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EXHIBIT 4.7
CERTIFICATE OF DESIGNATIONS
OF
7% SERIES C PREFERRED STOCK
OF
NEOTHERAPEUTICS, INC.
Pursuant to Section 151 of the General Corporation Law of the State of Delaware
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NEOTHERAPEUTICS, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
hereby certifies, pursuant to the authority contained in the Certificate of
Incorporation and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware that the following resolution
was duly adopted by the Board of Directors of the Corporation as of June 25,
2001, creating a series of its Preferred Stock designated as 7% Series C
Preferred Stock:
RESOLVED, that pursuant to the authority expressly granted to
and vested in the Board of Directors of the Corporation (the "Board") by the
provisions of the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), there hereby is created, out of the 5,000,000
shares of Preferred Stock, par value $0.001 per share, of the Corporation
authorized in Article 4 of the Certificate of Incorporation, a series of the
preferred stock of the Corporation consisting of shares, which shall be
designated 7% Series C Preferred Stock, which series shall have the powers,
designations, preferences and relative participating, optional and other rights,
and the qualifications, limitations and restrictions set forth below:
SECTION 1. Designation, Amount and Par Value. The series of
preferred stock shall be designated as 7% Series C Preferred Stock (the
"Preferred Stock") and the number of shares so designated shall be 200 (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 $0.001 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
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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 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");
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(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 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, on a pari passu basis with any
distributions payable by the Corporation upon such Liquidation to the holders of
any shares of preferred stock of the Corporation issued pursuant to Section 5 or
Section 6 of that certain Securities Purchase Agreement, dated as of September
21, 2000, by and among the Corporation, NeoGene Technologies, Inc., Montrose
Investments Ltd. and Strong River Investments, Inc. (the "Pari Passu Stock"),
before any distribution or payment shall be made to the holders of any Junior
Securities in respect of such 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 any outstanding Pari
Passu Stock shall be distributed among the Holders and 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
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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 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
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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 Corporation shall have
no obligation to monitor compliance with the foregoing limitation.
(B) [Intentionally Deleted]
(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) 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
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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 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
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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 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.
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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 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.
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(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, 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.
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(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.
(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.
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(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").
(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
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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
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
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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 Corporation.
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 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;
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(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.
"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
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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.
"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
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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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IN WITNESS WHEREOF, NeoTherapeutics, Inc. has caused this
Certificate of Designations to be duly executed by its Chief Financial Officer
this 26th day of June, 2001.
NEOTHERAPEUTICS, INC.
By: /s/ Samuel Gulko
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Samuel Gulko, Chief Financial Officer
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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
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Number of shares of Preferred Stock to be Converted
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Number of shares of Common Stock to be Issued
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Applicable Conversion Price
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Signature
Name
-------------------------
Address
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