CERTIFICATE OF DESIGNATIONS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
PALATIN TECHNOLOGIES, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
PALATIN TECHNOLOGIES, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"),
does hereby certify that, pursuant to the authority conferred on the
Board of Directors of the Corporation by the Certificate of
Incorporation, as amended to date (the "Certificate of Incorporation"),
of the Corporation and in accordance with Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation adopted the following resolution establishing a series of
264,000 shares of Preferred Stock of the Corporation designated as
"Series A Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the Board of
Directors of this Corporation by the Certificate of Incorporation, a
series of Preferred Stock, par value $.01 per share, of the Corporation
is hereby established and created, and that the designation and number
of shares thereof and the voting and other powers, preferences and
relative, participating, optional or other rights of the shares of such
series and the qualifications, limitations and restrictions thereof are
as follows:
SERIES A CONVERTIBLE PREFERRED STOCK
1. Designation and Amount. There shall be a series of
Preferred Stock designated as "Series A Convertible Preferred Stock" and
the number of shares constituting such series shall be 264,000. Such
series is referred to herein as the "Series A Preferred Stock". Such
number of shares of Series A Preferred Stock may be increased prior to
the Final Closing Date (as defined below) or decreased by resolution of
the Board of Directors of the Corporation; provided, however, that no
decrease shall reduce the number of shares of Series A Preferred Stock
to less than the number of shares then issued and outstanding.
2. Dividends and Distributions. (a) Subject to the
prior and superior rights of the holders of any shares of any series or
class of capital stock ranking prior and superior to the shares of
Series A Preferred Stock with respect to dividends, the holders of
shares of Series A Preferred Stock shall be entitled to receive, as,
when and if declared by the Board of Directors of the Corporation, out
of assets legally available for that purpose, dividends or distributions
in cash, stock or otherwise.
(b) The Corporation shall not declare any dividend or
distribution on any Junior Stock (as defined below) or any other capital
stock of the Company unless and until a special dividend or distribution
of $100.00 per share (subject to appropriate adjustment to reflect any
stock split, combination, reclassification or reorganization of the
Series A Preferred Stock) has been declared and paid on the Series A
Preferred Stock. In the event such special dividend or distribution is
declared and paid on the Series A Preferred Stock, an aggregate per
share dividend or distribution equal to (i) $100.00 divided by (ii) the
effective Conversion Rate at the time of such special dividend or
distribution on the Series A Preferred Stock may be declared and paid on
the Common Stock. Except as aforesaid, the Corporation shall not
declare any dividend or distribution on any Junior Stock, unless the
Corporation shall, concurrently with the declaration of such dividend or
distribution on the Junior Stock, declare a like dividend or
distribution, as the case may be, on the Series A Preferred Stock, which
in the case of dividends or distributions on Common Stock or Junior
Stock convertible into Common Stock, shall be in an amount per share
equal to at least (x) the amount of the dividend or distribution per
share of Common Stock multiplied by (y) the effective Conversion Rate at
the time of such dividend or distribution.
(c) Any dividend or distribution (other than that
referenced in the first sentence of Section 2(b)) payable to the holders
of the Series A Preferred Stock pursuant to this Section 2 shall be paid
to such holders at the same time as the dividend or distribution on the
Junior Stock or any other capital stock of the Company by which it is
measured is paid.
(d) All dividends or distributions declared upon the
Series A Preferred Stock shall be declared pro rata per share.
(e) Any reference to "distribution" contained in this
Section 2 shall not be deemed to include any distribution made in
connection with or in lieu of any Liquidation Event (as defined below).
(f) "Junior Stock" shall mean the Common Stock and
any shares of preferred stock of any series or class of the Corporation,
whether presently outstanding or hereafter issued, which are junior to
the shares of Series A Preferred Stock with respect to (i) the
distribution of assets on any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, (ii) dividends and (iii)
voting.
3. Liquidation Preference. (a) In the event of a (i)
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, (ii) a sale or other disposition of all or
substantially all of the assets of the Corporation or (iii) any
consolidation, merger, combination, reorganization or other transaction
in which the Corporation is not the surviving entity or the shares of
Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into stock or securities of
another entity, cash and/or any other property (a "Merger Transaction")
(subparagraphs (i), (ii) and (iii) being collectively referred to as a
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"Liquidation Event"), after payment or provision for payment of debts
and other liabilities of the Corporation, the holders of the Series A
Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its
stockholders, whether such assets are capital, surplus, or earnings,
before any payment or declaration and setting apart for payment of any
amount shall be made in respect of any Junior Stock or any other capital
stock of the Company, an amount equal to $100.00 per share plus an
amount equal to all declared and unpaid dividends thereon; provided,
however, in the case of a Merger Transaction, such $100.00 per share may
be paid in cash, property (valued as provided in Section 3(b)) and/or
securities (valued as provided in Section 3(b)) of the entity surviving
such Merger Transaction. If upon any Liquidation Event, whether
voluntary or involuntary, the assets to be distributed to the holders of
the Series A Preferred Stock shall be insufficient to permit the payment
to such stockholders of the full preferential amounts aforesaid, then
all of the assets of the Corporation to be distributed shall be so
distributed ratably to the holders of the Series A Preferred Stock on
the basis of the number of shares of Series A Preferred Stock held. A
consolidation or merger of the Corporation with or into another
corporation, other than in a transaction described in this Section 3(a)
above, shall not be considered a liquidation, dissolution or winding up
of the Corporation or a sale or other disposition of all or
substantially all of the assets of the Corporation and accordingly the
Corporation shall make appropriate provision to ensure that the terms of
this Certificate of Designations survive any such transaction. All
shares of Series A Preferred Stock shall rank as to payment upon the
occurrence of any Liquidation Event senior to the Common Stock as
provided herein and, unless the terms of such series shall provide
otherwise, senior to all other series of the Corporation's preferred
stock.
(b) Any securities or other property to be delivered to the
holders of the Series A Preferred Stock pursuant to Section 3(a) hereof
shall be valued as follows:
(i) Securities not subject to an investment letter or other similar
restriction on free marketability:
(A) If traded on a securities exchange or on Nasdaq (as defined below),
or if actively traded over-the-counter, the value shall be deemed to be
the Market Price (as defined below) of the securities as of the third
day prior to the date of valuation.
(B) If there is no such active public market for the securities, the
value shall be the Fair Market Value (as defined below) of the
securities.
"Market Price" of a security shall mean the average Closing Bid Price
(as defined below) of such security, for twenty (20) consecutive trading
days, ending with the day prior to the date as of which the Market Price
is being determined.
"Fair Market Value" of any asset (including any security) means the fair
market value thereof as mutually determined by the Corporation and the
holders of a majority (measured in terms of voting power) of the
outstanding Series A Preferred Stock.
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The "Closing Bid Price" for any security for each trading day shall be
the reported closing bid price of such security on the national
securities exchange on which such security is listed or admitted to
trading, or, if such security is not listed or admitted to trading on
any national securities exchange, shall mean the reported closing bid
price of such security on the Nasdaq SmallCap Market or the Nasdaq
National Market System (collectively referred to as, "Nasdaq") or, if
such security is not listed or admitted to trading on any national
securities exchange or quoted on Nasdaq, shall mean the reported closing
bid price of such security on the principal securities exchange on which
such security is listed or admitted to trading (based on the aggregate
dollar value of all securities listed or admitted to trading) or, if
such security is not listed or admitted to trading on a national
securities exchange, quoted on Nasdaq or listed or admitted to trading
on any other securities exchange, shall mean the closing bid price in
the over-the-counter market as furnished by any NASD member firm
selected from time to time by the Corporation for that purpose.
"Trading day" shall mean a day on which the securities exchange or
NASDAQ used to determine the Closing Bid Price is open for the
transaction of business or the reporting of trades or, if the Closing
Bid Price is not so determined, a day on which such securities exchange
is open for the transaction of business.
(ii) For securities for which there is an active public market but which
are subject to investment letter or other restrictions on free
marketability, the value shall be the Fair Market Value thereof,
determined by discounting appropriately the Market Price thereof.
(iii) For all other securities, the value shall be the Fair Market Value
thereof.
If the holders of a majority of the Series A Preferred Stock and the
Corporation are unable to reach agreement on any valuation matter, such
valuation shall be submitted to and determined by a nationally
recognized independent investment bank selected by the Board of
Directors of the Corporation and the holders of a majority of the Series
A Preferred Stock (or, if such selection cannot be agreed upon promptly,
or in any event within ten days, then such valuation shall be made by a
nationally recognized independent investment banking firm selected by
the American Arbitration Association in New York City in accordance with
its rules).
4. Conversion.
(a) Right of Conversion. The shares of Series A Preferred
Stock shall be convertible, in whole or in part, at the option of the
holder thereof and upon notice to the Corporation as set forth in
Section 4(b) below, into fully paid and nonassessable shares of Common
Stock and such other securities and property as hereinafter provided.
The initial conversion price per share of Common Stock is $1.78 (the
"Conversion Price") and shall be subject to adjustment as provided
herein. The rate at which each share of Series A Preferred Stock is
convertible at any time into Common Stock (the "Conversion Rate") shall
be determined by dividing the then existing Conversion Price into
$100.00.
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Subject to adjustment pursuant to the provisions of Section
4(c) below, in the event that the Conversion Price in effect at the time
of each Interim Closing Date (as defined below) and the Final Closing
Date (as defined below) is greater than 90% of the Market Price (as
defined in Section 3(b)) of the Common Stock as of (x) any interim
closing date of the issuance and sale of the Series A Preferred Stock
(each an "Interim Closing Date") or (y) the final closing date of the
issuance and sale of the Series A Preferred Stock (the "Final Closing
Date") pursuant to the subscription agreements entered into in
connection therewith, then the Conversion Price shall be adjusted to
equal 90% of the lesser of any such Market Price. If there is any
change in the Conversion Price as a result of the preceding sentence,
then the Conversion Rate shall be changed accordingly as set forth
above. For purposes of this Section 4, in the event the prices
referenced in the definition of Closing Bid Price in Section 3(b) cannot
be determined, the Market Price of the Common Stock shall be deemed to
be the Fair Market Value (as defined in Section 3(b)) of the Common
Stock as of the date of determination.
The Board of Directors of the Corporation, or a committee
designated by it for such purpose, may specify an initial conversion
price applicable to the shares of Series A Preferred Stock issued at any
closing lower than the initial conversion price that would otherwise
obtain pursuant to the preceding paragraphs and, in the event an initial
conversion price is so specified, it shall be applicable to all shares
of the Series A Preferred Stock.
The Corporation shall prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Corporation setting
forth the Conversion Rate as of the Final Closing Date, showing in
reasonable detail the facts upon which such adjusted Conversion Rate is
based, and such certificate shall forthwith be filed with the transfer
agent of the Series A Preferred Stock. A notice stating that the
Conversion Rate has been adjusted pursuant to the second preceding
paragraph, or that no adjustment is necessary, and setting forth the
Conversion Rate in effect as of the Final Closing Date shall be mailed
as promptly as practicable after the Final Closing Date by the
Corporation to all record holders of the Series A Preferred Stock at
their last addresses as they shall appear in the stock transfer books of
the Corporation.
(b) Conversion Procedures. Any holder of shares of Series
A Preferred Stock desiring to convert such shares into Common Stock
shall surrender the certificate or certificates evidencing such shares
of Series A Preferred Stock at the office of the transfer agent for the
Series A Preferred Stock, which certificate or certificates, if the
Corporation shall so require, shall be duly endorsed to the Corporation
or in blank, or accompanied by proper instruments of transfer to the
Corporation or in blank, accompanied by irrevocable written notice to
the Corporation that the holder elects so to convert such shares of
Series A Preferred Stock and specifying the name or names (with address)
in which a certificate or certificates evidencing shares of Common Stock
are to be issued. The Corporation need not deem a notice of conversion
to be received unless the holder complies with all the provisions
hereof. The Corporation will instruct the transfer agent (which may be
the Corporation) to make a notation of the date that a notice of
conversion is received, which date shall be deemed to be the date of
receipt for purposes hereof.
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The Corporation shall, as soon as practicable after such
deposit of certificates evidencing shares of Series A Preferred Stock
accompanied by the written notice and compliance with any other
conditions herein contained, deliver at such office of such transfer
agent to the person for whose account such shares of Series A Preferred
Stock were so surrendered, or to the nominee or nominees of such person,
certificates evidencing the number of full shares of Common Stock to
which such person shall be entitled as aforesaid, together with a cash
adjustment of any fraction of a share as hereinafter provided. Subject
to the following provisions of this paragraph, such conversion shall be
deemed to have been made as of the date of such surrender of the shares
of Series A Preferred Stock to be converted, and the person or persons
entitled to receive the Common Stock deliverable upon conversion of such
Series A Preferred Stock shall be treated for all purposes as the record
holder or holders of such Common Stock on such date; provided, however,
that the Corporation shall not be required to convert any shares of
Series A Preferred Stock while the stock transfer books of the
Corporation are closed for any purpose, but the surrender of Series A
Preferred Stock for conversion during any period while such books are so
closed shall become effective for conversion immediately upon the
reopening of such books as if the surrender had been made on the date of
such reopening, and the conversion shall be at the conversion rate in
effect on such date. No adjustments in respect of any dividends on
shares surrendered for conversion or any dividend on the Common Stock
issued upon conversion shall be made upon the conversion of any shares
of Series A Preferred Stock.
All notices of conversion shall be irrevocable; provided,
however, that if the Corporation has sent notice of an event pursuant to
Section 4(f) hereof, a holder of Series A Preferred Stock may, at its
election, provide in its notice of conversion that the conversion of its
shares of Series A Preferred Stock shall be contingent upon the
occurrence of the record date or effectiveness of such event (as
specified by such holder), provided that such notice of conversion is
received by the Corporation prior to such record date or effective date,
as the case may be.
(c) Adjustment of Conversion Rate and Conversion Price.
(i) Except as otherwise provided herein, in the event
the Corporation shall, at any time or from time to time after the date
hereof, (1) sell or issue any shares of Common Stock for a consideration
per share less than either (i) the Conversion Price in effect on the
date of such sale or issuance or (ii) the Market Price of the Common
Stock as of the date of the sale or issuance, (2) issue any shares of
Common Stock as a stock dividend to the holders of Common Stock, or (3)
subdivide or combine the outstanding shares of Common Stock into a
greater or lesser number of shares (any such sale, issuance, subdivision
or combination being herein called a "Change of Shares"), then, and
thereafter upon each further Change of Shares, the Conversion Price in
effect immediately prior to such Change of Shares shall be changed to a
price (rounded to the nearest cent) determined by multiplying the
Conversion Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to the sale or issuance of such
additional shares or such subdivision or combination and the number of
shares of Common Stock which the aggregate consideration received
(determined as provided in subsection 4(c)(v)(F) below) for the issuance
of such additional shares would purchase at the greater of (i) the
Conversion Price in effect on the date of such issuance or (ii) the
Market Price as of such date, and the denominator of which shall be the
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number of shares of Common Stock outstanding immediately after the sale
or issuance of such additional shares or such subdivision or
combination. Such adjustment shall be made successively whenever such
an issuance is made.
(ii) In case of any reclassification, capital
reorganization or other change of outstanding shares of Common Stock, or
in case of any consolidation or merger of the Corporation with or into
another corporation (other than a consolidation or merger in which the
Corporation is the continuing corporation and which does not result in
any reclassification, capital reorganization or other change of
outstanding shares of Common Stock other than the number thereof), or in
case of any sale or conveyance to another corporation of the property of
the Corporation as, or substantially as, an entirety (other than a
sale/leaseback, mortgage or other financing transaction), the
Corporation shall cause effective provision to be made so that each
holder of a share of Series A Preferred Stock shall be entitled to
receive, upon conversion of such share of Series A Preferred Stock, the
kind and number of shares of stock or other securities or property
(including cash) receivable upon such reclassification, capital
reorganization or other change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock into
which such share of Series A Preferred Stock was convertible immediately
prior to such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 4(c).
The Corporation shall not effect any such consolidation, merger or sale
unless prior to or simultaneously with the consummation thereof the
successor (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing assets or other
appropriate corporation or entity shall assume, by written instrument
executed and delivered to the transfer agent for the Series A Preferred
Stock (the "Transfer Agent"), the obligation to deliver to the holder of
each share of Series A Preferred Stock such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such holders
may be entitled to purchase and the other obligations under this
Agreement. The foregoing provisions shall similarly apply to successive
reclassifications, capital reorganizations and other changes of
outstanding shares of Common Stock and to successive consolidations,
mergers, sales or conveyances.
(iii) If, at any time or from time to time, the Corporation
shall issue or distribute to the holders of shares of Common Stock
evidence of its indebtedness, any other securities of the Corporation or
any cash, property or other assets (excluding an issuance or
distribution governed by one of the preceding subsections of this
Section 4(c) and also excluding cash dividends or cash distributions
paid out of net profits legally available therefor in the full amount
thereof (any such non-excluded event being herein called a "Special
Dividend")), then in each case the holders of the Series A Preferred
Stock shall be entitled to a proportionate share of any such Special
Dividend as though they were the holders of the number of shares of
Common Stock of the Corporation into which their shares of Series A
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled
to receive such Special Dividend.
(iv) After each adjustment of the Conversion Price
pursuant to this Section 4(c), the Corporation will promptly prepare a
certificate signed by the Chairman or President, and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary, of
the Corporation setting forth:
(i) the Conversion Price as so adjusted,
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(ii) the Conversion Rate corresponding to such Conversion and (iii) a
brief statement of the facts accounting for such adjustment. The
Corporation will promptly file such certificate with the Transfer Agent
and cause a brief summary thereof to be sent by ordinary first class
mail to each registered holder of Series A Preferred Stock at his last
address as it shall appear on the registry books of the Transfer Agent.
No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of such adjustment. The affidavit of
an officer of the Transfer Agent or the Secretary or an Assistant
Secretary of the Corporation that such notice has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated
therein. The Transfer Agent may rely on the information in the
certificate as true and correct and has no duty or obligation to
independently verify the amounts or calculations set forth therein.
(v) For purposes of Section 4(c)(i) hereof, the following
provisions (A) to (F) shall also be applicable:
(A) The number of shares of Common Stock deemed outstanding at
any given time shall include all shares of capital stock convertible
into or exchangeable for Common Stock and all shares of Common Stock
issuable upon the exercise of any convertible debt, warrants outstanding
on the date thereof and options outstanding on the date thereof.
(B) No adjustment of the Conversion Price shall be made unless
such adjustment would require an increase or decrease of at least $.01
in such price; provided that any adjustments which by reason of this
clause (B) are not required to be made shall be carried forward and
shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment(s) so carried forward,
shall require an increase or decrease of at least $.01 in the Conversion
Price then in effect hereunder.
(C) In case of (1) the sale by the Corporation (including as a
component of a unit) of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or any
securities convertible into or exchangeable for Common Stock (such
securities convertible, exercisable or exchangeable into Common Stock
being herein called "Convertible Securities"), or (2) the issuance by
the Corporation, without the receipt by the Corporation of any
consideration therefor, of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or
Convertible Securities, whether or not such rights, warrants or options,
or the right to convert or exchange such Convertible Securities, are
immediately exercisable, and the consideration per share for which
Common Stock is issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the minimum aggregate
consideration, as set forth in the instrument relating thereto without
regard to any antidilution or similar provisions contained therein for a
subsequent adjustment of such amount, payable to the Corporation upon
the exercise of such rights, warrants or options, plus the consideration
received by the Corporation for the issuance or sale of such rights,
warrants or options, plus, in the case of such Convertible Securities,
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the minimum aggregate amount, as set forth in the instrument relating
thereto without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of
additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the
total maximum number, as set forth in the instrument relating thereto
without regard to any antidilution or similar provisions contained
therein for a subsequent adjustment of such amount, of shares of Common
Stock issuable upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities issuable
upon the exercise of such rights, warrants or options) is less than
either the Conversion Price or the Market Price of the Common Stock as
of the date of the issuance or sale of such rights, warrants or options,
then such total maximum number of shares of Common Stock issuable upon
the exercise of such rights, warrants or options or upon the conversion
or exchange of such Convertible Securities (as of the date of the
issuance or sale of such rights, warrants or options) shall be deemed to
be "Common Stock" for purposes of Section 4(c)(i) hereof and shall be
deemed to have been sold for an amount equal to such consideration per
share and shall cause an adjustment to be made in accordance with
Section 4(c)(i).
(D) In case of the sale by the Corporation of any Convertible
Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which
Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Corporation for the sale of such
Convertible Securities, plus the minimum aggregate amount, as set forth
in the instrument relating thereto without regard to any antidilution or
similar provisions contained therein for a subsequent adjustment of such
amount, of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the
total maximum number, as set forth in the instrument relating thereto
without regard to any antidilution or similar provisions contained
therein for a subsequent adjustment of such amount, of shares of Common
Stock issuable upon the conversion or exchange of such Convertible
Securities) is less than either the Conversion Price or the Market Price
of the Common Stock as of the date of the sale of such Convertible
Securities, then such total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities
(as of the date of the sale of such Convertible Securities) shall be
deemed to be "Common Stock" for purposes of Section 4(c)(i) hereof and
shall be deemed to have been sold for an amount equal to such
consideration per share and shall cause an adjustment to be made in
accordance with Section 4(c)(i).
(E) In case the Corporation shall modify the rights of
conversion, exchange or exercise of any of the securities referred to in
(C) and (D) above or any other securities of the Corporation
convertible, exchangeable or exercisable for shares of Common Stock, for
any reason other than an event that would require adjustment to prevent
dilution, so that the consideration per share received by the
Corporation
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after such modification is less than either the Conversion Price or the
Market Price as of the date prior to such modification, then such
securities, to the extent not theretofore exercised, converted or
exchanged, shall be deemed to have expired or terminated immediately
prior to the date of such modification and the Corporation shall be
deemed for purposes of calculating any adjustments pursuant to this
Section 4(c) to have issued such new securities upon such new terms on
the date of modification. Such adjustment shall become effective as of
the date upon which such modification shall take effect. On the
expiration or cancellation of any such right, warrant or option or the
termination or cancellation of any such right to convert or exchange any
such Convertible Securities, the Conversion Price then in effect
hereunder shall forthwith be readjusted to such Conversion Price as
would have obtained (a) had the adjustments made upon the issuance or
sale of such rights, warrants, options or Convertible Securities been
made upon the basis of the issuance of only the number of shares of
Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants or options
or upon the conversion or exchange of such Convertible Securities and
(b) had adjustments been made on the basis of the Purchase Price as
adjusted under clause (a) for all transactions (which would have
affected such adjusted Purchase Price) made after the issuance or sale
of such rights, warrants, options or Convertible Securities.
(F) In case of the sale of any shares of Common Stock, any
Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or
Convertible Securities, the consideration received by the Corporation
therefor shall be deemed to be the gross sales price therefor without
deducting therefrom any expense paid or incurred by the Corporation or
any underwriting discounts or commissions or concessions paid or allowed
by the Corporation in connection therewith. In the event that any
securities shall be issued in connection with any other securities of
the Corporation, together comprising one integral transaction in which
no specific consideration is allocated among the securities, then each
of such securities shall be deemed to have been issued for such
consideration as the Board of Directors of the Corporation determines in
good faith; provided, however that if holders of in excess of 10% of the
then outstanding Series A Preferred Stock disagree with such
determination, the Corporation shall retain an independent investment
banking firm for the purpose of obtaining an appraisal.
(vi) Notwithstanding any other provision hereof, no
adjustment to the Conversion Price will be made
(A) upon the exercise of any of the options outstanding on the
date hereof under the Corporation's existing stock option plans; or
(B) upon the issuance or exercise of options which may
hereafter be granted with the approval of the Board of Directors, or
exercised, under the Corporation's 1996 Stock Option Plan or under any
other employee benefit plan of the
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Company to officers, directors or employees, but only with respect to
such options as are exercisable at prices no lower than the Closing Bid
Price (or, if the prices referenced in the definition of Closing Bid
Price cannot be determined, the Fair Market Value) of the Common Stock
as of the date of grant thereof; or
(C) upon the sale of any shares of Common Stock, warrants to
purchase Common Stock or Convertible Securities in a firm commitment
underwritten public offering, including, without limitation, shares sold
upon the exercise of any overallotment option granted to the
underwriters in connection with such offering; or
(D) upon issuance or exercise of the Placement Warrants (in
each case as defined in the placement agency agreement between the
Corpoation and the placement agent for sales of the Series A Preferred
Stock), or upon the issuance or conversion of the Preferred Stock
included in Liquidity Enhanced Exchangeable Preferred Stock Units of the
Company issued (i) on or prior to the Final Closing Date or (ii)
pursuant to the exercise of the Placement Warrants, or
(E) upon the issuance or sale of Common Stock or Convertible
Securities pursuant to the exercise of any rights, options or warrants
to receive, subscribe for or purchase, or any options for the purchase
of, Common Stock or Convertible Securities, whether or not such rights,
warrants or options were outstanding on the date of the original sale of
the Series A Preferred Stock or were thereafter issued or sold, provided
that an adjustment was either made or not required to be made in
accordance with Section 4(c)(i) in connection with the issuance or sale
of such securities or any modification of the terms thereof; or
(F) upon the issuance or sale og Common Stock upon conversion
or exchange of any Convertible Securities, provided that any adjustments
required to be made upon the issuance or sale of such Convertible
Securities or any modification of the terms thereof were so made, and
whether or not such Convertible Securities were outstanding on the date
of the original sale of the Series A Preferred Stock or were thereafter
issued or sold.
Section 4(c)(v)(E) shall nevertheless apply to any modification of the
rights of conversion, exchange or exercise of any of the securities
referred to in (A) through (C) or, to the extent effected with respect
to less than all of the outstanding Series A Preferred Stock, as the
case may be, (D) above other than automatic modifications made pursuant
to applicable anti-dilution provisions with respect to such securities.
(vii) As used in this Section 4(c), the term "Common
Stock" shall mean and include the Corporation's Common Stock authorized
on the date of the original issue of the Units and shall also include
any capital stock of any class of the Corporation thereafter authorized
which shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary liquidation, dissolution or
winding up of the Corporation; provided, however, that the shares
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issuable upon conversion of the Series A Preferred Stock shall include
only shares of such class designated in the Corporation's Certificate of
Incorporation as Common Stock on the date of the original issue of the
Units or (i), in the case of any reclassification, change,
consolidation, merger, sale or conveyance of the character referred to
in Section 4(c)(ii) hereof, the stock, securities or property provided
for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon
conversion of the Series A Preferred Stock as a result of a subdivision
or combination or consisting of a change in par value, or from par value
to no par value, or from no par value to par value, such shares of
Common Stock as so reclassified or changed.
(ix) Any determination as to whether an adjustment in the
Conversion Price in effect hereunder is required pursuant to Section
4(c), or as to the amount of any such adjustment, if required, shall be
binding upon the holders of the Series A Preferred Stock and the Company
if made in good faith by the Board of Directors of the Company.
(d) No Fractional Shares. No fractional shares or scrip
representing fractional shares of Common Stock shall be issued upon
conversion of shares of Series A Preferred Stock. If more than one
certificate evidencing shares of Series A Preferred Stock shall be
surrendered for conversion at one time by the same holder, the number of
full shares issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares of Series A Preferred Stock so
surrendered. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of any shares of Series A
Preferred Stock, the Corporation shall pay a cash adjustment in respect
of such fractional interest in an amount equal to the same fraction of
the Market Price as of the close of business on the day of conversion.
(e) Reservation of Shares; Transfer Taxes; Etc. The
Corporation shall at all times reserve and keep available, out of its
authorized and unissued shares of Common Stock, solely for the purpose
of effecting the conversion of the Series A Preferred Stock, such number
of shares of its Common Stock free of preemptive rights as shall be
sufficient to effect the conversion of all shares of Series A Preferred
Stock from time to time outstanding. The Corporation shall authorize and
reserve a sufficient number of shares of the Common Stock to permit the
conversion in full of the Series A Preferred Stock (including in the
event of a Reset Event, as defined in Section 5). The Corporation shall
use its best efforts to effect such authorization by the date which is
90 days following the Final Closing Date but in any event no later than
the date which is 270 days following the Final Closing Date. If such
authorization is not effected by the date which is 270 days following
the Final Closing Date, the holder shall be entitled at its option, to
require the Corporation to repurchase the shares of Series A Preferred
Stock then held by such holder at $100.00 per share. In the event
that on the date that a holder of Series A Preferred Stock elects to
convert such holder's shares of Series A Preferred Stock the Corporation
has not authorized and reserved a sufficient number of shares of Common
Stock to permit such conversion in full, the holder will be entitled
upon conversion to receive the fair market value per share of Common
Stock on account of the shares which would have been issuable to the
holder upon conversion but which the Corporation was unable to issue due
to the lack of authorized and reserved shares. The fair market value
shall be paid in cash, or, if the Corporation does not have sufficient
cash, then with secured demand notes. Fair market value per share of
Common Stock for purposes of this Section 4(e) shall mean the Closing
Bid Price per share of the Common Stock for the trading day immediately
preceding the
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conversion. The Corporation shall use its best efforts from time to
time, in accordance with the laws of the State of Delaware, to increase
the authorized number of shares of Common Stock if at any time the
number of shares of authorized, unissued and unreserved Common Stock
shall not be sufficient to permit the conversion of all the
then-outstanding shares of Series A Preferred Stock (including in the
event of a Reset Event, (as defined in Section 5).
The Corporation shall pay any and all issue or other taxes
that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of the Series A Preferred Stock. The
Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue or delivery of
Common Stock (or other securities or assets) in a name other than that
in which the shares of Series A Preferred Stock so converted were
registered, and no such issue or delivery shall be made unless and until
the person requesting such issue has paid to the Corporation the amount
of such tax or has established, to the satisfaction of the Corporation,
that such tax has been paid.
(f) Prior Notice of Certain Events. In case:
(i) the Corporation shall declare any dividend (or any
other distribution); or
(ii) the Corporation shall authorize the granting to the
holders of Common Stock of rights or warrants to subscribe for or
purchase any shares of stock of any class or of any other rights or
warrants; or
(iii) of any reclassification of Common Stock (other than
a subdivision or combination of the outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no par
value to par value);
or
(iv) of any consolidation or merger (including, without
limitation, a Merger Transaction) to which the Corporation is a party
and for which approval of any stockholders of the Corporation shall be
required, or of the sale or transfer of all or substantially all of the
assets of the Corporation or of any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or other
property; or
(v) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation (including, without
limitation, a Liquidation Event);
then the Corporation shall cause to be filed with the transfer agent for
the Series A Preferred Stock, and shall cause to be mailed to the
holders of record of the Series A Preferred Stock, at their last
addresses as they shall appear upon the stock transfer books of the
Corporation, at least 20 days prior to the applicable record date
hereinafter specified, a notice stating (x) the date on which a record
(if any) is to be taken for the purpose of such dividend, distribution
or granting of rights or warrants or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights or warrants are to be
determined and a description of the cash, securities or other property
to be received by such holders upon such dividend, distribution or
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granting of rights or warrants or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up or other Liquidation Event is
expected to become effective, the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable upon
such exchange, dissolution, liquidation or winding up or other
Liquidation Event and the consideration, including securities or other
property, to be received by such holders upon such exchange; provided,
however, that no failure to mail such notice or any defect therein or in
the mailing thereof shall affect the validity of the corporate action
required to be specified in such notice.
(g) Other Changes in Conversion Rate. The Corporation
from time to time may increase the Conversion Rate by any amount for any
period of time if the period is at least 20 days and if the increase is
irrevocable during the period. Whenever the Conversion Rate is so
increased, the Corporation shall mail to holders of record of the Series
A Preferred Stock a notice of the increase at least 15 days before the
date the increased Conversion Rate takes effect, and such notice shall
state the increased Conversion Rate and the period it will be in effect.
The Corporation may make such increases in the Conversion
Rate, in addition to those required or allowed by this Section 4, as
shall be determined by it, as evidenced by a resolution of the Board of
Directors, to be advisable in order to avoid or diminish any income tax
to holders of Common Stock resulting from any dividend or distribution
of stock or issuance of rights or warrants to purchase or subscribe for
stock or from any event treated as such for income tax purposes.
Notwithstanding anything to the contrary herein, in no case
shall the Conversion Price be adjusted to an amount less than $.01 per
share, the current par value of the Common Stock into which the Series A
Preferred Stock is convertible.
(h) Ambiguities/Errors. The Board of Directors of the
Corporation shall have the power to resolve any ambiguity or correct any
error in the provisions relating to the convertibility of the Series A
Preferred Stock, and its actions in so doing shall be final and
conclusive.
5. Conversion Price Reset Event. The Conversion Price
(subject to the adjustments pursuant to the provisions of Section 4(c)
above), is subject to adjustment on the date which is twelve (12) months
after the Final Closing Date (the "Reset Date") if the average Closing
Bid Price of the Common Stock for the thirty (30) consecutive trading
days immediately preceding the Reset Date (the "Reset Trading Price") is
less than 130% of the then applicable Conversion Price (a "Reset
Event"). Upon a Reset Event, the then applicable Conversion Price shall
be reduced to equal the greater of (i) the Reset Trading Price divided
by 1.3 and (ii) 50% of the then applicable Conversion Price. If there is
any change in the Conversion Price as a result of the preceding
sentence, then the Conversion Rate shall be changed accordingly as set
forth above. The Corporation shall prepare a certificate signed by the
principal financial officer of the Corporation setting forth the
Conversion Rate as of the Reset Date, showing in reasonable detail the
facts upon which such Conversion Rate is based, and such certificate
shall forthwith be filed with the transfer agent of the Series A
Preferred Stock. A notice stating that the Conversion Rate has been
adjusted pursuant to this paragraph, or that no adjustment is necessary,
14
and setting forth the Conversion Rate in effect as of the Reset Date
shall be mailed as promptly as practicable after the Reset Date by the
Corporation to all record holders of the Series A Preferred Stock at
their last addresses as they shall appear in the stock transfer books of
the Corporation.
6. Mandatory Conversion. At any time on or after the
date that is 12 months after the Final Closing Date, the Corporation, at
its option, may cause the Series A Preferred Stock to be converted in
whole, or in part, on a pro rata basis, into fully paid and
nonassessable shares of Common Stock at the then effective Conversion
Rate and such other securities and property as herein provided if the
Closing Bid Price of the Common Stock (or, if the prices referenced in
the definition of Closing Bid Price cannot be determined, the Fair
Market Value (as defined in Section 3(b)) of the Common Stock) shall
have exceeded 200% of the then applicable Conversion Price for at least
20 trading days in any 30 consecutive trading day period ending three
days prior to the date of conversion. Any shares of Series A Preferred
Stock so converted shall be treated as having been surrendered by the
holder thereof for conversion pursuant to Section 4 on the date of such
mandatory conversion (unless previously converted at the option of the
holder).
Not more than 60 nor less than 20 days prior to the date of
any such mandatory conversion, notice by first class mail, postage
prepaid, shall be given to the holders of record of the Series A
Preferred Stock to be converted, addressed to such holders at their last
addresses as shown on the stock transfer books of the Corporation. Each
such notice shall specify the date fixed for conversion, the place or
places for surrender of shares of Series A Preferred Stock, and the then
effective Conversion Rate pursuant to Section 4.
Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given by the Corporation on the
date deposited in the mail, whether or not the holder of the Series A
Preferred Stock receives such notice; and failure properly to give such
notice by mail, or any defect in such notice, to the holders of the
shares to be converted shall not affect the validity of the proceedings
for the conversion of any other shares of Series A Preferred Stock. On
or after the date fixed for conversion as stated in such notice, each
holder of shares called to be converted shall surrender the certificate
evidencing such shares to the Corporation at the place designated in
such notice for conversion. Notwithstanding that the certificates
evidencing any shares properly called for conversion shall not have been
surrendered, the shares shall no longer be deemed outstanding and all
rights whatsoever with respect to the shares so called for conversion
(except the right of the holders to convert such shares upon surrender
of their certificates therefor) shall terminate.
7. Voting Rights.
(a) General. Except as otherwise provided herein, in the
Certificate of Incorporation or the By-laws or as required by applicable
law, the holders of shares of Series A Preferred Stock, the holders of
shares of Common Stock and the holders of any other class or series of
shares entitled to vote with the Common Stock shall vote together as one
class on all matters submitted to a vote of stockholders of the
Corporation. In any such vote, each share of Series A Preferred Stock
shall entitle the holder thereof to cast the number of votes equal to
the number of votes which could be cast in such vote by a holder of the
Common Stock into which such share of Series A Preferred Stock is
15
convertible (regardless of whether the Corporation has sufficient
authorized Shares of Common Stock to issue upon the conversion of all
outstanding Series A Preferred Stock) on the record date for such vote,
or if no record date has been established, on the date such vote is
taken. Any shares of Series A Preferred Stock held by the Corporation
or any entity controlled by the Corporation shall not have voting rights
hereunder and shall not be counted in determining the presence of a
quorum.
(b) Class Voting Rights. In addition to any vote specified
in Section 7(a), so long as 50% of the shares of Series A Preferred
Stock (including those shares of Series A Preferred Stock issued or
issuable upon the exercise of the warrants issued to Paramount Capital,
Inc., the placement agent in connection with the offer and sale of the
Series A Preferred Stock or any other options for the purchase of
Series A Preferred Stock) shall be outstanding, the Corporation shall
not, without the affirmative vote or consent of the holders of at least
66.67% of all outstanding Series A Preferred Stock voting separately as
a class, (i) amend, alter or repeal any provision of the Certificate of
Incorporation, or the Bylaws of the Corporation so as adversely to
affect the relative rights, preferences, qualifications, limitations or
restrictions of the Series A Preferred Stock, (ii) declare or pay any
dividend or distribution on any securities of the Corporation other than
the Series A Preferred Stock pursuant to and accordance with the
provisions of this Certificate of Designations, or authorize the
repurchase of any securities of the Corporation, or (iii) authorize or
issue, or increase the authorized amount of, any security ranking prior
to the Series A Preferred Stock (A) upon a Liquidation Event or (B) with
respect to the payment of any dividends or distributions or (C) with
respect to voting rights. The vote as contemplated herein shall
specifically not be required for (x) issuances of Common Stock or
capital stock of the Corporation on parity with the Series A Preferred
Stock , (y) the authorization, issuance or increase in the amount of the
Series A Preferred Stock prior to the Final Closing Date or (z) any
consolidation or merger of the Corporation with or into another
corporation in which the Corporation is not the surviving entity,
a sale or transfer of all or part of the Corporation's assets for cash,
securities or other property, or a compulsory share exchange.
8. Outstanding Shares. For purposes of this Certificate
of Designations, all shares of Series A Preferred Stock shall be deemed
outstanding except (i) from the date, or the deemed date, of surrender
of certificates evidencing shares of Series A Preferred Stock, all
shares of Series A Preferred Stock converted into Common Stock, (ii)
from the date of registration of transfer, all shares of Series A
Preferred Stock held of record by the Corporation or any subsidiary of
the Corporation and (iii) any and all shares of Series A Preferred Stock
held in escrow prior to delivery of such stock by the Corporation to the
initial beneficial owners thereof.
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9. Status of Acquired Shares. Shares of Series A
Preferred Stock received upon conversion pursuant to Section 4 or
Section 5 or Section 6 or otherwise acquired by the Corporation will be
restored to the status of authorized but unissued shares of Preferred
Stock, without designation as to class, and may thereafter be issued,
but not as shares of Series A Preferred Stock.
10. Preemptive Rights. The Series A Preferred Stock is
not entitled to any preemptive or subscription rights in respect of any
securities of the Corporation.
11. No Amendment or Impairment. The Corporation shall
not amend its Certificate of Incorporation or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, for the
purpose of avoiding or seeking to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in carrying out
all such action as may be reasonably necessary or appropriate in order
to protect the rights of the holders of the Series A Preferred Stock
against impairment.
12. Severability of Provisions. Whenever possible, each
provision hereof shall be interpreted in a manner as to be effective and
valid under applicable law, but if any provision hereof is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity,
without invalidating or otherwise adversely affecting the remaining
provisions hereof. If a court of competent jurisdiction should
determine that a provision hereof would be valid or enforceable if a
period of time were extended or shortened or a particular percentage
were increased or decreased, then such court may make such change
as shall be necessary to render the provision in question effective and
valid under applicable law.
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IN WITNESS WHEREOF, Palatin Technologies, Inc. has caused this
certificate to be signed on its behalf by Edward J. Quilty, its Chairman
and Chief Executive Officer, this 21 day of February, 1997.
PALATIN TECHNOLOGIES, INC.
By: /s/ Edward J. Quilty
------------------------
Name: Edward J. Quilty
Title: Chairman and Chief Executive Officer
ATTEST:
/s/ John J. McDonough
- - ----------------------
Secretary