EXHIBIT 2
CERTIFICATE OF DESIGNATION OF
CONVERTIBLE PREFERRED STOCK, SERIES G
OF XOMA CORPORATION
The undersigned, Peter B. Davis and Christopher J. Margolin, hereby certify
that:
I. They are the duly elected and acting Vice President and
Secretary respectively, of XOMA Corporation, a Delaware corporation (the
"Company").
II. The Certificate of Incorporation of the Company
authorizes 1,000,000 shares of preferred stock, par value $.05 per share, of
which none are issued and outstanding.
III. The following is a true and correct copy of resolutions
duly adopted by the Board of Directors of the Company (the "Board of Directors")
at a meeting duly held on August 6, 1997, which constituted all requisite action
on the part of the Company for adoption of such resolutions.
RESOLUTIONS
WHEREAS, the Board of Directors is authorized to provide for
the issuance of the shares of preferred stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designations, powers, preferences and relative,
participating, optional or special rights of the shares of each such series and
the qualifications, limitations or restrictions thereof.
WHEREAS, the Board of Directors desires, pursuant to its
authority as aforesaid, to designate a new series of preferred stock, set the
number of shares constituting such series and fix the rights, preferences,
privileges and restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
hereby designates a new series of preferred stock and the number of shares
constituting such series and fixes the rights, preferences, privileges and
restrictions relating to such series as follows:
Section 1. Designation, Amount and Par Value. The series of
preferred stock shall be designated as Convertible Preferred Stock, Series G
(the "Preferred Stock"), and the number of shares so designated shall be 1,250
(which shall not be subject to increase without the consent of the holders
hereof as provided in Section 3). Each share of Preferred Stock shall have a par
value of $.05 per share and a stated value of $10,000 per share (the "Stated
Value").
Section 2. Dividends.
(a) Holders of Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors out of funds legally available
therefor, and the Company shall pay, cumulative dividends at the rate per share
(as a percentage of the Stated Value per share) equal to 5% per annum, payable,
in cash or shares of Common Stock (as defined in Section 7) at (subject to the
terms and conditions set fort herein) the option of the Company. Dividends on
the Preferred Stock shall be calculated on the basis of a 360-day year, shall
accrue daily commencing on the Original Issue Date (as defined in Section 7),
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 Company
legally available for the payment of dividends. Accrued dividends of the
Preferred Stock shall be paid on the date on which such Preferred Stock is
converted, provided, that the Company shall have the option to pay dividends
more frequently as and when declared by the Board of Directors. The party that
holds the Preferred Stock on an applicable record date for any dividend payment
will be entitled to receive such dividend payment and any other accrued and
unpaid dividends which accrued prior to such dividend payment date, without
regard to any sale or disposition of such Preferred Stock subsequent to the
applicable record date but prior to the applicable dividend payment date. Except
as otherwise provided herein, if at any time the Company pays less than the
total amount of dividends then accrued on account of the Preferred Stock, such
payment shall be distributed ratably among the holders of the Preferred Stock
based upon the number of shares held by each holder. Payment of dividends on the
Preferred Stock is further subject to the provisions of Section 5(c)(i). The
Company shall provide the holders semi-annual notice of its intention to pay
dividends in cash or shares of Common Stock, semi-annually in arrears,
applicable to such share of Preferred Stock. Such notice shall be delivered to
all Holders not less than 10 Trading Days prior to June 30 and December 31 of
each year for so long as shares of Preferred Stock are outstanding. Provided
that the Company is in compliance with its obligations under this Certificate of
Designation, the Purchase Agreement and the Registration Rights Agreement,
notwithstanding any other provision of this Section 2, the Company may elect by
written notice mailed to the Holders of the Preferred Stock at their address
appearing on the records of the Company not later than the payment date for such
dividend, not to declare or make payment of the amount of any semi-annual
dividend to the holders of shares of Preferred Stock on the required date, in
which case the accrued and unpaid dividends shall be calculated and paid on the
Conversion Date for such shares of Preferred Stock.
(b) Notwithstanding anything to the contrary contained
herein, the Company may not issue shares of Common Stock in payment of dividends
(and must deliver cash in respect thereof) on the Preferred Stock if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is insufficient to pay such dividends in shares of Common Stock;
(ii) the shares of Common Stock to be issued in respect
of such dividends are not registered for resale pursuant to an effective
registration statement that names the recipient of such dividend as a selling
stockholder thereunder and may not be sold without
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volume restrictions pursuant to Rule 144 promulgated under the Securities Act of
1933, as amended (the "Securities Act"), as determined by counsel to the Company
(which may be in-house counsel) pursuant to a written opinion letter, addressed
to the Company's transfer agent in the form and substance reasonably acceptable
to the holder;
(iii) the shares of Common Stock to be issued in respect
of such dividends are not listed on the Nasdaq National Market (or The New York
Stock Exchange) and any other exchange or quotation system on which the Common
Stock is then listed for trading;
(iv) the issuance of such shares would result in the
recipient thereof beneficially owning, in accordance with Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended, more than 4.999% of the
issued and outstanding shares of Common Stock;
(v) the Company has failed to timely satisfy its
obligations pursuant to any Conversion Notice (as defined in Section 5(a)(ii));
or
(vi) if the issuance of such shares would result in the
recipient thereof owning in excess of 19.99% of the issued and outstanding
shares of Common Stock.
(c) So long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 7), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect of,
any Junior Securities, 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, except for repurchases
effected by the Company on the open market, pursuant to a direct stock purchase
plan.
Section 3. Voting Rights. Except as otherwise provided herein
and as otherwise required by law, the Preferred Stock shall have no voting
rights. However, so long as any shares of Preferred Stock are outstanding, the
Company shall not and shall cause its subsidiary not to, without the affirmative
vote of the holders all of the shares of the Preferred Stock then outstanding,
(a) amend its certificate of incorporation, bylaws or other charter documents so
as to materially and adversely affect any dividend, conversion or transfer
rights of any Holder; (b) declare, authorize, set aside or pay any dividend or
other distribution with respect to the Common Stock except as permitted under
this Certificate of Designation and as would not materially and adversely affect
the rights of any Holder hereunder; (c) repay, repurchase or offer to repay,
repurchase or otherwise acquire shares of its Common Stock, except for
repurchases effected by the Company on the open market, pursuant to a direct
stock purchase plan; (d) authorize or create any class of equity or equity
equivalent security that ranks senior to the Preferred Stock; or (e) enter into
any agreement with respect to any of the foregoing.
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Section 4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the holders of Preferred Stock shall be entitled to receive out of the assets of
the Company, whether such assets are capital or surplus, for each share of
Preferred Stock an amount equal to the Stated Value plus all accrued but unpaid
dividends per share, whether declared or not, before any distribution or payment
shall be made to the holders of any Junior Securities, and if the assets of the
Company shall be insufficient to pay in full such amounts, then the entire
assets to be distributed to the holders of Preferred Stock shall be distributed
among the holders of Preferred Stock ratably in accordance with the respective
amounts that would be payable on such shares if all amounts payable thereon were
paid in full. A sale, conveyance or disposition of all or substantially all of
the assets of the Company or the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of, or a consolidation or merger of the Company with or into
any other company or companies shall not be treated as a Liquidation, but
instead shall be subject to the provisions of Section 5. The Company shall mail
written notice of any such Liquidation, not less than 45 days prior to the
payment date stated therein, to each record holder of Preferred Stock.
Section 5. Conversion.
(a)(i) Each share of Preferred Stock (in minimum amounts of
$100,000 or such lesser amounts as any converting holder of Preferred Stock then
holds) shall be convertible into shares of Common Stock (subject to reduction
pursuant to Section 5(a)(iii) and Section 3.8 of the Purchase Agreement (as
defined in Section 7)) at the Conversion Ratio (as defined in Section 7) at the
option of the holder in whole or in part at any time after the Original Issue
Date. The holder shall effect conversions by surrendering the certificate or
certificates representing the shares of Preferred Stock to be converted to the
Company, together with the form of conversion notice attached hereto as Exhibit
A (the "Holder Conversion Notice"). Each Holder Conversion Notice shall specify
the number of shares of Preferred Stock to be converted and the date on which
such conversion is to be effected, which date may not be prior to the date the
holder delivers such Holder Conversion Notice by facsimile (the "Holder
Conversion Date"). If no Holder Conversion Date is specified in a Holder
Conversion Notice, the Holder Conversion Date shall be the date that the Holder
Conversion Notice is deemed delivered pursuant to Section 5(i). Subject to
Sections 5(b) and 5(a)(iii) hereof and Section 4.10 of the Purchase Agreement,
each Holder Conversion Notice, once given, shall be irrevocable. If the holder
is converting less than all shares of Preferred Stock represented by the
certificate or certificates tendered by the holder with the Holder Conversion
Notice, or if a conversion hereunder cannot be effected in full for any reason,
the Company shall promptly deliver to such holder (in the manner and within the
time set forth in Section 5(b)) a certificate for such number of shares as have
not been converted.
(ii) On or after the third anniversary of the Original
Issue Date, the Company may require the conversion of all or a portion of the
then outstanding and unconverted shares of Preferred Stock at the Conversion
Ratio (subject to reduction pursuant to Section 5(a)(iii)) by delivering to the
holder of such shares to be converted a notice in the form attached hereto as
Exhibit B (the "Company Conversion Notice"), provided, that, no such conversion
is permitted unless at the time of the delivery of the Company Conversion Notice
and on the
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Company Conversion Date (as defined below), (a) an Underlying Shares
Registration Statement covering the resale of the shares of Common Stock
issuable upon such conversion is effective, (b) the shares of Common Stock
issuable upon such conversion are listed for trading on the Nasdaq National
Market (or The New York Stock Exchange or any other principal exchange) and any
other exchange or quotation system on which the Common Stock is then listed for
trading and (c) the Company is in compliance with all of its obligations under
this Certificate of Designation, the Purchase Agreement and the Registration
Rights Agreement. Each Company Conversion Notice shall specify the number of
shares of Preferred Stock to be converted and the date on which such conversion
is to be effected, which date may not be prior to the day after the Company
delivers such Company Conversion Notice by facsimile (the "Company Conversion
Date"). If no Company Conversion Date is specified in a Company Conversion
Notice, the Company Conversion Date shall be the date that the Company
Conversion Notice is deemed delivered pursuant to Section 5(i). A Holder
Conversion Date and a Company Conversion Date are sometimes referred to herein
as the "Conversion Date" and a Holder Conversion Notice and a Company Conversion
Notice are sometimes referred to as a "Conversion Notice." Any conversion
pursuant to this Section 5(a)(ii) shall be subject to Section 5(b) with respect
to consequences of the Company's failure to deliver shares of Common Stock in
respect of a conversion under this Section. If the Company is converting less
than all shares of Preferred Stock represented by the certificate or
certificates tendered by the holder in response to a Company Conversion Notice,
or if a conversion hereunder cannot be effected in full for any reason, the
Company shall promptly deliver to such tendering holder (in the manner and
within the time set forth in Section 5(b)) a certificate for such number of
shares as have not been converted.
(iii) Certain Regulatory Approval. If on the Conversion
Date applicable to any conversion, (A) the Common Stock is then listed for
trading on the Nasdaq National Market, the American Stock Exchange or if the
rules of the Nasdaq Stock Market, Inc. are hereafter amended to extend or adopt
rules similar to Rule 4460(i) promulgated thereby (or any successor or
replacement provision thereof) to the Nasdaq SmallCap Market and the Company's
Common Stock is listed for trading on such market or exchange, (B) the
Conversion Price then in effect is such that the aggregate number of shares of
Common Stock that would then be issuable upon conversion of all outstanding
shares of Preferred Stock, together with any shares of Common Stock previously
issued upon conversion of Preferred Stock and in respect of payment of dividends
hereunder, would equal or exceed 20% of the number of shares of Common Stock
outstanding on the Original Issue Date (the "Issuable Maximum"), and (C) the
Company has not previously obtained Shareholder Approval (as defined below),
then the Company shall issue to any holder so requesting conversion of Preferred
Stock its pro rata portion of the Issuable Maximum in the same ratio that the
number of shares of Preferred Stock held by any such holder bears to all shares
of Preferred Stock then outstanding and, with respect to any shares of Common
Stock that otherwise would have been issuable to such holder in respect of the
Conversion Notice at issue or in respect of payment of dividends hereunder in
excess of such holders pro rata portion of the Issuable Maximum (the "Surplus
Amount", the Company shall have the option to either (1) as promptly as
possible, but in no event later than 90 days after such Conversion Date, convene
a meeting of the holders of the Common Stock and use its reasonable efforts
(which may include, among other things, hiring a proxy solicitor) to obtain the
Shareholder Approval and the approval of the Company's Board of Directors or (2)
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redeem, from funds legally available therefor at the time of such redemption,
such holder's Surplus Amount of the Preferred Stock subject to such Conversion
Notice at a price per share equal to the product of (i) the average Per Share
Market Value for the five (5) Trading Days immediately preceding (x) the
Conversion Date or (y) the date of payment in full by the Company of such
redemption price, whichever is greater, and (ii) the Conversion Ratio calculated
on the Conversion Date; provided, however, that if the Company has elected to
obtain Shareholder Approval under clause (1) above, the holders of a majority of
the outstanding shares of Preferred Stock may request, in lieu of such meeting,
that the Company redeem each holder's Surplus Amount as set forth herein and
provided, further that if the Company fails for any reason to obtain such
Shareholder Approval within the time period set forth in (1) above, the Company
shall be obligated to redeem the Preferred Stock not converted as a result of
the provisions of this Section in accordance with the provisions of clause (2)
above, and in such case the interest contemplated by the immediately succeeding
sentence shall be deemed to accrue from the Conversion Date. If the holder has
requested that the Company redeem shares of Preferred Stock pursuant to this
Section and the Company fails for any reason to pay the redemption price under
clause (2) above within seven days after the Conversion Date, the Company will
pay interest on such redemption price at a rate of 15% per annum to the
converting holder of Preferred Stock, accruing from the Conversion Date until
the redemption price plus any accrued interest thereon is paid in full. The
entire redemption price, including interest thereon, shall be paid in cash.
"Shareholder Approval" means the approval by a majority of the total votes cast
on the proposal, in person or by proxy, at a meeting of the shareholders of the
Company held in accordance with the Company's Certificate of Incorporation and
by-laws, of the issuance by the Company of shares of Common Stock exceeding the
Issuable Maximum as a consequence of the conversion of Preferred Stock into
Common Stock at a price less than the greater of the book or market value on the
Original Issue Date as and to the extent required pursuant to Rule 4460(i) of
the Nasdaq Stock Market or Rule 713 of the American Stock Exchange (or any
successor or replacement provision thereof), as applicable.
(b) Not later than two Trading Days after receipt by the
Company of a properly completed and duly executed Conversion Notice and an
original share certificate representing the shares of Preferred Stock to be
converted, the Company will deliver to the holder (i) a certificate or
certificates which shall be free of restrictive legends and trading restrictions
(other than those required by Section 4.1(b) of the Purchase Agreement)
representing the number of shares of Common Stock being acquired upon the
conversion of shares of Preferred Stock (subject to reduction pursuant to
Section 5(a)(iii) and Section 3.8 of the Purchase Agreement), (ii) one or more
certificates representing the number of shares of Preferred Stock not converted,
(iii) a bank check in the amount of accrued and unpaid dividends (if the Company
has elected to pay accrued dividends in cash) and (iv) if the Company has
elected to pay accrued dividends in shares of Common Stock, certificates, which
shall be free of restrictive legends and trading restrictions (other than those
required by the Purchase Agreement), representing such number of Shares of
Common Stock as equals such dividend divided by the Conversion Price on the
Conversion Date; provided, however, that the Company shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon
conversion of any shares of Preferred Stock until certificates evidencing such
shares of Preferred Stock are delivered for conversion to the Company, or the
holder of such Preferred Stock notifies the Company that such certificates have
been lost, stolen or destroyed and provides a bond (or other adequate
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security) reasonably satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection therewith. If in the case of any
Conversion Notice such certificate or certificates, including for purposes
hereof, any shares of Common Stock to be issued on the Conversion Date on
account of accrued but unpaid dividends hereunder, are not delivered to or as
directed by the applicable holder by the second Trading Day after receipt by the
Company of a properly completed and duly executed Conversion Notice and an
original share certificate representing the shares of Preferred Stock to be
converted, the holder shall be entitled by written notice to the Company at any
time on or before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for conversion.
If the Company fails to deliver to the holder such certificate or certificates
pursuant to this Section, including for purposes hereof, any shares of Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
dividends hereunder, prior to the fourth Trading Day after receipt by the
Company of a properly completed and duly executed Conversion Notice and an
original share certificate representing the shares of Preferred Stock to be
converted, the Company shall pay to such holder, in cash, as liquidated damages
and not as a penalty, $2,500 for each day after such fourth Trading Day until
such certificates are delivered. If the Company fails to deliver to the holder
such certificate or certificates pursuant to this Section prior to the 11th day
after receipt by the Company of a properly completed and duly executed
Conversion Notice and an original share certificate representing the shares of
Preferred Stock to be converted, the Company shall, at the holder's option (i)
redeem, from funds legally available therefor at the time of such redemption,
such number of shares of Preferred Stock then held by such holder, as requested
by such holder, and (ii) pay all accrued but unpaid dividends on account of the
Preferred Stock for which the Company shall have failed to issue Common Stock
certificates hereunder, in cash. The redemption price shall be equal to the sum
of (A) the aggregate of all accrued but unpaid dividends, plus (B) the number of
shares of Preferred Stock then held by such holder multiplied by (1) the average
Per Share Market Value for the five (5) Trading Days immediately preceding (x)
the Conversion Date or (y) the date of payment in full by the Company of such
prepayment price, whichever is greater, multiplied by, (2) the Conversion Ratio
calculated on the Conversion Date. If the holder has requested that the Company
redeem shares of Preferred Stock pursuant to this Section and the Company fails
for any reason to pay the redemption price under (2) above within seven days
after such notice is deemed delivered pursuant to Section 5(i), the Company will
pay interest on the redemption price at a rate of 15% per annum, in cash to such
holder, accruing from such seventh day until the redemption price and any
accrued interest thereon is paid in full. Nothing herein shall limit a holder's
right to pursue actual damages for the Company's failure to deliver certificates
representing shares of Common upon conversion within the period specified herein
(including, without limitation, damages relating to any purchase of shares of
Common Stock by such holder to make delivery on a sale effected in anticipation
of receiving certificates representing shares of Common Stock upon conversion,
such damages to be in an amount equal to (A) the aggregate amount paid by such
holder for the shares of Common Stock so purchased minus (B) the aggregate
amount of net proceeds, if any, received by such holder from the sale of the
shares of Common Stock issued by the Company pursuant to such conversion), and
such holder shall have the right to pursue all remedies available to it at law
or in equity (including, without limitation, a decree of specific performance
and/or injunctive relief).
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(c) (i) The conversion price for each share of Preferred
Stock (the "Conversion Price") in effect on any Conversion Date shall be, (A) at
any time prior to February 13, 1998, the lesser of (a) 140% of the average Per
Share Market Value for the five (5) Trading Days immediately preceding the
Original Issue Date (the "Initial Conversion Price") or (b) the "Applicable
Percentage" (as defined below) of the average Per Share Market Value for the
five (5) Trading Days immediately preceding the Conversion Date, or (B) at any
time on or after February 13, 1998, the "Applicable Percentage" of the average
Per Share Market Value for the five (5) Trading Days immediately preceding the
Conversion Date; provided that, (a) if the Underlying Shares Registration
Statement is not filed on or prior to the 30th day after the Original Issue
Date, or (b) the Company fails to file with the Commission a request for
acceleration in accordance with Rule 12d1-2 promulgated under the Securities
Exchange Act of 1934, as amended, within five (5) Trading Days of the date that
the Company is notified (orally or in writing, whichever is earlier) by the
staff of the Commission that an Underlying Shares Registration Statement will
not be "reviewed," or not subject to further review or (c) if the Underlying
Shares Registration Statement is not declared effective by the Commission on or
prior to the 90th day after the Original Issue Date, or (d) if such Underlying
Shares Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement) at any
time prior to the expiration of the "Effectiveness Period" (as such term as
defined in the Registration Rights Agreement), without being succeeded within 10
Trading Days by a subsequent Underlying Shares Registration Statement filed with
and declared effective by the Commission, or (e) if trading in the Common Stock
shall be suspended for any reason (other than as a result of the suspension of
trading in securities generally) for more than five (5) Trading Days in the
aggregate, or (f) if the conversion rights of the holders of Preferred Stock
hereunder are suspended for five (5) consecutive Trading Days (other than as a
result of the suspension of trading in securities on such market or exchange
generally or temporary suspensions pending the release of material information
or due to circumstances within the Company's control, which may include among
other things, suspension of the effectiveness of the Underlying Securities
Registration Statement by the Commission or a suspension imposed by the
Company's board of directors pending any release of material non-public
information) or (g) if the Company breaches in a material respect any covenant
or other material term or condition to the Purchase Agreement (other than a
representation or warranty contained therein), the Registration Rights Agreement
or any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby, and such breach continues
for a period of thirty (30) days after written notice thereof to the Company
(any such failure being referred to as an "Event," and for purposes of clauses
(a), (c) and (f) the date on which such Event occurs, or for purposes of clause
(b) the date on which such five (5) Trading Days period is exceeded, or for
purposes of clause (d) the date which such 10 Trading Day- period is exceeded,
or for purposes of clause (e) the date on which such three Trading Day period is
exceeded, or for clause (g) the date on which such thirty (30) day period is
exceeded, being referred to as "Event Date"), the Conversion Price shall be
decreased by 1.5% each month (i.e., the Conversion Price would decrease by 1.5%
as of the Event Date and an additional 1.5% as of the first monthly anniversary
of the Event Date) until the earlier to occur of the second month anniversary
after the Event Date and such time as the applicable Event is cured. Commencing
the second month anniversary after the Event Date, the Company shall pay to the
holders of the Preferred Stock $25,000 (each holder being entitled to receive
such portion of
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such amount as equals its pro rata portion of the Preferred Stock then
outstanding) in cash as liquidated damages, and not as a penalty on the first
day of each monthly anniversary of the Event Date until such time as the
applicable Event, is cured. Any decrease in the Conversion Price pursuant to
this Section shall continue notwithstanding the fact that the Event causing such
decrease has been subsequently cured. The provisions of this Section are not
exclusive and shall in no way limit the Company's obligations under the
Registration Rights Agreement. "Applicable Percentage" means (i) 100% if the
Conversion Date or any redemption or repurchase date, if applicable, occurs on
or prior to the 30th day after the Original Issue Date, (ii) 98% if the
Conversion Date or any redemption or repurchase date, if applicable, occurs on
or after the 31st and before the 60th day after the Original Issue Date, (iii)
96% if the Conversion Date or any redemption or repurchase date, if applicable,
is on or after the 61st and before the 90th day after the Original Issue Date,
(iv) 94% if the Conversion Date or any redemption or repurchase date, if
applicable, occurs on or after the 91st and before the 120th day after the
Original Issue Date, (v) 92% if the Conversion Date or any redemption or
repurchase date, if applicable, occurs on or after the 121st and before the
150th day after the Original Issue Date, (vi) 90% if the Conversion Date or any
redemption or repurchase date, if applicable, occurs on or after the 151st and
before the 180th day after the Original Issue Date, and (vii) 88% if the
Conversion Date or any redemption or repurchase date, if applicable, is more
than 180 days after the Original Issue Date (the "Maximum Conversion Price").
(ii) If the Company, at any time while any shares of
Preferred Stock are outstanding, (a) shall pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities payable
in shares of Common Stock, (b) subdivide outstanding shares of Common Stock into
a larger number of shares, (c) combine outstanding shares of Common Stock into a
smaller number of shares, or (d) issue by reclassification of shares of Common
Stock any shares of capital stock of the Company, the Initial Conversion Price
or Maximum Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section 5(c)(ii) shall become effective
immediately after the record date for the determination of stockholders 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.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights or warrants to all holders
of Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Per Share Market Value of Common Stock
at the record date mentioned below, the Initial Conversion Price or Maximum
Conversion Price shall be multiplied by a fraction, of which the denominator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become
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effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Initial Conversion Price or Maximum
Conversion Price pursuant to this Section 5(c)(iii), if any such right or
warrant shall expire and shall not have been exercised, the Initial Conversion
Price or Maximum Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Initial Conversion Price or Maximum Conversion Price made pursuant to the
provisions of this Section 5 after the issuance of such rights or warrants) had
the adjustment of the Initial Conversion Price or Maximum Conversion Price made
upon the issuance of such rights or warrants been made on the basis of offering
for subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders of Common Stock
(and not to holders of Preferred Stock) evidences of its indebtedness or assets
or rights or warrants to subscribe for or purchase any security (excluding those
referred to in Sections 5(c)(ii) and (iii) above), then in each such case the
Initial Conversion Price or Maximum Conversion Price at which each share of
Preferred Stock shall thereafter be convertible shall be determined by
multiplying the Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Per Share Market Value of
Common Stock determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value of the Common Stock on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of Common Stock as determined by the Board of Directors in
good faith; provided, however, that in the event of a distribution exceeding ten
percent (10%) of the net assets of the Company, such fair market value shall be
determined by a nationally recognized or major regional investment banking firm
or firm of independent certified public accountants of recognized standing
(which may be the firm that regularly examines the financial statements of the
Company) (an "Appraiser") selected in good faith by the holders of a majority in
interest of the shares of Preferred Stock then outstanding; and provided,
further, that the Company, after receipt of the determination by such Appraiser
shall have the right to select an additional Appraiser, in good faith, in which
case the fair market value shall be equal to the average of the determinations
by each such Appraiser. In either case the adjustments shall be described in a
statement provided to the holders of Preferred Stock of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(v) All calculations under this Section 5 shall be made
to the nearest cent or the nearest whole share, as the case may be.
(vi) Whenever the Initial Conversion Price or Maximum
Conversion Price is adjusted pursuant to Section 5(c)(ii),(iii) or (iv), the
Company shall promptly mail to
10306-00023/465270.8
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each holder of Preferred Stock, a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(vii) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person
pursuant to which (i) a majority of the Company's Board of Directors will not
constitute a majority of the board of directors of the surviving entity or (ii)
less than 65% of the outstanding shares of the capital stock of the surviving
entity will be held by the same shareholders of the Company, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the holders of the Preferred Stock then
outstanding shall have the right thereafter to, at their option, (A) convert
such shares only into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the holders of the Preferred Stock shall be entitled upon such
event to receive such amount of securities, cash or property as the shares of
the Common Stock of the Company into which such shares of Preferred Stock could
have been converted immediately prior to such reclassification, consolidation,
merger, sale, transfer or share exchange would have been entitled or (B) require
the Company to redeem, from funds legally available therefor at the time of such
redemption, its shares of Preferred Stock at a price per share equal to the
product of (i) the average Per Share Market Value for the five (5) Trading Days
immediately preceding (1) the effective date, the date of the closing or the
date of the announcement, as the case may be, of the reclassification,
consolidation, merger, sale, transfer or share exchange the triggering such
redemption right or (2) the date of payment in full by the Company of the
redemption price hereunder, whichever is greater, and (ii) the Conversion Ratio
calculated on the date of the closing or the effective date, as the case may be,
of the reclassification, consolidation, merger, sale, transfer or share exchange
triggering such redemption right, as the case may be. The entire redemption
price shall be paid in cash, and the terms of payment of such redemption price
shall be subject to the provisions set forth in Section 6(b). The terms of any
such consolidation, merger, sale, transfer or share exchange shall include such
terms so as to continue to give to the holder of Preferred Stock the right to
receive the securities, cash or property set forth in this Section 5(c)(vii)
upon any conversion or redemption following such consolidation, merger, sale,
transfer or share exchange. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or
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purchase any shares of capital stock of any class or
of any rights; or
D. the approval of any stockholders of the Company shall
be required in connection with any reclassification
of the Common Stock of the Company, any consolidation
or merger to which the Company is a party, any sale
or transfer of all or substantially all of the assets
of the Company, of any compulsory share of exchange
whereby the Common Stock is converted into other
securities, cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of
the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last addresses as they shall appear upon
the stock books of the Company, at least 15 Trading 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 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 Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. Holders are entitled
to convert shares of Preferred Stock during the 30-day period commencing the
date of such notice to the effective date of the event triggering such notice.
(ix) If the Company (i) makes a public announcement that
it intends to enter into a Change of Control Transaction (as defined below) or
(ii) any person, group or entity (including the Company, but excluding a Holder
or any affiliate of a Holder) publicly announces a bona fide tender offer,
exchange offer or other transaction to purchase 50% or more of the Common Stock
(such announcement being referred to herein as a "Major Announcement" and the
date on which a Major Announcement is made, the "Announcement Date"), then, in
the event that a Holder seeks to convert shares of Preferred Stock on or
following the Announcement Date, the Conversion Price shall, effective upon the
Announcement Date and continuing through the earlier to occur of the
consummation of the proposed transaction or tender offer, exchange offer or
other transaction and the Abandonment Date (as defined below), be equal to the
lower of (x) the average Per Share Market Value on the five Trading Days
immediately preceding (but not including) the Announcement Date and (y) the
Conversion Price in effect on the Conversion Date for such Preferred Stock.
"Abandonment Date" means with
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respect to any proposed transaction or tender offer, exchange offer or other
transaction for which a public announcement as contemplated by this paragraph
has been made, the date upon which the Company (in the case of clause (i) above)
or the person, group or entity (in the case of clause (ii) above) publicly
announces the termination or abandonment of the proposed transaction or tender
offer, exchange offer or another transaction which caused this paragraph to
become operative.
(d) If at any time conditions shall arise by reason of action
taken by the Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might materially and
adversely affect the rights of the holders of Preferred Stock (different than or
distinguished from the effect generally on rights of holders of any class of the
Company's capital stock) or if at any time any such conditions are expected to
arise by reason of any action contemplated by the Company, the Company shall
mail a written notice briefly describing the action contemplated and the
material adverse effects of such action on the rights of the holders of
Preferred Stock at least 15 Trading Days prior to the effective date of such
action, and an Appraiser selected by the holders of majority in interest of the
Preferred Stock shall give its opinion as to the adjustment, if any (not
inconsistent with the standards established in this Section 5), of the
Conversion Price (including, if necessary, any adjustment as to the securities
into which shares of Preferred Stock may thereafter be convertible) and any
distribution which is or would be required to preserve without diluting the
rights of the holders of shares of Preferred Stock; provided, however, that the
Company, after receipt of the determination by such Appraiser, shall have the
right to select an additional Appraiser, in good faith, in which case the
adjustment shall be equal to the average of the adjustments recommended by each
such Appraiser. The Board of Directors shall make the adjustment recommended
forthwith upon the receipt of such opinion or opinions or the taking of any such
action contemplated, as the case may be; provided, however, that no such
adjustment of the Conversion Price shall be made which in the opinion of the
Appraiser(s) giving the aforesaid opinion or opinions would result in an
increase of the Conversion Price to more than the Conversion Price then in
effect.
(e) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock solely for
the purpose of issuance upon conversion of Preferred Stock and payment of
dividends on Preferred Stock, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
holders of Preferred Stock, not less than such number of shares of Common Stock
as shall (subject to any additional requirements of the Company as to
reservation of such shares set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 5(c)) upon the
conversion of all outstanding shares of Preferred Stock and payment of dividends
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and freely tradeable.
(f) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but shall instead round to the nearest whole share. All cash payments
hereunder, whether for dividends, upon redemptions or otherwise, shall be
rounded to the nearest $.01.
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(g) The issuance of certificates for shares of Common Stock
on conversion of Preferred Stock shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
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 certificate upon
conversion in a name other than that of the holder of such shares of Preferred
Stock so converted and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(h) Shares of Preferred Stock converted into Common Stock
shall be canceled and shall have the status of authorized but unissued shares of
undesignated stock.
(i) Any and all notices or other communications or deliveries
to be provided by the holders of the Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the Legal Department of the Company at
the facsimile telephone number or address of the principal place of business of
the Company as set forth in the Purchase Agreement. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile or sent by a nationally
recognized overnight courier service, addressed to each holder of Preferred
Stock at the facsimile telephone number or address of such holder appearing on
the books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the holder. 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 telephone number specified in this
Section prior to 7:00 p.m. (Eastern Time), (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 7:00 p.m. (New
York Time) on any date and earlier than 11:59 p.m. (New York Time) on such date,
(iii) upon receipt, if sent by a nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
Section 6. Redemptions.
(a) All outstanding and unconverted shares of Preferred Stock
on the third anniversary of the Original Issue Date may, at the Company's
option, be converted pursuant to Section 5(a)(ii) or redeemed by the Company
pursuant to this Section 6(a), from funds legally available therefor at a price
per share of Preferred Stock equal to 112% of the aggregate Stated Value of the
outstanding Preferred Stock plus accrued dividends. Thereafter, all shares of
Preferred Stock shall cease to be outstanding and shall have the status of
authorized but undesignated stock. The entire redemption price shall be paid in
cash.
(b) If any portion of the applicable redemption price under
Section 6(a) shall not be paid by the Company within seven (7) calendar days
after the date due, interest shall accrue thereon at the rate of 15% per annum
until the redemption price plus all such interest is paid in
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full (which amount shall be paid as liquidated damages and not as a penalty). In
addition, if any portion of such redemption price remains unpaid for more than 7
calendar days after the date due, the holder of the Preferred Stock subject to
such redemption may elect, by written notice to the Company given within 30 days
after the date due, to either (i) demand conversion in accordance with the
formula and the time frame therefor set forth in Section 5 of all of the shares
of Preferred Stock for which such redemption price, plus accrued liquidated
damages thereof, has not been paid in full (the "Unpaid Redemption Shares"), in
which event the Per Share Market Price for such shares shall be the lower of the
Per Share Market Price calculated on the date such redemption price was
originally due and the Per Share Market Price as of the holder's written demand
for conversion, or (ii) invalidate ab initio such redemption, notwithstanding
anything herein contained to the contrary. If the holder elects option (i)
above, the Company shall within three (3) Trading Days of its receipt of such
election deliver to the holder the shares of Common Stock issuable upon
conversion of the Unpaid Redemption Shares subject to such holder conversion
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the Holder elects option (ii) above, the Company shall promptly, and in any
event not later than three (3) Trading Days from receipt of holder's notice of
such election, return to the holder all of the Unpaid Redemption Shares.
Section 7. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Common Stock" means the Company's common stock, $.0005 par value
per share, of the Company and stock of any other class into which such shares
may hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which the
numerator is Stated Value plus accrued but unpaid dividends (including any
accrued but unpaid interest thereon) but only to the extent not paid in shares
of Common Stock in accordance with the terms hereof, and of which the
denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other equity
securities of the Company which are junior in rights and liquidation preference
to the Preferred Stock.
"Original Issue Date" shall mean 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.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
National Market or other stock exchange or quotation system on which the Common
Stock is then listed or if there is no such price on such date, then the closing
bid price on such exchange or quotation system on the date nearest preceding
such date, or (b) if the Common Stock is not listed then on the Nasdaq National
Market or any stock exchange or quotation system, the closing bid price for a
share of Common Stock in the over-the-counter market, as reported by the Nasdaq
Stock Market or in the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its
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functions of reporting prices) at the close of business on such date, or (c) if
the Common Stock is not then reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the holder, or (d) if the
Common Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the holders
of a majority in interest of the shares of the Preferred Stock; provided,
however, that the Company, after receipt of the determination by such Appraiser,
shall have the right to select an additional Appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
Appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of August 13, 1997, among the Company and the
original holders of the Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of August 13, 1997, by and among the Company and the
original holders of Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is traded
on the Nasdaq National Market or other stock exchange or market on which the
Common Stock has been listed, or (b) if the Common Stock is not listed on the
Nasdaq National Market or any stock exchange or market, a day on which the
Common Stock is traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or (c) if the Common Stock is not quoted on the OTC Bulletin
Board, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices); provided,
however, that in the event that the Common Stock is not listed or quoted as set
forth in (a), (b) and (c) hereof, then Trading Day shall mean any day except
Saturday, Sunday and any day which shall be a legal holiday or a day on which
banking institutions in the State of New York are authorized or required by law
or other government action to close.
"Underlying Shares" means the number of shares of Common Stock
into which the Shares are convertible in accordance with the terms hereof and
the Purchase Agreement.
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RESOLVED FURTHER, that the Vice President and Secretary of the
Company be, and they hereby are, authorized and directed to prepare, execute,
verify, and file with the Secretary of State of Delaware, a Certificate of
Designation in accordance with these resolutions and as required by law.
IN WITNESS WHEREOF, XOMA Corporation has caused its corporate seal
to be hereunto affixed and this certificate to be signed by Peter B. Davis, its
Vice President, and attested by Christopher J. Margolin, its Secretary, this ___
day of August, 1997
XOMA CORPORATION
By:________________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(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 G
Convertible Preferred Stock indicated below, into shares of Common Stock, par
value $.0005 per share (the "Common Stock"), of XOMA Corporation (the "Company")
according to the conditions hereof, as of the date written below. If shares are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the holder for any
conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Number of shares of Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name
Address
EXHIBIT B
NOTICE OF CONVERSION AT
THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of XOMA Corporation (the "Company")
hereby notifies the addressee hereof that the Company hereby elects to exercise
its right to convert [ ] shares of its Series G Convertible Preferred Stock (the
"Preferred Stock") held by the Holder into shares of Common Stock, par value
$.0005 per share (the "Common Stock") of the Company according to the terms
hereof, as of the date written below. No fee will be charged to the Holder for
any conversion hereunder, except for such transfer taxes, if any which may be
incurred by the Company if shares are to be issued in the name of a person other
than the person to whom this notice is addressed.
Conversion calculations:
Date to effect Conversion
Number of shares of Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Name of Holder
Address of Holder
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