CERTIFICATE OF DESIGNATION OF
CONVERTIBLE PREFERRED STOCK, SERIES H
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 321 shares 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 meetings
duly held on August 6, 1997 and May 20, 1998, 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 H (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").
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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;
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(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 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,
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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.
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.
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(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
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 and the
Series G Preferred Stock, together with any shares of Common Stock previously
issued upon conversion of Preferred Stock or Series G Preferred Stock and in
respect of payment of dividends hereunder or thereunder, 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
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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)
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)
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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 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
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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).
(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 December 26, 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 December 26, 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
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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 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
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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
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
10
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 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
11
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 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
12
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
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
13
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.
(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.
14
(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 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
15
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 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
16
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, as amended by the First Amendment to
Convertible Preferred Stock Purchase Agreement, dated as of January 1, 1998, and
as further amended by the Second Amendment to Convertible Preferred Stock
Purchase Agreement, dated as of June 26, 1998, among the Company and the
original holders of the Preferred Stock.
"Preferred Stock" has the meaning set forth in Section 1 hereto.
"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.
"Series G Preferred Stock" means the Convertible Preferred Stock, Series G,
par value $.05 per share, of the Company.
"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.
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.
17
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 25th day
of June, 1998.
XOMA CORPORATION
By:
----------------------------------
Peter B. Davis
Vice President, Finance and
Chief Financial Officer
Attest:
By:
-------------------------------------
Christopher J. Margolin
Vice President, General Counsel
and Secretary
18
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 Convertible
Preferred Stock, Series H 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 Convertible Preferred Stock, Series H
(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