Stock shall be entitled to cast votes for the number of shares of Common Stock issuable upon conversion of such Series A Preferred Stock held by such holder that exceeds the quotient of (x) the aggregate purchase price paid by such holder of Series A Preferred Stock for its Series A Preferred Stock, divided by (y) the greater of (i) $2.50 and (ii) the market price of the Common Stock.
9
Under the Purchase Agreement and during the period defined therein as the "Director Rights Period": (i) our board of directors may be increased to seven members, and (ii) the holders of the Series A Preferred Stock may appoint up to three members of the board of directors (the "Preferred Directors").  The Preferred Directors are to be elected solely by the holders of the Series A Preferred Stock and serve their terms subject to removal or replacement by the holders of the Series A Preferred Stock at any time during the Director Rights Period and subject to the terms and conditions of the Certificate of Designation.  As of January 20, 2017, our board of directors consists of six members, with Erin S. Enright, Brian M. Larkin, and David B. Holtz serving on the board of directors as Preferred Directors.
Upon the occurrence of certain triggering events defined in the Certificate of Designation, the holders of the Series A Preferred Stock may require that we redeem, for cash or for stock as provided therein, all or part of the outstanding shares of Series A Preferred Stock.
DESCRIPTION OF WARRANTS
On December 28, 2016, we entered into and closed the Purchase Agreement for the sale of 390,000 shares of Series A Preferred Stock and the Warrants.
Each A Warrant entitles the holder thereof to purchase one share of Common Stock for cash at an exercise price of $2.75 per share, subject to customary anti-dilution adjustments. Each B Warrant entitles the holder thereof to purchase one share of Common Stock, exercisable by means of a "cashless exercise".  The Warrants are exercisable for a period of 72 months.  Each holder's A Warrants must be exercised before any of its B Warrants may be exercised.
At the election of the warrant holder, the Warrants are subject to a provision prohibiting the exercise of such Warrants to the extent that, after giving effect to such exercise, the holder (together with the holder's affiliates, and any other persons acting as a group together with the holder or any of the holder's affiliates), would beneficially own in excess of 4.99% of the outstanding Common Stock of the Company. Such restriction does not apply to a Warrant holder unless that Warrant holder elects to be bound by the 4.99% limitation.  
PLAN OF DISTRIBUTION
We are registering an aggregate of 975,000 shares of Common Stock held by or issuable to the selling shareholders identified in this prospectus pursuant to registration rights granted to the selling shareholders under certain agreements.  We are also registering an indeterminate number of shares of Common Stock that may be issued in the future in payment of dividends and otherwise with relation to or in connection with the Series A Preferred or pursuant to provisions of the Series A Preferred and the Warrants to prevent dilution resulting from stock splits, stock dividends, or similar transactions.
The selling shareholders and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on The Nasdaq Stock Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions.  These sales may be at fixed or negotiated prices.  A selling shareholder may use any one or more of the following methods when selling securities:
•   ordinary brokerage transactions and transactions in which the broker dealer solicits purchasers;
•   block trades in which the broker dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;
•   purchases by a broker dealer as principal and resale by the broker dealer for its account;
•   an exchange distribution in accordance with the rules of the applicable exchange;
•   privately negotiated transactions;
•   settlement of short sales;
10
•   in transactions through broker dealers that agree with the selling shareholders to sell a specified number of such securities at a stipulated price per security;
•   through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
•   a combination of any such methods of sale; or
•   any other method permitted pursuant to applicable law.
The selling shareholders may also sell securities under Rule 144 under the Securities Act, if available, rather than under this prospectus.
Broker dealers engaged by the selling shareholders may arrange for other broker dealers to participate in sales.  Broker dealers may receive commissions or discounts from the selling shareholders (or, if any broker dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with the sale of the securities or interests therein, the selling shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume.  The selling shareholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities.  The selling shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The selling shareholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales.  In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.  Each selling shareholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities.  The Company has agreed to indemnify the selling shareholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
Because selling shareholders may be deemed to be "underwriters" within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder.  In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The selling shareholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the selling shareholders.
We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the selling shareholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect.  The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
11
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution.  In addition, the selling shareholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the Common Stock by the selling shareholders or any other person.  We will make copies of this prospectus available to the selling shareholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
We will bear all costs, expenses and fees in connection with the registration of the shares of Common Stock offered in this prospectus. The selling shareholders will bear any brokerage commissions and similar selling expenses that may result from their resale of the shares of Common Stock offered in this prospectus.
Some of the underwriters, dealers or agents used by the selling shareholders in any offering of securities under this prospectus may be customers of, engage in transactions with, and perform services for us and/or the selling shareholders, as applicable, or affiliates of ours and/or theirs, as applicable, in the ordinary course of business. Underwriters, dealers, agents and other persons may be entitled under agreements which may be entered into with us and/or the selling shareholders to indemnification against and contribution toward certain civil liabilities, including liabilities under the Securities Act, and to be reimbursed by us and/or such selling shareholders for certain expenses.
Any securities initially sold outside the United States may be resold in the United States through underwriters, dealers or otherwise.
Any underwriters to which offered securities are sold by the selling shareholders for public offering and sale may make a market in such securities, but those underwriters will not be obligated to do so and may discontinue any market making at any time.
To comply with the securities laws of some states, if applicable, the securities may be sold in jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the securities may not be sold unless they have been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.
LEGAL MATTERS
Durham Jones & Pinegar, P.C., Salt Lake City, Utah, will pass upon the validity of the issuance of the securities to be offered by this prospectus.
EXPERTS
The financial statements incorporated in this prospectus by reference to the Annual Report on Form 10-K for the year ended June 30, 2016 have been so incorporated in reliance on the report of BDO USA, LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The financial statements incorporated in this prospectus by reference to the Annual Report on Form 10-K for the year ended June 30, 2015 have been so incorporated in reliance on the report of Mantyla McReynolds LLC, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

12
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
 
Item 14.
Other Expenses of Issuance and Distribution.
Set forth below are the expenses (other than underwriting discounts and commissions) expected to be incurred in connection with the issuance and distribution of the securities registered hereby. With the exception of the Securities and Exchange Commission registration fee, the amounts set forth below are estimates. The selling shareholders will not bear any portion of such expenses.
 
         
Securities and Exchange Commission registration fee
 
$
306.24
  
Legal fees and expenses
 
 
10,000.00*
  
Accounting fees and expenses
 
 
5,000.00*
  
Printing expenses
 
 
**
  
Miscellaneous
 
 
2,000.00*
  
 
  
 
 
 
 
 
 
 
Total
 
$
**
  
 
  
 
 
 
 
 
 
 

*  Estimated.
**
These fees are calculated at least in part based on the amount of securities offered and accordingly cannot be estimated at this time.
 
Item 15.
Indemnification of Directors and Officers.
Section 16-10a-841 of the Utah Revised Business Corporation Act (the "Revised Act") allows a Utah corporation to provide, in its articles of incorporation, bylaws or by shareholder resolution, for the elimination or limitation of personal liability of a director to the corporation or to its shareholders for monetary damages for any action or omission, as a director, except (i) liability for a financial benefit received by a director to which he was not entitled, (ii) intentional infliction of harm on the corporation or the shareholders, (iii) an unlawful distribution to shareholders in violation of the Revised Act, and (iv) intentional violation of criminal law.
Section 16-10a-902 of the Revised Act provides that a Utah corporation may indemnify any individual made a party to a proceeding because he or she is or was a director, against liability incurred in the proceeding, if: (a) the director's conduct was in good faith, (b) the director reasonably believed that his or her conduct was in, or not opposed to, the corporation's best interests; and (c) in the case of any criminal proceeding, the director had no reasonable cause to believe such conduct was unlawful; provided, however, that a corporation may not indemnify a director under Section 16-10a-902 if the director was adjudged liable to the corporation in a proceeding by or in the right of the corporation or adjudged liable for deriving an improper personal benefit.  All indemnification is limited to reasonable expenses only.
Section 16-10a-903 of the Revised Act provides that, unless limited by its articles of incorporation, a Utah corporation shall indemnify a director who was successful, on the merits or otherwise, in the defense of any proceeding, or in the defense of any claim, issue or matter in the proceeding, to which the director was a party because he or she is or was a director of the corporation, against reasonable expenses incurred in connection with the proceeding or claim with respect to which the director has been successful.
In addition to the indemnification provided by Sections 902 and 903, Section 6-10a-905 of the Revised Act provides that, unless otherwise limited by a corporation's articles of incorporation, a director may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction.
Under Section 16-10a-904 of the Revised Act, a Utah corporation may pay for or reimburse the reasonable expenses incurred by a director in advance of final disposition of the proceeding if the director furnishes the corporation a written affirmation of his or her good faith belief that the director has met the applicable standard of conduct, provides a written undertaking personally binding the director to pay the advance if it is ultimately determined that he or she did not meet the standard of conduct, and a determination is made that the facts then known to those making a determination would not preclude indemnification.  The director's undertaking need not be secured and may be accepted without reference to financial ability to make repayment.  Section 16-10a-906 prohibits a corporation from making any discretionary indemnification, payment or reimbursement of expenses unless a determination has been made that the director has met the applicable standard of conduct.
II-1
The determination required under Sections 16-10a-904 and 16-10a-906 of the Revised Act must be made as follows: (1) by a majority vote of a quorum of the board of directors who are not parties to the proceeding; (2) if a quorum cannot be obtained as contemplated by (1), above, by a majority vote of a committee of two or more members of the board of directors who are not parties to the proceeding and are designated by the board of directors; (3) by special legal counsel selected by a quorum of the board of directors or its committee composed of persons determined in the manner prescribed in (1) or (2), above, or if a disinterested quorum of the board of directors or committee is not possible, then selected by a majority vote of the full board of directors, or (4) by a majority of the shareholders entitled to vote by person or proxy at a meeting.
Section 16-10a-907 of the Revised Act provides that, unless a corporation's articles of incorporation provide otherwise, (i) an officer of the corporation is entitled to mandatory indemnification under Section 903 and is entitled to apply for court-ordered indemnification under Section 905, in each case to the same extent as a director, (ii) a corporation may indemnify and advance expenses to an officer, employee, fiduciary or agent of the corporation to the same extent as a director, and (iii) a corporation may also indemnify and advance expenses to an officer, employee, fiduciary or agent who is not a director to a greater extent, if not inconsistent with public policy, and if provided for by its articles of incorporation, bylaws, general or specific action of its board of directors, or contract.
Section 16-10a-908 of the Revised Act provides that a corporation may purchase and maintain liability insurance on behalf of a person who is or was a director, officer, employee, fiduciary, or agent of the corporation or who, while serving as a director, officer, employee, fiduciary, or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, fiduciary, or agent of another foreign or domestic corporation or other person, or of an employee benefit plan against liability asserted against or incurred by the individual in that capacity or arising from his status as such, whether or not the corporation would have the power to indemnify him or her against the same liability under Sections 902, 903 or 907 of the Revised Act.
Section 16-10a-909 of the Revised Act provides that a provision treating a corporation's indemnification of or advance for expenses to, directors that is contained in its articles of incorporation or bylaws, in a resolution of its shareholders or board of directors or in a contract, (except an insurance policy), or otherwise, is valid only if and to the extent the provision is not inconsistent with Sections 901 through 909 of the Revised Act.  If the articles of incorporation limit indemnification or advancement of expenses, indemnification and advancement of expenses are valid only to the extent not inconsistent with the articles.
The registrant's Articles of Incorporation, as amended, provide that, to the fullest extent permitted by the Revised Act or any other applicable law, a director of the registrant will not be personally liable to the registrant or its shareholders for monetary damages for any action taken or failure to take any action as a director, except liability for (a) the amount of a financial benefit received by a director to which he is not entitled, (b) an intentional infliction of harm on the registrant or its shareholders, (c) a violation of Section 16-10a-842 of the Revised Act (regarding unlawful distributions) or (d) an intentional violation of criminal law.
The Articles of Incorporation also provide that, to the fullest extent permitted by the Revised Act or other applicable law, (a) the registrant will indemnify a person made or threatened to be made a party to any action for all liabilities and expenses incurred by such person in connection with such action because such person is or was a director or officer of the registrant or served at the request of the registrant as a director, officer, partner, trustee, employee, fiduciary or agent of another entity and (b) the registrant will advance expenses to such person in advance of a final disposition of such action.
The Articles of Incorporation further provide that neither an amendment nor repeal of such provisions of the registrant's Articles of Incorporation, nor the adoption of a provision of the registrant's Articles of Incorporation that is inconsistent with such provisions, will eliminate or reduce the effect of such provisions with respect to any matter that occurs or action or proceeding that accrues or arises prior to such amendment or repeal of such provisions or the adoption of a provision that is inconsistent with such provisions.
The registrant's Bylaws require the Registrant to indemnify any individual made a party to a proceeding because the individual is or was a director of the Registrant, against liability incurred in the proceeding, but only if the Registrant has authorized the payment in accordance with Section 16-10a-906(4) of the Revised Act and a determination has been made in accordance with the procedures set forth in Section 16-10a-906(2) of the Revised Act that the individual has met the standards of conduct set forth in items (a), (b), and (c) below.
II-2
(a)  Standard of Conduct.  The Registrant is required to indemnify the individual if the Registrant determines that:
(1)  the individual's conduct was in good faith; and
(2)  the individual reasonably believed that the individual's conduct was in, or not opposed to, the Registrant's best interests; and
(3)  in the case of any criminal proceeding, the individual had no reasonable cause to believe the individual's conduct was unlawful.
(b)  The Registrant may not indemnify an individual:
(1)  in connection with a proceeding by or in the right of the Registrant in which the individual was adjudged liable to the Registrant; or
(2)  in connection with any other proceeding charging that the individual derived an improper personal benefit, whether or not involving action in the individual's official capacity, in which proceeding he or she was adjudged liable on the basis that he or she derived an improper personal benefit.
(c)  Indemnification permitted under the Bylaws in connection with a proceeding by or in the right of the Registrant is limited to reasonable expenses incurred in connection with the proceeding.
The Bylaws also provide that if a determination is made following the procedures of Section 16-10a-906(2) of the Revised Act that the individual has met the following requirements; and if an authorization of payment is made, following the procedures and standards set forth in Section 16-10a-906(4) of the Revised Act, then unless otherwise provided in the Articles of Incorporation, the Registrant shall pay for or reimburse the reasonable expenses incurred by an individual who is a party to a proceeding because he is or was a director of the Registrant in advance of final disposition of the proceeding, if:
(a)  The individual furnishes to the Registrant a written affirmation of the individual's good faith belief that the individual has met the standard of conduct described above;
(b)  The individual furnishes to the Registrant a written undertaking, executed personally or on the individual's behalf, to repay the advance if it is ultimately determined that the individual did not meet the standard of conduct (which undertaking must be an unlimited general obligation of the individual but need not be secured and may be accepted without reference to financial ability to make repayment); and
(c)  a determination is made that the facts then known to those making the determination would not preclude indemnification under the Bylaws or Part 9 of the Revised Act.
Unless otherwise provided in the Articles of Incorporation, the Bylaws require the Registrant to indemnify and advance expenses to any individual made a party to a proceeding because the individual is or was an officer, employee, fiduciary, or agent of the Registrant to the same extent as to an individual made a party to a proceeding because the individual is or was a director of the Registrant, or to a greater extent, if not inconsistent with public policy, if provided for by general or specific action of the Board of Directors.
The foregoing description is necessarily general and does not describe all details regarding the indemnification of officers, directors or controlling persons of the registrant.
Item 16.
Exhibits .
The exhibits required to be filed as a part of this Registration Statement are listed in the Exhibit Index attached hereto and incorporated herein by reference.
Item 17.
Undertakings .
The undersigned registrant hereby undertakes:
II-3
(1)  To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
provided , however , that paragraphs (1)(i) and (1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(2)  That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3)  To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4)  That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of providing the information required by Section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which the prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(5)  That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
II-4
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(6)  That, for purposes of determining any liability under the Securities Act of 1933, each filing of registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(7)  Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
(8)  The undersigned registrant hereby undertakes to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of section 310 of the Trust Indenture Act ("Act") in accordance with the rules and regulations prescribed by the Commission under section 305(b)(2) of the Act.

II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cottonwood Heights, State of Utah, on January 26, 2017.
 
 
DYNATRONICS CORPORATION
 
 
 
 
By:
/s/ Kelvyn H. Cullimore
 
 
Kelvyn H. Cullimore
 
 
President and Chief Executive Officer
POWERS OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Kelvyn H. Cullimore and David A. Wirthlin, and each of them, any of whom may act without the joinder of the other, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign on his behalf individually and in each capacity stated below any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents and either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated.

Name
  
Title
 
Date
/s/ Kelvyn H. Cullimore
Kelvyn H. Cullimore
  
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
 
Jan 26, 2017
 
 
 
/s/ David A. Wirthlin
David A. Wirthlin
  
Chief Accounting Officer
(Principal Financial Officer and
Principal Accounting Officer)
 
Jan 26, 2017
 
 
 
/s/ Erin S. Enright
Erin S. Enright
  
Director
 
Jan 22, 2017
 
 
 
/s/ David B. Holtz
David B. Holtz
  
Director
 
Jan 26, 2017
         
/s/ Brian M. Larkin
Brian M. Larkin
  
Director
 
Jan 25, 2017
         
/s/ Scott A. Klosterman
Scott A. Klosterman
  
Director
 
Jan 22, 2017
 
 
 
/ s/ R. Scott Ward
R. Scott Ward
  
Director
 
Jan 23, 2017

II-6
INDEX TO EXHIBITS
 
 
 
 
Exhibit
  
Description
 
 
3.1
 
Amended and Restated Articles of Incorporation of Dynatronics Corporation (filed herewith).
 
 
3.2
 
Amended and Restated Bylaws, adopted July 20, 2015, incorporated by reference to Current Report on Form 8-K, filed July 22, 2015.
 
 
 
4.1
 
Form of certificate representing common stock, no par value, incorporated by reference to a Registration Statement on Form S-1 (No. 2-85045) filed with the Securities and Exchange Commission and effective November 2, 1984.
 
 
 
4.2
  
Form of certificate representing Series A 8% Convertible Preferred Stock, incorporated by reference to Current Report on Form 8-K, filed January 3, 2017.
 
 
4.3
  
Form of certificate of designations for Series A 8% Convertible Preferred Stock, incorporated by reference to Current Report on Form 8-K filed on July 1, 2015.
 
 
4.4
  
Form of A Warrant, incorporated by reference to Current Report on Form 8-K filed on January 3, 2017.
 
 
4.5
  
Form of B Warrant, incorporated by reference to Current Report on Form 8-K filed on January 3, 2017.
 
 
5
  
Opinion of Legal Counsel as to legality of securities being registered (filed herewith)
   
23.1
  
Consent of Legal Counsel (contained in Exhibit 5)
 
 
23.2
  
Consent of Independent Registered Public Accounting Firm BDO USA, LLP (to be filed)
   
23.3
  
Consent of Independent Registered Public Accounting Firm Mantyla McReynolds, LLC (to be filed)
 
 
24
  
Power of Attorney (included on Signature Page)
 
 

 
II-7
Exhibit 3.1


AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DYNATRONICS CORPORATION
In accordance with the provisions of Sections 16-10a-1006 and 16-10a-1007 of the Utah Revised Business Corporation Act, as amended (the "Act"), and pursuant to resolutions duly adopted by all of the shareholders and directors of Dynatronics Corporation (the "Corporation"), the Corporation hereby adopts Amended and Restated Articles of Incorporation as provided below.
FIRST :  The Corporation was organized by the filing of its duly signed Articles of Incorporation with the Division of Corporations and Commercial Code of the Utah Department of Commerce (the "Division") on April 29, 1983.
SECOND :  The Corporation filed Articles of Amendment to its Articles of Incorporation with the Division on February 10, 1989, November 19, 1993, December 18, 2012, and June 26, 2015.
THIRD :  On December 16, 2016, the shareholders of the Corporation adopted amendments (the "Amendments") to the Articles of Incorporation as follows:
1.
That the Articles of Incorporation of the Corporation be amended and restated to include the following changes to the authorized capital stock of the Corporation as follows:
a.
The number of authorized shares of Common Stock, no par value, of the Corporation, shall be increased from 50,000,000 shares to 100,000,000 shares, and said increase shall not affect the number of shares currently issued and outstanding or the par value of the shares;
b.
The number of authorized shares of Preferred Stock, no par value, of the Corporation shall be increased from 5,000,000 shares to 50,000,000 shares, and said increase shall not affect the par value, number, designation, rights or preferences of any series of preferred shares currently issued and outstanding; and
2.
That the Board of Directors of the Corporation shall amend and restate the Articles of Incorporation as provided in Section 16-10a-1007 of the Utah Revised Business Corporation Act to include this and all prior amendments to the Corporation's Articles of Incorporation to date as currently in effect.
FOURTH :  The Amendments were adopted by the Corporation's shareholders at an annual meeting of shareholders held on December 16, 2016 (the "Shareholders' Meeting"), in accordance with the requirements of the Act.  The Corporation has 2,882,272 shares of Common Stock outstanding and eligible to vote on the Amendments and 1,610,000 shares of Series A 8% Convertible Preferred Stock ("Series A Preferred") outstanding and eligible to vote on an "as-converted basis" on the Amendments (subject to applicable stock exchange rules). The number of Common Stock votes (including Series A Preferred on an as-converted basis) represented at the Shareholders' Meeting was 3,469,047 shares (approximately 84%).  The number of votes cast in favor of the Amendments was sufficient for approval of the Amendments, as follows:
 
Increase of authorized Common Stock, Common Stock and Series A Preferred (on an as-converted basis) voting together:
Number of Shares For
 
Number of Shares Against
 
Number of Shares Abstaining
 
3,065,252
 
392,242
 
1,549
 
Increase of authorized Preferred Stock, Common Stock and Series A Preferred voting separately by class:
Number of Common Shares For
 
Number of Common Shares Against
 
Number of Common Shares Abstaining
 
2,124,115
 
306,335
 
1,537
 
 
Number of Series A Preferred Shares (Voting as a Class) For
 
Number of Series A Preferred Shares Against
 
Number of Series A Preferred Shares Abstaining
 
1,560,000
 
-
 
-
 
FIFTH :  The Articles of Incorporation for the Corporation are hereby restated as heretofore amended as follows:
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
DYNATRONICS CORPORATION
In accordance with the provisions of the Utah Revised Business Corporation Act, as amended from time to time (the "Act"), Dynatronics Corporation hereby adopts the following Amended and Restated Articles of Incorporation.
ARTICLE I
The name of the corporation is "Dynatronics Corporation" (the "Corporation").
ARTICLE II
The duration of the Corporation is perpetual.
ARTICLE III
The Corporation is organized to engage in any and all lawful acts, activities and pursuits for which a corporation may be organized under the Act. The Corporation shall have all powers allowed by law, including, but not limited to, the powers described in the Act.
article iv
The total number of shares that the Corporation shall have authority to issue is One Hundred Fifty Million (150,000,000) shares of capital stock, such total number of shares consisting of One Hundred Million (100,000,000) shares of Common Stock, no par value per share, and Fifty Million (50,000,000) shares of Preferred Stock, no par value per share, with such rights, preferences, limitations and restrictions as the board of directors of the Corporation may determine as provided by Section 16-10a-602 of the Act. All of the shares of the Corporation's capital stock shall be non-assessable.
As of the date of these Amended and Restated Articles of Incorporation, the Corporation has one designated series of Preferred Stock, i.e. the Series A 8% Convertible Preferred Stock, which designation was effected pursuant to Articles of Amendment Designating the Preferences, Rights and Limitations of Series A 8% Convertible Preferred Stock, as corrected, dated and filed with the Division on June 26, 2015 (the "Designation).  The Designation is attached to and incorporated in these Amended and Restated Articles of Incorporation in its entirety.
ARTICLE V
Shareholders shall have no pre-emptive rights to acquire any securities of this Corporation.
 
2
ARTICLE VI
The registered agent of the corporation is Kelvyn H. Cullimore, Jr. and the address of such agent and principal office of the Corporation is 7030 Park Centre Dr., Cottonwood Heights, Utah, 84121.
ARTICLE VII
The number of directors of the Corporation shall be fixed as provided in the bylaws.
ARTICLE VIII
To the fullest extent permitted by the Act or any other applicable law as now in effect or as it may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for any action taken or any failure to take any action, as a director.
Neither any amendment nor repeal of this Article, nor the adoption of any provision in these Articles of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE IX
The Corporation shall indemnify any and all persons who may serve at any time as a director or officer of the Corporation, and their heirs, administrators, successors and assigns, against any and all expenses, including amounts paid upon judgments, counsel fees, and amounts paid in settlement before or after suit is commenced, actually and necessarily incurred by such persons in connection with the defense or settlement of any claim, action, suit or proceeding, in which they, or any of them, are made parties, or which may be asserted against them or any of them by reason of being, or having been, directors or officers of the Corporation, except in relation to such matters in which such director or officer shall be adjudged to be liable for his own negligence or misconduct in the performance of his duty. Such indemnification shall be in addition to any other rights to which those indemnified may be entitled under any law, bylaw, agreement, vote of shareholders or otherwise.


3
IN WITNESS WHEREOF, these Amended and Restated Articles of Incorporation of the Corporation have been executed by the undersigned officer of this Corporation effective as of this 25th day of January, 2017.
 
 
 
/s/  Kelvyn H. Cullimore, Jr.
Kelvyn H. Cullimore, Jr.
Chief Executive Officer


 
 


DESIGNATION OF THE
PREFERENCES, RIGHTS AND LIMITATIONS
OF
SERIES A 8% CONVERTIBLE PREFERRED STOCK

TABLE OF CONTENTS
 
SECTION 1.
DEFINITIONS
1
SECTION 2.
DESIGNATION, AMOUNT AND PAR VALUE
7
SECTION 3.
DIVIDENDS
8
(a)
Dividends in Cash or in Kind
8
(b)
Corporation's Ability to Pay Dividends in Cash or Kind
8
(c)
Dividend Calculations
9
(d)
Late Fees
9
(e)
Other Securities
9
SECTION 4.
VOTING RIGHTS
10
(a)
General Voting Rights
10
(b)
Class Voting Rights
10
(c)
Director Rights
10
SECTION 5.
LIQUIDATION
12
SECTION 6.
CONVERSION
12
(a)
Conversions at Option of Holder
12
(b)
Conversion Price
13
(c)
Mechanics of Conversion
13
(d)
Beneficial Ownership Limitation at Option of Holder.
16
SECTION 7.
CERTAIN ADJUSTMENTS
17
(a)
Stock Dividends and Stock Splits
17
(b)
[RESERVED]
17
(c)
Subsequent Rights Offerings
17
(d)
Pro Rata Distributions
17
(e)
Fundamental Transaction
18
(f)
Calculations
19
(g)
Notice to the Holders
19
SECTION 8.
FORCED CONVERSION
20
(a)
Limited Forced Conversion
20
(b)
Full Forced Conversion
20
(c)
Application of Force Conversion
21
SECTION 9.
REDEMPTION UPON TRIGGERING EVENTS
21
(a)
Triggering Event
21
SECTION 10.
MISCELLANEOUS
23
(a)
Notices
23
(b)
Absolute Obligation
24
(c)
Lost or Mutilated Preferred Stock Certificate
24
(d)
Governing Law
24
(e)
Severability
24
(f)
Next Business Day
25
(g)
Headings
25
(h)
Status of Converted or Redeemed Preferred Stock
25
(i)
Nasdaq Compliance
25

 
 
TERMS OF PREFERRED STOCK
Section 1.   Definitions . For the purposes hereof, the following terms shall have the following meanings:
" Affiliate " means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act.
" Alternate Consideration " shall have the meaning set forth in Section 7(e).
" Beneficial Ownership Limitation " shall have the meaning set forth in Section 6(d).
" Beneficial Ownership Limitation Notice " shall have the meaning set forth in Section 6(d).
" Board of Directors " shall have the meaning set forth in Section 4(c).
" Bid Price " means, for any share of Common Stock as of the particular time of determination, the price determined by the first of the following clauses that applies: (a) the bid price for the Common Stock on a Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), or (b) if the OTC Bulletin Board is not a Trading Market, the bid price of the Common Stock as of the particular time of determination on the OTC Bulletin Board, or, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the "Pink Sheets" published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the bid price per share of the Common Stock as of such time of determination.
" Business Day " means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
" Buy-In " shall have the meaning set forth in Section 6(c)(iv).
" Change of Control Transaction " means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d 5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise) of in excess of 33% of the voting securities of the Corporation (other than by means of conversion or exercise of Preferred Stock and the Securities issued together with the Preferred Stock), (b) the Corporation merges into or consolidates with any other Person, or any Person merges into or consolidates with the Corporation and, after giving effect to such transaction, the shareholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the Corporation or the successor entity of such transaction, (c) the Corporation sells or transfers all or substantially all of its assets to another Person and the shareholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a one year period of more than one half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the Original Issue Date), or (e) the execution by the Corporation of an agreement to which the Corporation  is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.
 
 
" Closing " means the closing of the purchase and sale of the Securities pursuant to Section 2.1 of the Purchase Agreement.
" Closing Date " means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto and all conditions precedent to (i) each Holder's obligations to pay the Subscription Amount and (ii) the Corporation's obligations to deliver the Securities have been satisfied or waived.
" Commission " means the United States Securities and Exchange Commission.
" Common Stock " means the Corporation's common stock, no par value per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed.
" Common Stock Equivalents " means any securities of the Corporation or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
" Conversion Amount " means the sum of the Stated Value at issue.
" Conversion Cap " shall have the meaning set forth in Section 6(a).
" Conversion Date " shall have the meaning set forth in Section 6(a).
" Conversion Price " shall have the meaning set forth in Section 6(b).
" Conversion Shares " means, collectively, the shares of Common Stock issued and issuable upon conversion of the shares of Preferred Stock in accordance with the terms hereof.
" Conversion Shares Registration Statement " means a registration statement that registers the resale of all Conversion Shares (and shares issued and issuable in lieu of cash payments of dividends) of the Holders, who shall be named as "selling shareholders" therein and meets the requirements of the Registration Rights Agreement.
" Directors Rights Period " shall have the meaning set forth in Section (4)(c)(ii).
2
 " Dividend Conversion Rate " means the lesser of (i) 90% of the average closing bid prices, as reported by Bloomberg L.P., for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the date the applicable Dividend Conversion Shares are issued and delivered if such delivery is after the Dividend Payment Date or (ii) 100% of the average of the VWAPs for the 20 consecutive Trading Days ending on the Trading Day that is immediately prior to the date the applicable Dividend Conversion Shares are issued and delivered if such delivery is after the Dividend Payment Date.
" Dividend Conversion Shares " shall have the meaning set forth in Section 3(a).
" Dividend Notice Period " shall have the meaning set forth in Section 3(a).
" Dividend Payment Date " shall have the meaning set forth in Section 3(a).
" Dividend Share Amount " shall have the meaning set forth in Section 3(a).
" Effective Date " means the date that the Conversion Shares Registration Statement filed by the Corporation pursuant to the Registration Rights Agreement is first declared effective by the Commission.
" Equity Conditions " means, during the period in question, (a) the Corporation shall have duly honored all conversions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the applicable Holder on or prior to the dates so requested or required, if any, (b) the Corporation shall have paid all liquidated damages and other amounts owing to the applicable Holder in respect of the Preferred Stock, (c)(i) there is an effective Conversion Shares Registration Statement pursuant to which the Holders are permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents (and the Corporation believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issued and issuable pursuant to the Transaction Documents (and shares issued and issuable in lieu of cash payments of dividends) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Corporation as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Corporation believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized, but unissued and otherwise unreserved, shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) the issuance of the shares in question (or, in the case of a redemption, the shares issuable upon conversion in full of the redemption amount) to the applicable Holder would not violate the limitations set forth in Section 6(d) herein, (g) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated and (h) the applicable Holder is not in possession of any information provided by the Corporation that constitutes, or may constitute, material non-public information.
3
" Escrow Agent " means Signature Bank, a New York State chartered bank and having an office at 261 Madison Avenue, New York, New York 10016.
" Escrow Agreement " means the escrow agreement entered into prior to the date of the Purchase Agreement, by and among the Corporation and the Escrow Agent pursuant to which the Holder shall deposit Subscription Amounts with the Escrow Agent to be applied to the transactions contemplated hereunder.
" Exchange Act " means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
" Exempt Issuance " means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Corporation pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Corporation or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any securities issued pursuant to the Purchase Agreement and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of the Purchase Agreement, provided that such securities have not been amended since the date of the Purchase Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of any such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Corporation, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Corporation and shall provide to the Corporation additional benefits in addition to the investment of funds, but shall not include a transaction in which the Corporation is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
" Forced Conversion Amount " means the sum of (a) 100% of the aggregate Stated Value then outstanding, (b) accrued but unpaid dividends and (c) all liquidated damages and other amounts due in respect of the Preferred Stock.
" Forced Conversion Notice " shall mean a Limited Forced Conversion Notice or a Full Forced Conversion Notice.
" Full Forced Conversion Date " shall have the meaning set forth in Section 8(a).
" Full Forced Conversion Notice " shall have the meaning set forth in Section 8(a).
 " Full Forced Conversion Notice Date " shall have the meaning set forth in Section 8(a).
" Fundamental Transaction " shall have the meaning set forth in Section 7(e).
" GAAP " means United States generally accepted accounting principles.
" Holder " shall have the meaning given such term in Section 2.
4
" Junior Securities " means the Common Stock and all other Common Stock Equivalents of the Corporation other than those securities which are explicitly senior or pari   passu to the Preferred Stock in dividend rights or liquidation preference.
" Limited Forced Conversion Date " shall have the meaning set forth in Section 8(a).
" Limited Forced Conversion Notice " shall have the meaning set forth in Section 8(a).
" Limited Forced Conversion Notice Date " shall have the meaning set forth in Section 8(a).
" Liquidation " shall have the meaning set forth in Section 5.
 " New York Courts " shall have the meaning set forth in Section 10(d).
" Notice of Conversion " shall have the meaning set forth in Section 6(a).
" Original Issue Date " means the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock.
" Person " means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
" Preferred Director " shall have the meaning set forth in Section (4)(c)(i).
" Preferred Stock " shall have the meaning set forth in Section 2.
" Prettybrook " shall have the meaning set forth in Section (4)(c)(i).
 " Purchase Agreement " means the Securities Purchase Agreement, dated as of May 1, 2015, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.
" Registration Rights Agreement " means the Registration Rights Agreement, dated as of the date of the Purchase Agreement, among the Corporation and the original Holders, in the form of Exhibit D attached to the Purchase Agreement.
" Registration Statement " means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Holder as provided for in the Registration Rights Agreement.
" Rule 144 " means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
" Rule 424 " means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
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" Securities " means the Preferred Stock, the Warrants, the Warrant Shares and the Underlying Shares.
" Securities Act " means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
 " Share Delivery Date " shall have the meaning set forth in Section 6(c).
" Shareholder Approval " shall mean all approvals, if any, of the shareholders of the Corporation necessary to approve the issuance of the Preferred Stock with the rights and privileges as set forth herein, including any approvals of the shareholders of the Corporation required for the removal of the Conversion Cap in compliance with Nasdaq Stock Market Rule 5635.
" Stated Value " shall have the meaning set forth in Section 2, as the same may be increased pursuant to Section 3.
" Subscription Amount " shall mean, as to each Holder, the aggregate amount to be paid for the Preferred Stock purchased pursuant to the Purchase Agreement as specified below such Holder's name on the signature page of the Purchase Agreement and next to the heading "Subscription Amount," in United States dollars and in immediately available funds.
" Subsidiary " means any subsidiary of the Corporation as set forth on Schedule 3.1(a) of the Purchase Agreement and shall, where applicable, also include any direct or indirect subsidiary of the Corporation formed or acquired after the date of the Purchase Agreement.
" Successor Entity " shall have the meaning set forth in Section 7(e).
" Threshold Ownership Percentage " shall have the meaning set forth in Section (4)(c)(i).
" Threshold Period " shall have the meaning set forth in Section 8(a).
" Trading Day " means a day on which the principal Trading Market is open for business.
" Trading Market " means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing).
" Transaction Documents " means this Designation of Rights, the Purchase Agreement, the A-Warrants, the B-Warrants, the Registration Rights Agreement, the Escrow Agreement, the Voting Agreements, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated pursuant to the Purchase Agreement.
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" Transfer Agent " means Interwest Transfer Company, the current transfer agent of the Corporation with a mailing address of 1981 East Murray Holladay Road, Salt Lake City, Utah  84117 and a phone number of 801-272-9294, and any successor transfer agent of the Corporation.
" Triggering Event " shall have the meaning set forth in Section 9(a).
" Triggering Redemption Amount " means, for each share of Preferred Stock, the sum of (a) the greater of (i) 130% of the Stated Value and (ii) the product of (y) the VWAP on the Trading Day immediately preceding the date of the Triggering Event and (z) the Stated Value divided by the then Conversion Price, (b) all accrued but unpaid dividends thereon and (c) all liquidated damages and other costs, expenses or amounts due in respect of the Preferred Stock.
" Triggering Redemption Payment Date " shall have the meaning set forth in Section 9(b).
" Underlying Shares " means the shares of Common Stock issued and issuable upon conversion of the Preferred Stock, upon exercise of the Warrants and issued and issuable in lieu of the cash payment of dividends on the Preferred Stock in accordance with the terms of this Certificate of Designation.
" VWAP " means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the "Pink Sheets" published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Corporation, the fees and expenses of which shall be paid by the Corporation.
" Warrants " means, collectively, the A-Warrants and the B-Warrants delivered to the Holder at the Closing in accordance with Section 2.2(a) of the Purchase Agreement, in the form of Exhibit A and Exhibit B , respectively, attached to the Purchase Agreement.
" Warrant Shares " means the shares of Common Stock issuable upon exercise of the Warrants.
Section 2.     Designation, Amount and Par Value . The series of preferred stock shall be designated as its Series A Convertible Preferred Stock (the " Preferred Stock ") and the number of shares so designated shall be up to 2,000,000 (which shall not be subject to increase without the written consent of all of the holders of the Preferred Stock (each, a " Holder " and collectively, the " Holders ")).  Each share of Preferred Stock shall have no par value per share and a stated value equal to $2.50 (the " Stated Value "). {
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Section 3.     Dividends .
(a)   Dividends in Cash or in Kind . Holders shall be entitled to receive, and the Corporation shall pay, cumulative dividends at the rate per share (as a percentage of the Stated Value per share) of 8% per annum (subject to increase pursuant to Section 9(b)), payable quarterly on January 1, April 1, July 1 and October 1, beginning on the first such date after the Original Issue Date and on each Conversion Date (with respect only to Preferred Stock being converted) (each such date, a " Dividend Payment Date ") (if any Dividend Payment Date is not a Trading Day, the applicable payment shall be due on the next succeeding Trading Day)  in cash, or at the Corporation's option, subject to Shareholder Approval, in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock as set forth in this Section 3(a), or a combination thereof (the dollar amount to be paid in shares of Common Stock, the " Dividend Share Amount ").  The form of dividend payments to each Holder shall be determined in the following order of priority: (i) if funds are legally available for the payment of dividends and the Equity Conditions have not been met during the 20 consecutive Trading Days immediately prior to the applicable Dividend Payment Date (the " Dividend Notice Period "), in cash only, (ii) if funds are legally available for the payment of dividends and the Equity Conditions have been met during the Dividend Notice Period, at the sole election of the Corporation, in cash or shares of Common Stock (subject to Shareholder Approval), which shall be valued at the Dividend Conversion Rate, (iii) if funds are not legally available for the payment of dividends and the Equity Conditions have been met during the Dividend Notice Period, in shares of Common Stock (subject to Shareholder Approval), which shall be valued at the Dividend Conversion Rate, (iv) if funds are not legally available for the payment of dividends and the Equity Condition relating to an effective Conversion Shares Registration Statement has been waived by such Holder, as to such Holder only, in unregistered shares of Common Stock (subject to Shareholder Approval) which shall be valued at the Dividend Conversion Rate, and (v) if funds are not legally available for the payment of dividends and the Equity Conditions have not been met during the Dividend Notice Period, then, at the election of such Holder, such dividends shall accrue to the next Dividend Payment Date or shall be accreted to, and increase, the outstanding Stated Value.  In addition, as a condition to paying dividends in shares of Common Stock, as to such Dividend Payment Date, prior to such Dividend Notice Period (but not more than five (5) Trading Days prior to the commencement of such Dividend Notice Period), the Corporation shall have delivered to each Holder's account with The Depository Trust Company a number of shares of Common Stock to be applied against such Dividend Share Amount equal to the quotient of (x) the applicable Dividend Share Amount divided by (y) the Dividend Conversion Rate, assuming for such purposes that the Dividend Payment Date is the Trading Day immediately prior to the commencement of the Dividend Notice Period (the " Dividend Conversion Shares ").  The Holders shall have the same rights and remedies with respect to the delivery of any such shares as if such shares were being issued pursuant to Section 6.
(b)   Corporation's Ability to Pay Dividends in Cash or Kind On the Closing Date, the Corporation shall have notified the Holders whether or not it may legally pay cash dividends as of the Closing Date.  The Corporation shall promptly notify the Holders at any time the Corporation shall become able or unable, as the case may be, to legally pay cash dividends. If at any time the Corporation has the right to pay dividends in cash or shares of Common Stock, the Corporation must provide the Holders with at least 20 Trading Days' notice of its election to pay a regularly scheduled dividend in shares of Common Stock (the Corporation may indicate in such notice that the election contained in such notice shall continue for later periods until revised by a subsequent notice).  If at any time the Corporation delivers a notice to the Holders of its election to pay the dividends in shares of Common Stock and such shares are included on a Registration Statement, the Corporation shall timely file a prospectus supplement pursuant to Rule 424 disclosing such election. The aggregate number of shares of Common Stock otherwise issuable to a Holder on a Dividend Payment Date shall be reduced by the number of shares of Common Stock previously issued to such Holder in connection with such Dividend Payment Date.  If any Dividend Conversion Shares are issued to a Holder in connection with a Dividend Payment Date and are not applied against a Dividend Share Amount, then such Holder shall promptly return such excess shares to the Corporation.
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(c)   Dividend Calculations .  Dividends on the Preferred Stock shall be calculated on the basis of a 360-day year, consisting of twelve 30-calendar day periods, and shall accrue daily commencing on the Original Issue Date, and shall be deemed to accrue from such date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends.   Payment of dividends in shares of Common Stock shall otherwise occur pursuant to Section 6(c)(i) herein and, solely for purposes of the payment of dividends in shares, the Dividend Payment Date shall be deemed the Conversion Date.  Dividends shall cease to accrue with respect to (i) any Preferred Stock that would have been converted pursuant to Sections 8(a) or 8(b) but for the ownership limitations of Section 6(d) and (ii) any Preferred Stock actually converted, provided that the Corporation actually delivers the Conversion Shares within the time period required by Section 6(c)(i) herein.  Except as otherwise provided herein, if at any time the Corporation pays dividends partially in cash and partially in shares, then such payment shall be distributed ratably among the Holders based upon the number of shares of Preferred Stock held by each Holder on such Dividend Payment Date.
(d)   Late Fees . Any dividends, whether paid in cash or shares of Common Stock, that are not paid within three (3) Trading Days following a Dividend Payment Date shall continue to accrue and shall entail a late fee, which must be paid in cash, at the rate of 18% per annum or the lesser rate permitted by applicable law which shall accrue daily from the Dividend Payment Date through and including the date of actual payment in full.
(e)   Other Securities .  So long as any Preferred Stock shall remain outstanding, neither the Corporation nor any Subsidiary thereof shall redeem, purchase or otherwise acquire directly or indirectly any Junior Securities. So long as any Preferred Stock shall remain outstanding, neither the Corporation nor any Subsidiary thereof shall directly or indirectly pay or declare any dividend or make any distribution upon (other than a dividend or distribution described in Section 6 or dividends due and paid in the ordinary course on preferred stock of the Corporation at such times when the Corporation is in compliance with its payment and other obligations hereunder), nor shall any distribution be made in respect of, any Junior Securities as long as any dividends due on the Preferred Stock remain unpaid, nor shall any monies be set aside for or applied to the purchase or redemption (through a sinking fund or otherwise) of any Junior Securities or shares pari   passu with the Preferred Stock.
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Section 4.     Voting Rights
(a)   General Voting Rights .  The holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Preferred Stock could be converted (taking into account, for the avoidance of doubt, (i) any adjustment pursuant to Section 7, (ii) the Beneficial Ownership Limitation if so elected and (iii) prior to Shareholder Approval, the Conversion Cap) for purposes of determining the shares entitled to vote at any regular, annual or special meeting of the shareholders of the Corporation, and shall have voting rights and powers equal to the voting rights and powers of the Common Stock (except as otherwise expressly provided herein or as required by law, voting together with the Common Stock as a single class); provided , however , that no holder of Preferred Stock shall be entitled to cast votes for the number of shares of Common Stock issuable upon conversion of such Preferred Stock held by such holder that exceeds (subject to a proportionate adjustment in the event of a stock split, stock dividend, combination or other proportionate recapitalization) the quotient of (x) the aggregate purchase price paid by such holder of Preferred Stock for its Preferred Stock, divided by (y) the greater of (i) $2.50 and (ii) the Bid Price of the Common Stock on the Trading Day immediately prior to the date of issuance of such holder's Preferred Stock.     Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Preferred Stock held by each Holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). The holders of Preferred Stock shall be entitled to notice of any shareholders' meeting in accordance with the bylaws of the Corporation.
(b)   Class Voting Rights .  As long as any shares of Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend this Designation of Rights, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Liquidation (as defined in Section 5) senior to, or otherwise pari   passu with, the Preferred Stock, (c) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.
(c)   Director Rights .  During the Director Rights Period, as defined below, at any meeting of the shareholders of the Corporation at which members of the Board of Directors of the Corporation (the " Board of Directors ") are to be elected, or whenever members of the Board of Directors are to be elected by written consent:
(i)
Commencing within three business days of the Closing Date (as defined in the Purchase Agreement), and for so long thereafter as the Holders own or would beneficially own at least 28.6% of the Common Stock of the Corporation (either directly, or indirectly, through ownership of Common Stock or Preferred Stock convertible into Common Stock, but excluding any Warrants exercisable for Common Stock) (the " Threshold Ownership Percentage "), the Board of Directors of the Corporation shall consist of a maximum of seven (7) directors, and the Holders shall have the exclusive right to nominate, and to directly elect, up to three (3) members of the Board of Directors (each such member, a " Preferred Director "), provided , however , that in compliance with Nasdaq Listing Rule 5640, the number of Preferred Directors shall be reduced pro ratably with any reduction in ownership by the Holders below the Threshold Ownership Percentage, so that the number of Preferred Directors is approximately equal to the Holders' direct or indirect ownership of the Common Stock of the Corporation, provided , further , that so long as Prettybrook Partners, LLC, or any of its respective Affiliates (" Prettybrook ") owns at least fifty percent (50%) of the outstanding Preferred Stock, Prettybrook shall have the right to select the Preferred Directors.  For the avoidance of doubt, Common Stock of the Corporation, and holders of Common Stock, shall have no voting, nomination, election or other rights with respect to the Preferred Directors.
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(ii)
Notwithstanding paragraph (i) above, the Holders shall not have any rights to elect any Preferred Directors unless the Holders own or would beneficially own at least 10% of the Common Stock of the Corporation (either directly, or indirectly, through ownership of Common Stock or Preferred Stock convertible into Common Stock, but excluding any Warrants exercisable for Common Stock) (the " Directors Rights Period ").
(iii)
Any decrease in the number of Preferred Directors pursuant to paragraph (i) above would not require or force a Preferred Director to resign intra‑term.
(iv)
Only those parties who are entitled to nominate or elect a director may remove such director, which removal may be at any time and from time to time, with or without cause.
(v)
If any director ceases to serve in such capacity prior to the end of his or her term for any reason, the resulting vacancy on the Board of Directors shall be filled with a director by the same parties who were entitled to nominate or elect such departing director.
(vi)
During the Director Rights Period, as determined by the full Board of Directors, and provided that such Preferred Directors are "independent" as determined pursuant to Nasdaq Listing Rule 5605, at least one (1) Preferred Director shall serve on every committee of the Board of Directors (or shall decline to serve in writing), and a Preferred Director shall serve as Chairperson of the Corporation's Nominating and Governance Committee, when such committee is established.
(vii)
In addition to its other rights hereunder, during the Director Rights Period, the Holders shall have the right to have one observer (who is not a Preferred Director) present at any meetings of the Board of Directors, which observer shall have the right to participate in discussions among the Board members, but such observer shall not have any voting rights on any matters, provided, however, that so long as Prettybrook owns at least fifty percent (50%) of the outstanding Preferred Stock, Prettybrook shall have the right to choose such observer.
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Section 5.     Liquidation .  Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a " Liquidation "), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under this Designation of Rights, for each share of Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.  A Fundamental Transaction or Change of Control Transaction shall not be deemed a Liquidation.  The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.
Section 6.     Conversion .
(a)   Conversions at Option of Holder . Each share of Preferred Stock shall be convertible, at any time and from time to time from, at the option of the Holder thereof, into that number of shares of Common Stock (subject to the limitations set forth in Section 6(d)) determined by dividing the Stated Value of such share of Preferred Stock by the Conversion Price; provided , however , that prior to Shareholder Approval, the Preferred Stock shall not, under any circumstances, be convertible pursuant to this Section 6(a) into more than 19.99% of the number of shares of Common Stock outstanding immediately prior to the Original Issue Date (subject to a proportionate adjustment in the event of a stock split, stock dividend, combination or other proportionate recapitalization) in connection with such conversion (such limitation, the " Conversion Cap "). Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a " Notice of Conversion ").  Each Notice of Conversion shall specify the number of shares of Preferred Stock to be converted, the number of shares of Preferred Stock owned prior to the conversion at issue, the number of shares of Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile such Notice of Conversion to the Corporation (such date, the " Conversion Date "). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required.  The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error.  To effect conversions of shares of Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing the shares of Preferred Stock to the Corporation unless all of the shares of Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Preferred Stock promptly following the Conversion Date at issue.  Shares of Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled and shall not be reissued.
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(b)   Conversion Price .  The conversion price for the Preferred Stock shall equal $2.50, subject to adjustment herein (the " Conversion Price ").
(c)   Mechanics of Conversion .
(i)
Delivery of Conversion Shares Upon Conversion . Not later than three (3) Trading Days after each Conversion Date (the " Share Delivery Date "), the Corporation shall deliver, or cause to be delivered, to the converting Holder (A) the number of Conversion Shares being acquired upon the conversion of the Preferred Stock (including, if the Corporation has given continuous notice pursuant to Section 3(b) for payment of dividends in shares of Common Stock at least 20 Trading Days prior to the date on which the Notice of Conversion is delivered to the Corporation, shares of Common Stock representing the payment of accrued dividends otherwise determined pursuant to Section 3(a) but assuming that the Dividend Notice Period is the 20 Trading Days period immediately prior to the date on which the Notice of Conversion is delivered to the Corporation and excluding for such issuance the condition that the Corporation deliver the Dividend Share Amount as to such dividend payment prior to the commencement of the Dividend Notice Period) which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement), and (B) a bank check in the amount of accrued and unpaid dividends (if the Corporation has elected or is required to pay accrued dividends in cash). On or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, the Corporation shall deliver the Conversion Shares required to be delivered by the Corporation under this Section 6 electronically through the Depository Trust Company or another established clearing corporation performing similar functions.
(ii)
Failure to Deliver Conversion Shares .  If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Corporation shall promptly return to the Holder any original Preferred Stock certificate delivered to the Corporation and the Holder shall promptly return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.
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(iii)
Obligation Absolute; Partial Liquidated Damages .  The Corporation's obligation to issue and deliver the Conversion Shares upon conversion of Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided , however , that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such Holder.  In the event a Holder shall elect to convert any or all of the Stated Value of its Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or anyone associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Preferred Stock of such Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment.  In the absence of such injunction, the Corporation shall issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. If the Corporation fails to deliver to a Holder such Conversion Shares pursuant to Section 6(c)(i) on the second Trading Day after the Share Delivery Date applicable to such conversion, the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of Stated Value of Preferred Stock being converted, $50 per Trading Day (increasing to $100 per Trading Day on the third Trading Day and increasing to $200 per Trading Day on the sixth Trading Day after such damages begin to accrue) for each Trading Day after such second Trading Day after the Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion.  Nothing herein shall limit a Holder's right to pursue actual damages or declare a Triggering Event pursuant to Section 10 hereof for the Corporation's failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.  The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
 
(iv)
Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion . In addition to any other rights available to the Holder, if the Corporation fails for any reason to deliver to a Holder the applicable Conversion Shares by the Share Delivery Date pursuant to Section 6(c)(i), and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder's brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a " Buy-In "), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such Holder's total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Preferred Stock equal to the number of shares of Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(c)(i). For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Preferred Stock with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Corporation, evidence of the amount of such loss. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Corporation's failure to timely deliver the Conversion Shares upon conversion of the shares of Preferred Stock as required pursuant to the terms hereof.
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(v)
Reservation of Shares Issuable Upon Conversion . The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Preferred Stock and payment of dividends on the Preferred Stock, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Preferred Stock), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 7) upon the conversion of the then outstanding shares of Preferred Stock.  The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Conversion Shares Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Conversion Shares Registration Statement (subject to such Holder's compliance with its obligations under the Registration Rights Agreement).
(vi)
Fractional Shares . No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Preferred Stock.   As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.
(vii)
Transfer Taxes and Expenses .  The issuance of Conversion Shares on conversion of this Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holders of such shares of Preferred Stock and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.  The Corporation shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.
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(d)   Beneficial Ownership Limitation at Option of Holder. Upon written notice to the Corporation by a Holder substantially in the form attached hereto as Annex B (the " Beneficial Ownership Limitation Notice "), the Corporation shall not effect any conversion of such Holder's Preferred Stock, and such Holder shall not have the right to convert any portion of the Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder's Affiliates, and any Persons acting as a group together with such Holder or any of such Holder's Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  The Beneficial Ownership Limitation will not be effective until one (1) Trading Day after a Holder delivers the Beneficial Ownership Limitation Notice to the Corporation; provided however, that if the Beneficial Ownership Limitation Notice is delivered on or prior to the Closing Date, the Beneficial Ownership Limitation shall be effective on the Original Issue Date.   The Beneficial Ownership Limitation shall only apply to the notifying Holder and to no other Holder. For purposes of this Certificate of Designation, the number of shares of Common Stock beneficially owned by a Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of the Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Stated Value of Preferred Stock beneficially owned by such Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation  subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Preferred Stock or the Warrants) beneficially owned by such Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 6(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  To the extent that the limitation contained in this Section 6(d) applies, the determination of whether the Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates) and of how many shares of Preferred Stock are convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder's determination of whether the shares of Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates) and how many shares of the Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Corporation each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Corporation shall have no obligation to verify or confirm the accuracy of such determination.  In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  For purposes of this Section 6(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Corporation's most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Corporation or (iii) a more recent written notice by the Corporation or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Corporation shall within two Trading Days confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Corporation, including the Preferred Stock, by such Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The "Beneficial Ownership Limitation" shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Preferred Stock held by the applicable Holder.  A Holder, upon not less than 61 days' prior notice to the Corporation, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 6(d) applicable to its Preferred Stock provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Preferred Stock held by the Holder and the provisions of this Section 6(d) shall continue to apply.  Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Corporation and shall only apply to such Holder and no other Holder.  The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of Preferred Stock.
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Section 7.     Certain Adjustments .
(a)   Stock Dividends and Stock Splits .  If the Corporation, at any time while this Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment of a dividend on, this Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re classification.
(b)   [RESERVED]
(c)   Subsequent Rights Offerings .  In addition to any adjustments pursuant to Section 7(a) above, if at any time the Corporation grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the " Purchase Rights "), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder's Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation and the Conversion Cap) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder's right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
(d)   Pro Rata Distributions .  During such time as this Preferred Stock is outstanding, if the Corporation declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a " Distribution "), then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete Conversion of this Preferred Stock (if prior to Shareholder Approval, subject to the Conversion Cap, but generally without regard to any other limitations on Conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution ( provided , however , to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
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(e)   Fundamental Transaction .  If, at any time while this Preferred Stock is outstanding, (i) the Corporation, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Corporation with or into another Person, (ii) the Corporation, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Corporation, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Corporation, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a " Fundamental Transaction "), then, upon any subsequent conversion of this Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of this Preferred Stock), the number of shares of Common Stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and any additional consideration (the " Alternate Consideration ") receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of this Preferred Stock).  For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Preferred Stock following such Fundamental Transaction.  To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Designation of Rights with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders' right to convert such preferred stock into Alternate Consideration.  The Corporation shall cause any successor entity in a Fundamental Transaction in which the Corporation is not the survivor (the " Successor Entity ") to assume in writing all of the obligations of the Corporation under this Designation of Rights and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 7(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Preferred Stock, deliver to the Holder in exchange for this Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Preferred Stock which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Preferred Stock (without regard to any limitations on the conversion of this Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Preferred Stock immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Designation of Rights and the other Transaction Documents referring to the "Corporation" shall refer instead to the Successor Entity), and may exercise every right and power of the Corporation and shall assume all of the obligations of the Corporation under this Designation of Rights and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Corporation herein.
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(f)   Calculations .  All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.
(g)   Notice to the Holders .
(i)
Adjustment to Conversion Price .  Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
(ii)
Notice to Allow Conversion by Holder .  If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any shareholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of this Preferred Stock, and shall cause to be delivered to each Holder at its last address as it shall appear upon the stock books of the Corporation, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Corporation or any of the Subsidiaries, the Corporation shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to convert the Conversion Amount of this Preferred Stock (or any part hereof) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
 
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Section 8.     Forced Conversion .
(a)   Limited Forced Conversion .  Notwithstanding anything herein to the contrary, if: (i) the Common Stock has a Bid Price of at least $7.50 per share on each of the 40 Trading Days  prior to the date in question,  (ii) the daily trading volume for the Common Stock for each of the prior 90 Trading Days exceeds 30,000 shares and (ii) all of the Equity Conditions have been met, the Corporation may, within 1 Trading Day after such conditions are met, deliver a written notice to all Holders (a " Limited Forced Conversion Notice " and the date such notice is delivered to all Holders, the " Limited Forced Conversion Notice Date ") to cause each Holder to convert up to one half (if prior to Shareholder Approval, subject to the Conversion Cap) of such Holder's Preferred Stock (as specified in such Limited Forced Conversion Notice) plus all accrued but unpaid dividends thereon and all liquidated damages and other amounts due in respect of the Preferred Stock pursuant to Section 6, it being agreed that the " Conversion Date " for purposes of Section 6 shall be deemed to occur on the third Trading Day following the Limited Forced Conversion Notice Date (such third Trading Day, the " Limited Forced Conversion Date ").
(b)   Full Forced Conversion . Notwithstanding anything herein to the contrary, if: (i) the Common Stock has a Bid Price of at least $10.00 per share on each of the 40 Trading Days prior to the date in question, (ii) the daily trading volume for the Common Stock for each of the prior 90 Trading Days exceeds 50,000 shares and (ii) the Equity Conditions have been met, the Corporation may, within 1 Trading Day after such conditions are met, deliver a written notice to all Holders (a " Full Forced Conversion Notice " and the date such notice is delivered to all Holders, the " Full Forced Conversion Notice Date ") to cause each Holder to convert all or part (if prior to Shareholder Approval, subject to the Conversion Cap) of such Holder's Preferred Stock (as specified in such Full Forced Conversion Notice) plus all accrued but unpaid dividends thereon and all liquidated damages and other amounts due in respect of the Preferred Stock pursuant to Section 6, it being agreed that the " Conversion Date " for purposes of Section 6 shall be deemed to occur on the third Trading Day following the Full Forced Conversion Notice Date (such third Trading Day, the " Full Forced Conversion Date ").
20
(c)   Application of Force Conversion .  Any Forced Conversion Notices shall be applied ratably to all of the Holders based on each Holder's initial purchases of Preferred Stock hereunder, provided that any voluntary conversions by a Holder shall be applied against such Holder's pro   rata allocation, thereby decreasing the aggregate amount forcibly converted hereunder if less than all shares of the Preferred Stock are forcibly converted.  For purposes of clarification, a Forced Conversion shall be subject to all of the provisions of Section 6, including, without limitation, the provisions requiring payment of liquidated damages and limitations on conversions.
Section 9.     Redemption Upon Triggering Events .
(a)   Triggering Event .  "Triggering Event" means, wherever used herein any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
(i)
the failure of the initial Conversion Shares Registration Statement (subject to any Rule 415 cutbacks, as to which the Corporation is paying any Liquidated Damages as may be provided for in the Registration Rights Agreement) to be declared effective by the Commission on or prior to the 180th day after the Original Issue Date;
(ii)
 if, during the Effectiveness Period (as defined in the Registration Rights Agreement), the effectiveness of the Conversion Shares Registration Statement lapses for more than an aggregate of 60 calendar days (which need not be consecutive calendar days) during any 12-month period, or the Holders shall not otherwise be permitted to resell Registrable Securities under the Conversion Shares Registration Statement for more than an aggregate of 60 calendar days (which need not be consecutive calendar days) during any 12-month period;
(iii)
the Corporation shall fail to deliver Conversion Shares issuable upon a conversion hereunder that comply with the provisions hereof prior to the fifth Trading Day after such shares are required to be delivered hereunder, or the Corporation shall provide written notice to any Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversion of any shares of Preferred Stock in accordance with the terms hereof;
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(iv)
one of the Events (as defined in the Registration Rights Agreement) described in subsections (i), (ii) or (iii) of Section 2(d) of the Registration Rights Agreement shall not have been cured to the satisfaction of the Holders prior to the expiration of 30 calendar days from the Event Date (as defined in the Registration Rights Agreement) relating thereto (other than an Event resulting from a failure of a Conversion Shares Registration Statement to be declared timely effective by the Commission on or prior to the 180th day after the Original Issue Date, which shall be covered by Section 9(a)(i));
(v)
the Corporation shall fail for any reason to pay in full the amount of cash due pursuant to a Buy-In within five (5) calendar days after notice therefor is delivered hereunder or shall fail to pay all amounts owed on account of any Event (as defined in the Registration Rights Agreement) within five (5) days of the date due and payable;
(vi)
the Corporation shall fail to have available a sufficient number of authorized and unreserved shares of Common Stock to issue to such Holder upon a conversion hereunder;
(vii)
unless specifically addressed elsewhere in this Certificate of Designation of Rights as a Triggering Event, the Corporation shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of the Transaction Documents, and such failure or breach shall not, if subject to the possibility of a cure by the Corporation, have been cured within 30 calendar days after the date on which written notice of such failure or breach shall have been delivered;
(viii)
the Corporation shall redeem more than a de minimis number of  Junior Securities other than as to repurchases of Common Stock or Common Stock Equivalents from departing officers and directors, provided that, while any of the Preferred Stock remains outstanding, such repurchases shall not exceed an aggregate of $10,000 from all officers and directors;
(ix)
the Corporation shall be party to a Change of Control Transaction;
(x)
there shall have occurred a Bankruptcy Event;
(xi)
the Common Stock shall fail to be listed or quoted for trading on a Trading Market for more than five (5) Trading Days, which need not be consecutive Trading Days;
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(xii)
the electronic transfer by the Corporation of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a "chill"; or
(xiii)
any monetary judgment, writ or similar final process shall be entered or filed against the Corporation, any subsidiary or any of their respective property or other assets for more than $50,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.
(b)   Upon the occurrence of a Triggering Event, each Holder shall (in addition to all other rights it may have hereunder or under applicable law) have the right, exercisable at the sole option of such Holder, to require the Corporation to, (A) with respect to the Triggering Events set forth in Sections 9(a)(iii), (v), (vii), (ix), (ix) (as to Changes of Control approved by the Board of Directors of the Corporation) and (x) (as to voluntary filings only), redeem all of the Preferred Stock then held by such Holder for a redemption price, in cash, equal to the Triggering Redemption Amount or (B) at the option of each Holder and with respect to the Triggering Events set forth in Sections 9(a)(i), (ii), (iv), (vi), (viii), (ix) (as to Changes of Control not approved by the Board of Directors of the Corporation), (x) (as to involuntary filings only), (xii) and (xiii), either (a) redeem all of the Preferred Stock then held by such Holder for a redemption price, in shares of Common Stock, equal to a number of shares of Common Stock equal to the Triggering Redemption Amount divided by 75% of the average of the 10 VWAPs immediately prior to the date of election hereunder; provided , however , that, prior to Shareholder Approval, the Corporation shall not, under any circumstances, issue a number of shares of Common Stock pursuant to this Section 9 equal to more than 19.99% of the number of shares of Common Stock outstanding immediately prior to the Date of Issuance (subject to a proportionate adjustment in the event of a stock split, stock dividend, combination or other proportionate recapitalization), or (b) increase the dividend rate on all of the outstanding Preferred Stock held by such Holder to 18% per annum thereafter.  The Triggering Redemption Amount, in cash or in shares, shall be due and payable or issuable, as the case may be, within five (5) Trading Days of the date on which the notice for the payment therefor is provided by a Holder (the " Triggering Redemption Payment Date ").  If the Corporation fails to pay in full the Triggering Redemption Amount hereunder on the date such amount is due in accordance with this Section (whether in cash or shares of Common Stock), the Corporation will pay interest thereon at a rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law, accruing daily from such date until the Triggering Redemption Amount, plus all such interest thereon, is paid in full.  For purposes of this Section, a share of Preferred Stock is outstanding until such date as the applicable Holder shall have received Conversion Shares upon a conversion (or attempted conversion) thereof that meets the requirements hereof or has been paid the Triggering Redemption Amount in cash.
Section 10.     Miscellaneous .
(a)   Notices .  Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at the address set forth above Attention: Chief Executive Officer, facsimile number (801) 568-7711, or such other facsimile number or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 10.  Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile, electronic mail, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Corporation, or if no such facsimile number or address appears on the books of the Corporation, at the principal place of business of such Holder, as set forth in the Purchase Agreement.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.
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(b)   Absolute Obligation . Except as expressly provided herein, no provision of this Designation of Rights shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay liquidated damages, accrued dividends and accrued interest, as applicable, on the shares of Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.
(c)   Lost or Mutilated Preferred Stock Certificate .  If a Holder's Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation.
(d)   Governing Law .  All questions concerning the construction, validity, enforcement and interpretation of this Designation of Rights shall be governed by and construed and enforced in accordance with the internal laws of the State of Utah, without regard to the principles of conflict of laws thereof.  Waiver .  Any waiver by the Corporation or a Holder of a breach of any provision of this Designation of Rights shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Designation of Rights or a waiver by any other Holders.  The failure of the Corporation or a Holder to insist upon strict adherence to any term of this Designation of Rights on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Designation of Rights on any other occasion.  Any waiver by the Corporation or a Holder must be in writing.
(e)   Severability .  If any provision of this Designation of Rights is invalid, illegal or unenforceable, the balance of this Designation of Rights shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.  If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.
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(f)   Next Business Day .  Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.
(g)   Headings .  The headings contained herein are for convenience only, do not constitute a part of this Designation of Rights and shall not be deemed to limit or affect any of the provisions hereof.
(h)   Status of Converted or Redeemed Preferred Stock .  Shares of Preferred Stock may only be issued pursuant to the Purchase Agreement.  If any shares of Preferred Stock shall be converted, redeemed or reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series A 8% Convertible Preferred Stock.
(i)   Nasdaq Compliance .  Notwithstanding anything herein to the contrary, in no event shall the Corporation issue Common Stock in violation of the applicable rules and regulations of the Nasdaq Stock Market (or any successor entity).
*********************
25
ANNEX A
to Designation of Rights of Series A Preferred Stock

NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF PREFERRED STOCK)
The undersigned hereby elects to convert the number of shares of Series A 8% Convertible Preferred Stock indicated below into shares of common stock, no par value per share (the " Common Stock "), of Dynatronics Corporation, a Utah corporation (the " Corporation "), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as may be required by the Corporation in accordance with the Purchase Agreement. No fee will be charged to the Holders for any conversion, except for any such transfer taxes.
Conversion calculations:
Date to Effect Conversion: _____________________________________________
 
Number of shares of Preferred Stock owned prior to Conversion: _______________
 
Number of shares of Preferred Stock to be Converted: ________________________
 
Stated Value of shares of Preferred Stock to be Converted: ____________________
 
Number of shares of Common Stock to be Issued: ___________________________
 
Applicable Conversion Price:____________________________________________
 
Number of shares of Preferred Stock subsequent to Conversion: ________________
 
Address for Delivery: ______________________
or
DWAC Instructions:
Broker no: _________
Account no: ___________
 
 
[HOLDER]
 
By:___________________________________
     Name:
     Title:

 
26
ANNEX B
to Designation of Rights of Series A Preferred Stock

NOTICE OF BENEFICIAL OWNERSHIP LIMITATION
In accordance with Section 6(d) of the Certificate of Designation of Preferences, Rights and Limitations of Series A 8% Convertible Preferred Stock (the " Certificate of Designation ") of Dynatronics Corporation, a Utah corporation (the " Corporation "), the undersigned hereby elects that, effective immediately,  the Corporation shall not effect any conversion of the undersigned's Preferred Stock, and that the undersigned shall not have the right to convert or vote any portion of the Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable Notice of Conversion, the undersigned (together with its Affiliates, and any Persons acting as a group together with the undersigned or any of the undersigned's Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation.   All terms not defined herein shall have the meanings assigned to them in the Certificate of Designation.

 
[HOLDER]
 
By:___________________________________
     Name:
     Title:

27
Exhibit 5
 
 
Durham Jones & Pinegar, P.C.
111 East Broadway, Suite 900
P O Box 4050
Salt Lake City, Utah  84110
801.415.3000
801.415.3500 Fax
www.djplaw.com

January 27, 2017
Dynatronics Corporation
7030 Park Centre Drive
Cottonwood Heights, UT 84121

Re: Registration Statement on Form S-3
Ladies and Gentlemen:
Ladies and Gentlemen:

We have acted as counsel to Dynatronics Corporation, a Utah corporation (the "Company"), in connection with the Company's registration statement on Form S-3 filed with the Securities and Exchange Commission (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), relating to an aggregate of up to 975,000 shares of common stock, no par value per share, of the Company (the "Shares") that may be sold or delivered by the parties listed as selling shareholders in the Registration Statement (the "Selling Shareholders"), which Shares are issuable by the Company upon the conversion of the Company's Series A 8% Convertible Preferred Stock (the "Preferred Stock"), and the exercise of warrants (the "Warrants") currently held by the Selling Shareholders. The Shares, including the Shares issuable after conversion of the Preferred Stock and the exercise of the Warrants in accordance with the terms thereof, may be sold or delivered, from time to time as set forth in the Registration Statement, any amendment thereto, the prospectus contained therein (the "Prospectus") and supplements to the Prospectus, and pursuant to Rule 415 under the Securities Act.

In our capacity as counsel to the Company and for purposes of this opinion, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents:

(i)
the Articles of Incorporation of the Company, as amended and in effect on the date hereof (the "Articles");
(ii)
the Bylaws of the Company;
(iii)
the registration rights agreements by and between the Company and each of the Selling Shareholders as in effect on the date hereof, including all such amendments, supplements and waivers thereto;
(iv)
the Registration Statement and all exhibits thereto;
(v)
the corporate proceedings of the Company with respect to the authorization of the issuance of the Shares; and
(vi)
such other corporate records, documents and other instruments as we have deemed necessary or appropriate to express the opinions set forth in this letter, subject to the assumptions, limitations and qualifications stated herein.

As to questions of fact material to this opinion, we have relied on certificates or comparable documents of public officials and of officers and representatives of the Company.

We have assumed the genuineness of all signatures, the conformity to the originals of all documents reviewed by us as copies, the authenticity and completeness of all original documents reviewed by us in original or copy form and the legal competence of each individual executing any document.

The scope of this opinion is limited to the laws of the State of Utah, including without limitation applicable provisions of the Utah Constitution and reported judicial decisions interpreting these laws. This opinion letter is issued as of the date hereof and is necessarily limited to laws now in effect and facts and circumstances presently existing and brought to our attention. We have assumed that, at or prior to the time of the issuance and delivery of any Shares, that there will not have occurred any change in law, change in the Preferred Stock, the Warrants or the Company's Articles, or further action by the Company's board of directors, in each case affecting the validity of the issuance of the Shares.
 
SALT LAKE CITY | LEHI | OGDEN | ST. GEORGE | LAS VEGAS


Dynatronics Corporation
Janaury 27, 2017
Page 2
 
Based on the foregoing, and subject to the assumptions, limitations and qualifications set forth herein, we are of the opinion that the Shares are, or will be, when issued upon conversion of the Preferred Stock or exercise of the Warrants in accordance with the terms thereof, will be validly issued, fully paid and nonassessable.

We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to the reference to us under the heading "Legal Matters" in the Registration Statement, the prospectus constituting a part thereof and any amendments or supplements thereto, as incorporated by reference in the Registration Statement. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act, or the rules and regulations promulgated thereunder. In rendering the opinions set forth above, we are opining only as to the specific legal issues expressly set forth therein, and no opinion shall be inferred as to any other matter or matters.

This opinion is intended solely for use in connection with the issuance and sale of the Shares that are the subject of the Registration Statement and is not to be relied upon for any other purpose.

Very truly yours,
Durham Jones & Pinegar, P.C.


/S/ Durham Jones & Pinegar, P.C.