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Item 5.03.
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Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
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Series D Preferred Stock
On August 29, 2018, the Company filed the
Certificate of Designations, Preferences and Rights of the Series D Convertible Preferred Stock of FuelCell Energy, Inc. (the “Series
D Certificate of Designation”) with the Secretary of State of the State of Delaware, designating 30,680 shares of the Company’s
preferred stock as Series D Convertible Preferred Stock (which is referred to herein as the Series D Preferred Stock)
and establishing the rights, preferences, privileges, qualifications, restrictions, and limitations relating to the Series D Preferred
Stock, as described below. Upon the closing of the Offering on August 29, 2018, there were 30,680 shares of Series D Preferred
Stock issued and outstanding.
The following summary of certain terms and
provisions of the Series D Preferred Shares sold in the Offering is subject to, and qualified in its entirety by reference to,
the terms and provisions set forth in the Series D Certificate of Designation.
Conversion Right
The Series D Preferred Shares are convertible
into shares of the Company’s common stock, subject to the requirements of Nasdaq Listing Rule 5635(d), and the beneficial
ownership limitation provided in the Series D Certificate of Designation, at a conversion price equal to $1.38 per share of common
stock (“Conversion Price”), subject to adjustment as provided in the Series D Certificate of Designation, including
adjustments if the Company sells shares of common stock or equity securities convertible into or exercisable for shares of common
stock, at prices below $1.38 per share, in certain types of transactions. The holders will be prohibited from converting Series
D Preferred Shares into shares of common stock if, as a result of such conversion, such holder, together with its affiliates, would
own more than 4.99% of the total number of shares of common stock then issued and outstanding. Each holder has the right to increase
its maximum percentage up to 9.99% upon 60 days’ notice to the Company. Additionally, prior to receiving stockholder approval
of the issuance of more than 19.9% of the Company’s outstanding common stock prior to the Offering, the holders will be prohibited
from converting Series D Preferred Shares into shares of common stock if such conversion would cause the Company to issue pursuant
to the terms of the Series D Preferred Stock a number of shares in excess of the maximum number of shares permitted to be issued
thereunder without breaching the Company’s obligations under the rules or regulations of Nasdaq.
The Conversion Price is subject to adjustment
under certain circumstances in accordance with the Series D Certificate of Designation, as follows:
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The conversion price may be proportionately reduced in the event of a subdivision of the Company’s common stock into
a greater number of shares or proportionately increased in the event of a combination of the Company’s common stock into
a smaller number of shares.
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In the event that the Company in any manner issues or sells or enters into any agreement to issue or sell Variable Price Securities
(as defined in the Series D Certificate of Designation), which generally includes any common stock, options or convertible securities
that are issuable at a price which varies or may vary with the market price of the shares of common stock, including by way of
one or more reset(s) to a fixed price, but excluding customary anti-dilution provisions (each of the formulations for such variable
price being referred to as, the “Variable Price”), each holder of Series D Preferred Shares will have the right (in
its sole discretion) to substitute the Variable Price for the Conversion Price upon conversion of the Series D Preferred Shares.
Following the closing of the Offering, sales of common stock pursuant to the Company’s At Market Issuance Sales Agreement
with B. Riley FBR, Inc. and the Underwriter will be deemed Variable Price Securities with a Variable Price equal to the lowest
price per share at which common stock is sold pursuant to that agreement. Under the Series D Certificate of Designation, the term
“options” means any rights, warrants or options to subscribe for or purchase shares of common stock or convertible
securities, and the term “convertible securities” means any stock or other security (other than options) that is at
any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise
entitles the holder thereof to acquire, any shares of common stock.
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At any time any Series D Preferred Shares remain outstanding, the Company may reduce the then current Conversion Price to any
amount for any period of time deemed appropriate by the Company’s board of directors.
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Conversion Upon a Triggering Event
Subject to the requirements of Nasdaq Listing
Rule 5635(d), and the beneficial ownership limitations provided in the Series D Certificate of Designation, in the event of a triggering
event (as defined in the Series D Certificate of Designation and summarized below), the Series D Preferred Shares are convertible
into shares of common stock at a conversion price equal to the lower of the Conversion Price in effect on the Trading Day (as such
term is defined in the Series D Certificate of Designation) immediately preceding the delivery of the conversion notice and 85%
of the lowest volume weighted average price (“VWAP”) of the common stock on any of the five consecutive Trading Days
ending on the Trading Day immediately prior to delivery of the applicable conversion notice. This conversion right commences on
the date of the triggering event and ends on the later of (i) the date the triggering event is cured and (ii) ten Trading
Days after the Company delivers notice of the triggering event.
A triggering event (as defined in the Series
D Certificate of Designation) includes, without limitation:
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any failure to pay any amounts due to the holders of the Series D Preferred Shares;
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the Company’s failure to timely deliver shares;
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the suspension of the Company’s common stock from trading or failure to be trading or listed on The Nasdaq Global Market,
without obtaining a listing on another national securities exchange, for a period of five consecutive Trading Days;
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subject to limited exceptions, the Company’s failure to keep reserved for issuance 150% of the number of shares of common
stock issuable upon conversion of the outstanding Series D Preferred Shares;
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certain bankruptcy events; and
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breaches of certain covenants that are not timely cured, where a cure period is permitted.
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Redemption
On December 1, 2018, and on the sixteenth
day and first day of each calendar month thereafter until March 1, 2020, subject to extension in certain circumstances (the “Maturity
Date”), inclusive, the Company will redeem the stated value of Series D Preferred Stock in thirty-one equal installments
of approximately $989,677 (each bimonthly amount, an “Installment Amount” and the date of each such
payment, an “Installment Date”). The holders will have the ability to defer installment payments, but not beyond the
Maturity Date. In addition, during each period commencing on the 11th trading day prior to an Installment Date and prior to the
immediately subsequent Installment Date, the holders may elect to accelerate the conversion of Series D Preferred Shares at then
applicable installment conversion price, provided that the holders may not elect to effect any such acceleration during such installment
period if either (a) in the aggregate, all the accelerations in such installment period exceed the sum of three other Installment
Amounts, or (b) the number of Series D Preferred Shares subject to prior accelerations exceeds in the aggregate twelve Installment
Amounts.
Subject to the requirements of Nasdaq Listing
Rule 5635(d) and certain other equity conditions set forth in the Series D Certificate of Designation, the Company may elect to
pay the Installment Amounts in cash or shares of common stock or in a combination of cash and shares of common stock.
Installment Amounts paid in shares will
be that number of shares of common stock equal to (a) the applicable Installment Amount, to be paid in common stock divided by
(b) the lesser of (i) the then existing conversion price, (ii) 87.5% of the VWAP of the common stock on the Trading Day
immediately prior to the applicable Installment Date, and (iii) 87.5% of the arithmetic average of the two lowest VWAPs of the
common stock during the ten consecutive Trading Day period ending and including the Trading Day immediately prior to the applicable
Installment Date as applicable, provided that the Company meets standard equity conditions. The Company shall make such election
no later than the eleventh trading day immediately prior to the applicable Installment Date.
If the Company elects or is required to
pay an Installment Amount in whole or in part in cash, the amount paid will be equal to 108% of the applicable Installment Amount.
Redemption Upon a Triggering Event
In the event of a triggering event (as defined
in the Series D Certificate of Designation and summarized above under “Conversion Upon a Triggering Event”), the holders
of Series D Preferred Shares may require us to redeem such Series D Preferred Shares in cash at a price equal to the greater of (a)
125% of the stated value of the Series D Preferred Shares being redeemed plus accrued dividends, if any, and (b) the market value
of the number of shares issuable on conversion of the Series D Preferred Shares, valued at the greatest closing sales price during
the period from the date immediately before the triggering event through the date the Company makes the redemption payment.
Redemption Upon a Change of Control
In the event of a change of control, as
defined in the Series D Certificate of Designation, the holders of Series D Preferred Shares can force redemption at a price equal
to the greater of (a) the conversion amount to be redeemed multiplied by 125%, (b) the product of (i) the conversion
amount being redeemed multiplied by (ii) the quotient determined by dividing (A) the greatest closing sale price of the common
stock on any Trading Day during the period commencing immediately preceding the earlier to occur of (1) the consummation of the
applicable change of control and (2) the public announcement of such change of control and ending on the date such holder delivers
the change of control redemption notice, by (B) the conversion price then in effect and (c) the product of (i) the conversion
amount being redeemed multiplied by (ii) the quotient determined by dividing (A) the aggregate value of the cash and non-cash consideration
per share of common stock being paid to holders of common stock in the change of control transaction by (B) the conversion price
then in effect. Redemptions of the Series D Preferred Shares required under the Series D Certificate of Designation in connection
with a change of control will have priority over payments to all other stockholders of the Company in connection with such change
of control.
Dividends
Each holder of Series D Preferred Shares
shall be entitled to receive dividends (a) if no triggering event, as defined in the Series D Certificate of Designation, has occurred
and is continuing when and as declared by the board of directors, in its sole and absolute discretion or (b) if a triggering event
has occurred and until such triggering event has been cured, a dividend of 15% per annum based on the holder’s outstanding
number of Series D Preferred Shares multiplied by the stated value. The holders of Series D Preferred Shares also have the right
to participate in any dividend or other distribution made to holders of common stock to the same extent as if they had converted
their Series D Preferred Shares.
Liquidation Preference
In the event of the liquidation, dissolution,
or winding up of the Company, prior to distribution to holders of securities ranking junior to the Series D Preferred Stock, holders
of Series D Preferred Shares will be entitled to receive the amount of cash, securities or other property equal to the greater
of (a) the stated value thereof on the date of such payment plus accrued dividends, if any and (b) the amount per share such holder
would receive if such holder converted such Series D Preferred Shares into common stock immediately prior to the date of such payment.
Ranking
Shares of Series D Preferred Stock rank
with respect to dividend rights and rights upon the liquidation, winding up or dissolution of the Company:
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senior to shares of the Company’s common stock;
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junior to the Company’s debt obligations;
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junior to the Company’s outstanding 5% Series B Cumulative Convertible Perpetual Preferred Stock;
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pari passu to the Company’s outstanding Series C Convertible Preferred Stock; and
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effectively junior to the Company’s subsidiaries’ (i) existing and future liabilities and (ii) capital stock held
by others.
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Limited Voting Rights
The holders of Series D Preferred Shares
have no voting rights, except as required by law; provided, however, that any amendment to the Company’s Certificate of Incorporation,
as amended, or Amended and Restated By-laws or the Series D Certificate of Designation that adversely affects the powers, preferences
and rights of the Series D Preferred Stock requires the approval of the holders of a majority of the Series D Preferred Shares
then outstanding.
No Established Trading Market
There is no established public trading market
for the Series D Preferred Stock, and the Company does not expect a market to develop for the Series D Preferred Stock.
The Series D Preferred Stock will not be listed on Nasdaq or any other exchange or trading market. The Company does not plan
on making an application to list the Series D Preferred Stock on The Nasdaq Stock Market, any other national securities exchange
or any other nationally recognized trading system.
Participation Rights
Until August 29, 2019, the holders
of the Series D Preferred Shares have the right to receive notice of and to participate in any offering, issuance or sale
of equity or equity-equivalent securities by the Company or its subsidiaries, other than issuances under certain employee benefit
plans, upon the conversion of certain options or other convertible securities, or pursuant to certain acquisitions or strategic
transactions. Pursuant to such participation rights, the Company must offer to issue and sell to such holders at least 35% of the
offered securities.
The foregoing is only a brief description
of the material terms of the Series D Certificate of Designation, does not purport to be a complete description of the rights,
preferences, privileges, qualifications, restrictions and limitations of the Series D Preferred Stock or the rights and obligations
of the Company and the holders of the Series D Preferred Stock, and is qualified in its entirety by reference to the Series D Certificate
of Designation that is filed as Exhibit 3.1 to this Current Report on Form 8-K and incorporated by reference herein.
Series C Convertible Preferred Stock
As previously disclosed by the Company,
until September 8, 2018, holders of shares of the Company’s Series C Convertible Preferred Stock (the “Series C Preferred
Stock” and, such shares, the “Series C Preferred Shares”) have the right to receive notice of and to participate
in any offering, issuance or sale of equity or equity-equivalent securities by the Company or its subsidiaries, other than issuances
under certain employee benefit plans, upon the conversion of certain options or other convertible securities, or pursuant to certain
acquisitions or strategic transactions. Pursuant to such participation rights, the Company must offer to issue and sell to such
holders at least 35% of the offered securities. In exchange for the waiver by the holders of the Series C Preferred Shares of their
notice and participation rights under the Certificate of Designations for the Series C Preferred Stock in connection with
the issuance of the Series D Preferred Shares in the Offering and their consent to the pari passu rank of the Series D Preferred
Shares and the Series C Preferred Shares in respect of their preferences as to dividends, distributions and payments upon the liquidation,
dissolution and winding up of the Company, the Company’s board of directors agreed to reduce the conversion price of the
Series C Preferred Shares from $1.84 to $1.50 effective August 27, 2018. This reduction in the conversion price of the Series C
Preferred Shares will increase the number of shares of the Company’s common stock that may be issued upon conversion or redemption
of the Series C Preferred Shares.