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EXHIBIT 4.7
TERMS OF CONVERTIBLE PREFERRED STOCK
OF NEOTHERAPEUTICS, INC.
Section 1. Designation, Amount and Par Value. The series of
preferred stock shall be designated as 7% Series [ ] Preferred Stock (the
"Preferred Stock") and the number of shares so designated shall be [ ] (which
shall not be subject to increase without the consent of the holders of the
Preferred Stock (each, a "Holder" and collectively, the "Holders")). Each share
of Preferred Stock shall have a par value of $.001 and a stated value of $10,000
(the "Stated Value").
Section 2. Dividends.
(a) Holders shall be entitled to receive, when and as declared
by the Board of Directors out of funds legally available therefor, and the
Corporation shall pay, cumulative dividends at the rate per share (as a
percentage of the Stated Value per share) equal to 7% per annum, payable,
subject to the provisions of this Section 2(a), on each yearly anniversary of
the Original Issue Date (as defined in Section 8) while such share is
outstanding (each a "Dividend Payment Date") and on each Conversion Date (as
defined herein) for such share, commencing on the earlier to occur of the
Conversion Date for such share and the first Dividend Payment Date following the
Original Issue Date, in cash or shares of Common Stock (as defined in Section
8); provided, however, that in the event that the payment of such dividend in
shares of Preferred Stock would violate the provisions of Section 5(a)(iv)(B),
such dividends shall be paid monthly in arrears in cash on the first business
day of each month until the required Shareholder Approval has been obtained.
Subject to the terms and conditions herein, the decision whether to pay
dividends hereunder in Common Stock or cash shall be at the discretion of the
Corporation. 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 and
shall be deemed to accrue from such date whether or not earned or declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. A party that holds shares of
Preferred Stock on the record date with respect to a Dividend Payment Date 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. Except as otherwise provided herein, if at any time the Corporation
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
based upon the number of shares of Preferred Stock held by each Holder. The
Corporation shall provide the Holders notice of its intention to pay dividends
in cash or shares of Common Stock not less than 10 Trading Days (as defined in
Section 8) prior to any Dividend Payment Date, it being understood that a
failure of the Corporation to timely provide such notice shall be deemed an
election (if permitted hereunder) to pay such dividends in shares of Common
Stock pursuant to the terms hereof. If the Corporation has properly elected, and
is permitted hereunder, to pay dividends in shares of Common Stock, then such
dividends will be due and payable on each Conversion Date for the applicable
shares of Preferred Stock (and not on each Dividend Payment Date) and the number
of shares of Common Stock issuable on account of such dividend shall equal the
cash amount of such dividend on such Conversion Date divided by the Conversion
Price (as defined below) on such date. Any dividends to be paid in cash
hereunder that are not paid on a Dividend Payment Date shall continue to accrue
and shall entail a late fee, which must
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be paid in cash, at the rate of 15% per annum or the maximum amount that is
permitted by applicable law, whichever is less (such fees to accrue daily, from
the date such dividend is due hereunder through and including the date of
payment).
(b) Notwithstanding anything to the contrary contained herein,
the Corporation may not issue shares of Common Stock in payment of dividends on
the Preferred Stock (and must deliver cash in respect thereof) if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes is insufficient to pay such
dividends in shares of Common Stock;
(ii) after the Dividend Effectiveness Date (as defined
in Section 8), such shares (x) are not registered for resale pursuant to an
effective Underlying Securities Registration Statement (as defined in Section 8)
and (y) may not be sold without volume and manner of sale restrictions pursuant
to Rule 144 promulgated under the Securities Act (as defined in Section 8), as
determined by counsel to the Corporation pursuant to a written opinion letter,
addressed to the Corporation's transfer agent in the form and substance
acceptable to the applicable Holder and such transfer agent;
(iii) such shares are not then listed or quoted on the
Nasdaq National Market (the "NASDAQ"), or on the New York Stock Exchange,
American Stock Exchange or Nasdaq SmallCap Market (each, a "Subsequent Market");
(iv) the Corporation has failed to timely satisfy its
conversion obligations hereunder; or
(v) the issuance of such shares would result in a
violation of Section 5(a)(iv).
(c) So long as any Preferred Stock shall remain outstanding,
neither the Corporation nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 8), nor shall the Corporation directly or indirectly pay or declare any
dividend or make any distribution (other than dividends due and paid in the
ordinary course on preference shares of the Corporation at such times when the
Corporation is in compliance with its payment and other obligations hereunder)
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.
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
Corporation shall not, without the affirmative vote of the Holders of all of the
shares of the Preferred Stock then outstanding, alter or change adversely the
powers, preferences or rights given to the Preferred Stock or alter or amend
this Certificate of Designation, authorize or create any class of stock ranking
as to dividends or distribution of assets upon a Liquidation (as defined in
Section 4) senior to or otherwise pari passu with the Preferred Stock, amend its
certificate of incorporation or other charter documents
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so as to affect adversely any rights of the Holders, increase the authorized
number of shares of Preferred Stock, or enter into any agreement with respect to
the foregoing that is not conditioned upon the receipt of an affirmative vote
pursuant to this Section.
Section 4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary (a
"Liquidation"), the Holders shall be entitled to receive out of the assets of
the Corporation, whether such assets are capital or surplus, for each share of
Preferred Stock an amount equal to the Stated Value plus all due 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
Corporation shall be insufficient to pay in full such amounts, then the entire
assets to be distributed to the Holders and the holders of the 5% Series [ ]
Preferred Stock of the Corporation shall be distributed among such holders
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 Corporation or the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 33% of the voting power of the Corporation is
disposed of, or a consolidation or merger of the Corporation 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 Corporation shall mail
written notice of any such Liquidation, not less than 45 days prior to the
payment date stated therein, to each record Holder.
Section 5. Conversion.
(a)
(i) Conversions at Option of Holder. Each share of
Preferred Stock shall be convertible into shares of Common Stock (subject to the
limitations set forth in Section 5(a)(iv) hereof) at the Conversion Ratio (as
defined in Section 8) at the option of the Holder, at any time and from time to
time, from and after the Original Issue Date. Holders shall effect conversions
by surrendering the certificate or certificates representing the shares of
Preferred Stock to be converted to the Corporation, together with the form of
conversion notice attached hereto as Exhibit A (a "Conversion Notice"),
provided, that Holders shall not be required to surrender any such certificate
if the Corporation has failed to deliver such certificate to the Holders
pursuant to the Purchase Agreement prior the applicable Conversion Date. Each
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 Conversion Notice by
facsimile (the "Conversion Date"). If no Conversion Date is specified in a
Conversion Notice, the Conversion Date shall be the date that the Conversion
Notice is deemed delivered hereunder. If the Holder is converting less than all
shares of Preferred Stock represented by the certificate or certificates
tendered by the Holder with the Conversion Notice, or if a conversion hereunder
cannot be effected in full for any reason, the Corporation shall promptly
deliver to such Holder (in the manner and within the time set forth in Section
5(b)) a certificate representing the number of shares of Preferred Stock as have
not been converted.
(ii) Conversion at Option of Corporation. Upon written
notice (the date on which such notice is given, the "Notice Date"), the
Corporation shall have the right to
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force the Holders to convert on the Notice Date any or all of the shares of
Preferred Stock into shares of Common Stock (subject to the limitations set
forth in Section 5(a)(iv) hereof) at the applicable Conversion Price on the
Notice Date if (i) the Per Share Market Value of the Common Stock on each of the
10 Trading Days immediately preceding (but excluding) the Notice Date is equal
to or greater than three times the Per Share Market Value of the Common Stock on
the Closing Date (subject to adjustment consistent with any adjustments to the
Initial Conversion Price pursuant to this Section 5), and (ii) the Common Stock
issuable upon such conversion will be freely tradable, without restriction.
(iii) Automatic Conversion. Subject to the provisions in
this paragraph, all outstanding shares of Preferred Stock for which conversion
notices have not previously been received or for which redemption has not been
made or required hereunder shall be automatically converted on the fifth
anniversary of the Closing Date (as defined in Section 8). The conversion
contemplated by this paragraph shall not occur at such time as (a) (1) an
Underlying Securities Registration Statement is not then effective or (2) the
Holder is not permitted to resell Underlying Shares (as defined in Section 8)
pursuant to Rule 144(k) promulgated under the Securities Act, without volume or
manner of sale restrictions, as evidenced by an opinion letter of counsel
acceptable to the Holder and the transfer agent for the Common Stock; (b) there
are not sufficient shares of Common Stock authorized and reserved for issuance
upon such conversion; or (c) the Corporation shall have defaulted on its
covenants and obligations hereunder or under the Purchase Agreement (as defined
in Section 8) or Registration Rights Agreement (as defined in Section 8).
Notwithstanding the foregoing, the five-year period for conversion under this
Section shall be extended (on a day-for-day basis) for any Trading Days after
the date that the Commission declares effective an Underlying Securities
Registration Statement that a Holder is both unable to resell Underlying Shares
pursuant to Rule 144(k) promulgated under the Securities Act, without volume or
manner of sale restrictions and unable to resell Underlying Shares under an
Underlying Securities Registration Statement due to (a) the Common Stock not
being listed for trading on the NASDAQ or any Subsequent Market, (b) the failure
of such Underlying Securities Registration Statement to remain effective during
the Effectiveness Period (as defined in the Registration Rights Agreement) as to
all Underlying Shares; or (c) the suspension of the Holder's ability to resell
Underlying Shares thereunder. Notwithstanding anything to the contrary contained
herein, a conversion pursuant to this Section shall not be subject to the
provisions of Section 5(a)(iv)(A).
(iv) Certain Conversion Restrictions.
(A) Notwithstanding any other provision hereof,
the aggregate number of shares of Common Stock into which the Preferred Stock
may be converted, together with any other shares of Common Stock then
beneficially owned (as defined in the Securities Exchange Act of 1934, as
amended) by the Holder and its affiliates, shall not exceed 4.9% of the total
outstanding shares of Common Stock as of such date. The Company shall have no
obligation to monitor compliance with the foregoing limitation.
(B) At any time when the Common Stock is listed
for trading on the NASDAQ or a Subsequent Market and the Corporation has not
obtained the Shareholder Approval (as defined below), then the Corporation may
not issue in excess of [ ] shares of Common Stock (which equals 19.999% of the
number of shares of Common Stock outstanding
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on the Trading Day immediately preceding the Original Issue Date) (i) upon
conversions of shares of Preferred Stock and (ii) as payment of dividends upon
the shares of Preferred Stock (such number of shares, the "Issuable Maximum").
If on any Conversion Date: (A) the shares of Common Stock are listed for trading
on the NASDAQ or a Subsequent Market, (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 in full of all then outstanding shares of Preferred
Stock, together with any shares of Common Stock previously issued (i) upon
conversions of shares of Preferred Stock and (ii) as payment of dividends upon
the shares of Preferred Stock, and (C) the Corporation shall not have previously
obtained the vote of shareholders (the "Shareholder Approval"), if any, as may
be required by the applicable rules and regulations of the NASDAQ (or any
successor entity) applicable to approve the issuance of shares of Common Stock
in excess of the Issuable Maximum pursuant to the terms hereof, then the
Corporation shall issue to a Holder requesting a conversion a number of shares
of Common Stock equal to the lesser of (x) the number of shares of Common Stock
issuable upon such conversion at the applicable Conversion Price and (y) such
portion of the Issuable Maximum less all shares of Common Stock previously
issued (i) upon conversions of Preferred Stock and (ii) as payment of dividends
upon the shares of Preferred Stock (the "Current Issuable Maximum") as is
applicable to the shares of Preferred Stock to be converted. The Current
Issuable Maximum applicable to each share of Preferred Stock at any time shall
be determined pro rata by reference to the number of shares of Preferred Stock
then outstanding. With respect to the remainder of the aggregate Stated Value of
the shares of Preferred Stock tendered for conversion by such Holder for which a
conversion in accordance with the Conversion Price would result in an issuance
of shares of Common Stock in excess of the Issuable Maximum (the "Excess Stated
Value"), the converting Holder shall have the option to require the Corporation
to either (1) use its best efforts to obtain the Shareholder Approval applicable
to such issuance as soon as is possible, but in any event not later than the
60th day after such request, or (2) pay cash to the converting Holder in an
amount equal to the Mandatory Redemption Amount (as defined in Section 8) for
the Excess Stated Value. If the converting Holder shall have elected the first
option pursuant to the immediately preceding sentence and the Corporation shall
have failed to obtain the Shareholder Approval on or prior to the 60th day after
such request, then within three (3) days of such 60th day, the Corporation shall
pay cash to the converting Holder an amount equal to the Mandatory Redemption
Amount for the Excess Stated Value. If the Corporation fails to pay the
Mandatory Redemption Amount in full pursuant to this Section within seven days
after the date payable, the Corporation will pay interest thereon at a rate of
18% per annum or such lesser maximum amount that is permitted to be paid by
applicable law, to the converting Holder, accruing daily from the Conversion
Date until such amount, plus all such interest thereon, is paid in full. The
Corporation and the Holder understand and agree that shares of Common Stock
issued to and then held by the Holder as a result of conversions of Preferred
Stock shall not be entitled to cast votes on any resolution to obtain
Shareholder Approval pursuant hereto.
(b)
(i) Not later than three (3) Trading Days after any
Conversion Date, the Corporation 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 4.9 of the Purchase Agreement)
representing the number of shares of Common Stock being acquired upon the
conversion of shares of Preferred Stock (subject to the limitations set forth in
Section 5(a)(iv)
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hereof), (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 Corporation has elected to pay accrued dividends in
cash) and the Floor Redemption Price (as defined in Section 5(c)(ii)(B), if
applicable, and (iv) if the Corporation has elected and is permitted hereunder
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 Section 4.9 of the Purchase Agreement), representing such shares of Common
Stock; provided, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon conversion of
any shares of Preferred Stock until one Trading Day after certificates
evidencing such shares of Preferred Stock are delivered for conversion to the
Corporation, or the Holder of such Preferred Stock notifies the Corporation that
such certificates have been lost, stolen or destroyed and provides a bond (or
other adequate security) reasonably satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection therewith. The
Corporation shall, upon request of the Holder, if available, use its best
efforts to deliver any certificate or certificates required to be delivered by
the Corporation under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions. 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
third (3rd) Trading Day after the Conversion Date, the Holder shall be entitled
by written notice to the Corporation at any time on or before its receipt of
such certificate or certificates thereafter, to rescind such conversion, in
which event the Corporation shall immediately return the certificates
representing the shares of Preferred Stock tendered for conversion.
(ii) If the Corporation fails to deliver to the Holder
such certificate or certificates pursuant to Section 5(b)(i), including for
purposes hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid dividends hereunder, by the third (3rd) Trading
Day after the Conversion Date, the Corporation shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, $5,000 for each Trading Day
after such third (3rd) Trading Day until such certificates are delivered.
Nothing herein shall limit a Holder's right to pursue actual damages for the
Corporation's failure to deliver certificates representing shares of Common
Stock upon conversion within the period specified herein 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. The exercise of any such rights shall not prohibit the
Holders from seeking to enforce damages pursuant to any other Section hereof or
under applicable law. Further, if the Corporation shall not have delivered any
cash due in respect of conversions of Preferred Stock or as payment of dividends
thereon by the third (3rd) Trading Day after the Conversion Date, the Holder
may, by notice to the Corporation, require the Corporation to issue shares of
Common Stock pursuant to Section 5(c), except that for such purpose the
Conversion Price applicable thereto shall be the lesser of the Conversion Price
on the Conversion Date and the Conversion Price on the date of such Holder
demand. Any such shares will be subject to the provision of this Section.
(iii) In addition to any other rights available to the
Holder, if the Corporation fails to deliver to the Holder such certificate or
certificates pursuant to Section 5(b)(i), including for purposes hereof, any
shares of Common Stock to be issued on the
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Conversion Date on account of accrued but unpaid dividends hereunder, by the
third (3rd) Trading Day after the Conversion Date, and if after such third (3rd)
Trading Day the Holder purchases (in an open market transaction or otherwise)
Common Stock to deliver in satisfaction of a sale by such Holder of the
Underlying Shares which the Holder was entitled to receive upon such conversion
(a "Buy-In"), then the Corporation shall (A) pay in cash to the Holder (in
addition to any remedies available to or elected by the Holder) the amount by
which (x) the Holder's total purchase price (including brokerage commissions, if
any) for the Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that such Holder was entitled to
receive from the conversion at issue multiplied by (2) the market price of the
Common Stock at the time of the sale giving rise to such purchase obligation and
(B) at the option of the Holder, either return the shares of Preferred Stock for
which such conversion was not honored or deliver to such Holder the number of
shares of Common Stock that would have been issued had the Corporation timely
complied with its conversion and delivery obligations under Section 5(b)(i). For
example, if the Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of shares of
Preferred Stock with respect to which the market price of the Underlying Shares
on the date of conversion was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Corporation shall be required to pay the
Holder $1,000. The Holder shall provide the Corporation written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the contrary, if a Holder requires
the Corporation to make payment in respect of a Buy-In for the failure to timely
deliver certificates hereunder and the Corporation timely pays in full such
payment, the Corporation shall not be required to pay such Holder liquidated
damages under Section 5(b)(ii) in respect of the certificates resulting in such
Buy-In.
(c)
(i) The conversion price for each share of Preferred
Stock (the "Conversion Price") in effect on any Conversion Date shall be the
lesser of (x) 150% of the average Per Share Market Value on the five (5) Trading
Days immediately preceding (but excluding) the Original Issue Date (the "Initial
Conversion Price") and (y) 100% of the average of the seven (7) lowest Per Share
Market Values during the thirty (30) Trading Days immediately preceding the
applicable Conversion Date (which, at the Holder's option, may include Trading
Days prior to the Original Issue Date), provided, that such thirty (30) Trading
Day period shall be extended for the number of Trading Days, if any, during such
period in which (A) trading in the Common Stock is suspended from the NASDAQ or
a Subsequent Market on which it is listed for trading prior to such suspension,
or (B) during the Effectiveness Period (as defined in the Registration Rights
Agreement), the Underlying Securities Registration Statement is not effective,
or (C) during the Effectiveness Period, the Prospectus included in the
Underlying Securities Registration Statement may not be used by the Holder for
the resale of Underlying Shares.
(ii) If on any Conversion Date, the Conversion Price
shall be lower than $2.50 (which number shall be subject to equitable
adjustments for stock splits, recombinations and similar events) (such
Conversion Price, the "Floor Price" and a Conversion Date on which such
condition is met, a "Record Date"), then the Corporation will have the right,
exercisable by delivery of a written notice to the Holders delivered no later
than twenty Trading
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Days prior to the Record Date (the "Corporation Notice"), which notice shall
remain in effect until a subsequent such notice is provided by the Corporation
to the Holders, to elect to honor the conversion at issue by either: (x) issuing
the number of shares of Common Stock issuable at the actual Conversion Price
pursuant to Section 5(c)(i), or (y) issue the number of shares of Common Stock
issuable upon the conversion at issue, as if the conversion price applicable to
such conversion was equal to the Floor Price and pay cash, no later than the
third Trading Day following the Record Date, to the Holder, in an amount equal
to the product of (A) the average of the Per Share Market Values for the five
Trading Days preceding the Conversion Date for such conversion and (B) the
number of shares of Common Stock otherwise issuable at the actual Conversion
Price then in effect less the number of shares of Common Stock issuable upon
such conversion at the Floor Price (the "Floor Redemption Price"). Failure by
the Corporation to timely deliver the Corporation Notice to the Holder pursuant
to the terms of this Section shall result conclusively be deemed an election by
the Corporation under subsection (x) hereunder. Failure by the Corporation to
pay any portion of the Floor Redemption Price by the third Trading Day following
the applicable Conversion Date shall result in the invalidation ab initio of the
unpaid portion of such optional redemption. In such event, the Corporation
shall, at the option of the Holder, either, (i) not later than three Trading
Days from receipt of Holder's request for such election, return to the Holder
all of the shares of Preferred Stock for which such Floor Redemption Price has
not been paid in full (the "Unpaid Redemption Shares") or (ii) convert all or
any portion of the Unpaid Redemption Shares in which event the applicable
Conversion Price shall be the lower of the Conversion Price calculated on the
date the Floor Redemption Price was originally due and the Conversion Price as
of the Holder's written demand for conversion. If the Holder elects option (ii)
above, the Corporation shall within three 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.
(iii) If the Corporation, at any time while any shares
of Preferred Stock are outstanding, shall (a) pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities or pari
passu 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 and exchange of the Common Stock any shares of capital stock of
the Corporation, then the Initial Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
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)(iii) 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.
(iv) If the Corporation, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders of Common Stock
(and not to Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security other than with respect to
rights granted pursuant to a stockholders rights plan adopted by the
Corporation, then in each such case the Initial Conversion Price shall be
adjusted by multiplying the Initial Conversion Price in effect immediately prior
to the record date fixed for determination of
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stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the Per Share Market Value determined as of the record date
mentioned above, and of which the numerator shall be such Per Share Market Value
on such record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness or rights or warrants so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness or rights or warrants 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 1/100th of a share, as the case may be.
(vi) Whenever the Initial Conversion Price is adjusted
pursuant to the terms hereof, the Corporation shall promptly mail to each
Holder, a notice setting forth the Initial 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, or any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property (other than compulsory share
exchanges which constitute Change of Control Transactions), the Holders of the
Preferred Stock then outstanding shall have the right thereafter to 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 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 a holder of the number of shares of Common Stock of the Corporation
into which such shares of Preferred Stock could have been converted immediately
prior to such reclassification or share exchange would have been entitled. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(viii) If (a) the Corporation shall declare a dividend
(or any other distribution) on the Common Stock, (b) the Corporation shall
declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (c) the Corporation shall authorize the granting to all holders of Common
Stock rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights, (d) the approval of any stockholders of the
Corporation shall be required in connection with any reclassification of the
Common Stock, any consolidation or merger to which the Corporation is a party,
any sale or transfer of all or substantially all of the assets of the
Corporation, of any compulsory share of exchange whereby the Common Stock is
converted into other securities, cash or property, or (e) the Corporation shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Corporation; then the Corporation 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 at their last addresses as
they shall appear upon the stock books of the Corporation, at least 20 calendar
days prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend,
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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 Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange. Holders are entitled to convert shares of
Preferred Stock during the 20-day period commencing the date of such notice to
the effective date of the event triggering such notice.
(ix) In case of the closing of any: (1) merger or
consolidation of the Corporation with or into another Person, or (2) sale by the
Corporation of more than one-half of the assets of the Corporation (on a market
value basis) in one or a series of related transactions, a Holder shall have the
right to: (A) if permitted under Section 7 hereof, exercise its rights of
redemption under Section 7 with respect to such event, or (B) convert its shares
of Preferred Stock 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 merger, consolidation or sale, and such Holder shall be entitled
upon conversion of its shares of Preferred Stock to receive such amount of
securities, cash and property as the shares of Common Stock into which such
shares of Preferred Stock could have been converted immediately prior to such
merger, consolidation or sales would have been entitled. The terms of any such
merger, sale or consolidation shall include such terms so as to continue to give
the Holders the right to receive the securities, cash and property set forth in
this Section upon any conversion or redemption following such event. This
provision shall similarly apply to successive such events.
(d) The Corporation covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of 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, not less than such number of shares of Common Stock as
shall (subject to any additional requirements of the Corporation as to
reservation of such shares set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 5(a) and
Section 5(c)) upon the conversion of all outstanding shares of Preferred Stock
and payment of dividends hereunder (assuming all such dividends are paid in
shares of Common Stock). The Corporation 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, subject
to the legend requirements of Section 4.9 of the Purchase Agreement.
(e) Upon a conversion hereunder the Corporation shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Corporation elects not, or is unable, to make such a cash payment, the
Holder of a share of Preferred Stock shall be entitled to receive, in lieu of
the final fraction of a share, one whole share of Common Stock.
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(f) The issuance of certificates for Common Stock on conversion
of Preferred Stock and as payment of dividends in shares of Common 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 Corporation shall not be required to pay any tax
that may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate upon conversion in a name other than that of
the Holder of such shares of Preferred Stock so converted.
(g) Shares of Preferred Stock converted into Common Stock or
redeemed in accordance with the terms hereof shall be canceled and may not be
reissued.
(h) 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 Chief Financial Officer of the Corporation at
the facsimile telephone number or address of the principal place of business of
the Corporation as set forth in the Purchase Agreement. Any and all notices or
other communications or deliveries to be provided by the Corporation hereunder
shall be in writing and delivered personally, by facsimile or sent by a
nationally recognized overnight courier service, addressed to each Holder at the
facsimile telephone number or address of such Holder appearing on the books of
the Corporation, 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
8:00 p.m. (New York City 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 8:00 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City 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. Optional Redemption.
(a) During the time that any shares of Preferred Stock remain
outstanding, the Corporation shall have the right, exercisable on any Trading
Day in which the Conversion Price shall be less than $1.00 (which number shall
be subject to equitable adjustments for stock splits, recombinations and similar
events), in accordance with the terms hereof and upon three Trading Days' prior
written notice to the Holders to be redeemed (an "Optional Redemption Notice"),
to redeem all or any portion of the outstanding shares of Preferred Stock which
have not previously been redeemed or for which Conversion Notices have not
previously been delivered. The redemption price applicable to redemptions under
this Section 6 shall equal the Optional Redemption Price (as defined in Section
8) and shall be paid in cash. The Holders shall have the right to tender, and
the Corporation shall honor, Conversion Notices delivered on or prior to the
expiration of the fifteenth Trading Day after receipt by the Holders of an
Optional Redemption Notice for such Preferred Stock (the fifteenth Trading Day
after receipt by the Holders of an Optional Redemption Notice is referred to
herein as the "Optional Redemption Date").
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(b) The Corporation shall not be entitled to deliver an Optional
Redemption Notice to the Holder (and, if after delivery thereof and prior to the
Optional Redemption Date, any of the following conditions shall cease to be met,
such notice, at the option of the Holders, shall be deemed no longer effective)
if: (i) the number of shares of Common Stock at the time authorized, unissued
and unreserved for all purposes is insufficient to satisfy the Corporation's
conversion obligations of the shares of Preferred Stock then outstanding, or
(ii) there is neither an effective Underlying Shares Registration Statement
under which the Holders can resell all of the issued Underlying Shares and all
of the Underlying Shares as are issuable upon conversion in full of the shares
of Preferred Stock subject to an Optional Redemption Notice nor may all of such
issued and issuable Underlying Shares be sold by the Holders subject to such
redemption without volume restrictions pursuant to Rule 144 promulgated under
the Securities Act, as determined by counsel to the Corporation pursuant to a
written opinion letter, addressed to the Corporation's transfer agent in the
form and substance acceptable to the Holders and such transfer agent, or (iii)
the Common Stock is not then listed for trading on the NASDAQ or on a Subsequent
Market.
(c) If any portion of the Optional Redemption Price shall not be
paid by the Corporation by the Optional Redemption Date, the Optional Redemption
Price shall bear interest at the rate of 18% per annum (or such lesser maximum
amount that is permitted to be paid by applicable law) to accrue daily from the
date such interest is due hereunder through and including the date of payment
(which amount shall be paid as liquidated damages and not as a penalty). In
addition, if any portion of the Optional Redemption Price remains unpaid through
the expiration of the Optional Redemption Date, the Holder subject to such
redemption may elect by written notice to the Corporation to either (x) demand
conversion in accordance with the formula and the time period therefor set forth
in Section 5 of any portion of the shares of Preferred Stock for which the
Optional Redemption Price, plus accrued interest thereon, has not been paid in
full (the "Unpaid Redemption Amount"), in which event the applicable Conversion
Price shall be the lower of the Conversion Price calculated on the Optional
Redemption Date and the Conversion Price as of the Holder's written demand for
conversion, or (y) invalidate ab initio such optional redemption,
notwithstanding anything herein contained to the contrary. If the Holder elects
option (x) above, the Corporation shall, within three Trading Days after such
election is deemed delivered hereunder, deliver to the Holder the shares of
Common Stock issuable upon conversion of the Unpaid Redemption Amount subject to
such conversion demand and otherwise perform its obligations hereunder with
respect thereto. If the Holder elects option (y) above, the Corporation shall
promptly, and in any event not later than three (3) Trading Days from receipt of
notice of such election, return to the Holder new shares of Preferred Stock for
the full Unpaid Redemption Amount and shall no longer have any redemption rights
under this Section. If, upon an election under option (x) above, the Corporation
fails to deliver certificates representing the shares of Common Stock issuable
upon conversion of the Unpaid Redemption Amount within the time period set forth
in this Section, the Corporation shall pay to the Holder in cash, as liquidated
damages and not as a penalty, $5,000 per day until the Corporation delivers such
certificates to the Holder.
Section 7. Redemption Upon Triggering Events. Upon the
occurrence of a Triggering Event, each Holder shall (in addition to all other
rights it may have hereunder or under applicable law), have the right,
exercisable at the sole option of such Holder, to require the Corporation to
redeem all or a portion of the Preferred Stock then held by such Holder for a
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redemption price, in cash, equal to the sum of (i) the Mandatory Redemption
Amount plus (ii) the product of (A) the number of Underlying Shares issued in
respect of conversions or as payment of dividends hereunder and then held by the
Holder (the "Redeemable Stock") and (B) the Per Share Market Value on the date
such redemption is demanded or the date the redemption price hereunder is paid
in full, whichever is greater (such sum, the "Redemption Price"). The Redemption
Price shall be due and payable within (10) days of the date on which the notice
for the payment therefor is provided by a Holder. If the Corporation fails to
pay the redemption price hereunder in full pursuant to this Section on the date
such amount is due in accordance with this Section, the Corporation will pay
interest thereon at a rate of 15% (or the maximum amount permitted under
applicable law, whichever is less) per annum, accruing daily from such date
until the redemption price, plus all such interest thereon, is paid in full. For
purposes of this Section, a share of Preferred Stock is outstanding until such
date as the Holder shall have received Underlying Shares upon a conversion (or
attempted conversion) thereof that meets the requirements hereof. Upon receipt
of the full Redemption Price, the Holder shall deliver the Redeemable Stock to
the Company.
A "Triggering Event" means any one or more of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgement, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) the failure of an Underlying Securities Registration
Statement to be declared effective by the Commission on or prior to the 240th
day after the Closing Date;
(ii) if, during the Effectiveness Period, the
effectiveness of the Underlying Securities Registration Statement lapses for any
reason for more than an aggregate of ten (10) Trading Days, or the Holder shall
not be permitted to resell Registrable Securities under the Underlying
Securities Registration Statement for more than 10 consecutive Trading Days or
an aggregate of 20 Trading Days (which need not be consecutive Trading Days);
(iii) the failure of the Common Stock to be listed for
trading on the NASDAQ or on a Subsequent Market or the suspension of the Common
Stock from trading on the NASDAQ or on a Subsequent Market, in either case, for
more than 10 consecutive Trading Days or an aggregate of 20 Trading Days (which
need not be consecutive Trading Days);
(iv) the Corporation shall fail for any reason to
deliver certificates representing Underlying Shares issuable upon a conversion
hereunder that comply with the provisions hereof prior to the 10th day after the
Conversion Date or the Corporation shall provide notice to any Holder, including
by way of public announcement, at any time, of its intention not to comply with
requests for conversion of any Preferred Stock in accordance with the terms
hereof;
(v) the Corporation shall, without the consent of the
Holders of a majority of the then outstanding shares of Preferred Stock, be a
party to any Change of Control Transaction, shall agree to sell (in one or a
series of related transactions) all or substantially all of its assets (whether
or not such sale would constitute a Change of Control Transaction) or shall
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redeem more than a de minimis number of Common Stock or other Junior Securities
(other than redemptions of Underlying Shares);
(vi) an Event (as defined in the Registration Rights
Agreement) shall not have been cured to the satisfaction of the Holders prior to
the expiration of thirty (30) days from the Event Date (as defined in the
Registration Rights Agreement) relating thereto other than an Event resulting
from a failure of an Underlying Shares Registration Statement to be timely
declared effective by the Commission;
(vii) the Corporation shall fail for any reason to pay
in full the amount of cash due pursuant to a Buy-In within seven (7) days after
notice therefor is delivered hereunder; or the Corporation shall fail to have
available a sufficient number of authorized and unreserved shares of Common
Stock to issue to such Holder upon a conversion hereunder.
Section 8. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Change of Control Transaction" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Corporation, by contract or otherwise) of in excess of 33% of the
voting securities of the Corporation, (ii) a replacement at one time or over
time of more than one-half of the members of the Corporation's board of
directors which is not approved by a majority of those individuals who are
members of the board of directors on the date hereof (or by those individuals
who are serving as members of the board of directors on any date whose
nomination to the board of directors was approved by a majority of the members
of the board of directors who are members on the date hereof), (iii) the merger
of the Corporation with or into another entity, consolidation or sale of all or
substantially all of the assets of the Corporation in one or a series of related
transactions, or (iv) the execution by the Corporation of an agreement to which
the Corporation is a party or by which it is bound, providing for any of the
events set forth above in (i), (ii) or (iii).
"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Corporation's Common Stock, par value
$.001 per share, 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, the numerator
of which is Stated Value plus accrued but unpaid dividends but only to the
extent not paid in Common Stock in accordance with the terms hereof, and the
denominator of which is the Conversion Price at such time.
"Dividend Effectiveness Date" means the earlier to occur of (x)
the Effectiveness Date (as defined in the Registration Rights Agreement) and (y)
the date that an Underlying Securities Registration Statement is declared
effective by the Commission.
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"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Junior Securities" means the Common Stock and all other equity
securities of the Corporation which are junior in rights and liquidation
preference to the Preferred Stock.
"Mandatory Redemption Amount" for each share of Preferred Stock
means the sum of (i) the greater of (A) the Stated Value and all accrued
dividends with respect to such share and (B) the product of (a) the Per Share
Market Value on the Trading Day immediately preceding (x) the date of the
Triggering Event or the Conversion Date, as the case may be, or (y) the date of
payment in full by the Corporation of the applicable redemption price, whichever
is greater, and (b) the Conversion Ratio calculated on the date of the
Triggering Event, or the Conversion Date, as the case may be, and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of such share of
Preferred Stock.
"Optional Redemption Price" shall be sum of 106% of the Stated
Value of the shares of Preferred Stock to be redeemed pursuant to the terms
hereof and all other amounts, costs, expenses and liquidated damages due in
respect of such shares of 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 Common Stock on such date on the NASDAQ or on the
Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ or
on such Subsequent Market on the date nearest preceding such date, or (b) if the
Common Stock is not then listed or quoted on the NASDAQ or on a Subsequent
Market, the closing bid price for a shares of Common Stock in the
over-the-counter market, as reported by 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 are not
then publicly traded the fair market value of a Common Share as determined by an
Appraiser selected in good faith by the Holders of a majority of the shares of
the Preferred Stock.
"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 Securities Purchase Agreement,
dated as of December 18, 2000, to which the Corporation, NeoGene Technologies,
Inc. and the original Holders are parties, as amended, modified or supplemented
from time to time in accordance with its terms.
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"Registration Rights Agreement" means the Registration Rights
Agreement, dated December 18, 2000, to which the Corporation and the original
Holders are parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended.
"Trading Day" means (a) a day on which the Common Stock is
traded on the NASDAQ or on the Subsequent Market on which the Common Stock is
then listed or quoted, as the case may be, or (b) if the Common Stock s not
listed on the NASDAQ or on a Subsequent 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 Securities Registration Statement" means a
registration statement that meets the requirements of the Registration Rights
Agreement and registers the resale of all Underlying Shares by the recipient
thereof, who shall be named as a "selling stockholder" thereunder.
"Underlying Shares" means, collectively, the shares of Common
Stock into which the Shares are convertible and the shares of Common Stock
issuable upon payment of dividends thereon in accordance with the terms hereof.
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of
7% Series [ ] Preferred Stock with Conversion Features indicated below, into
shares of Common Stock, par value $.001 per share (the "Common Stock"), of
NeoTherapeutics, Inc. (the "Corporation") 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 Corporation 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 _____________________
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Signature
Name
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Address
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