SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) August 23, 1996
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SPARTA PHARMACEUTICALS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 0-23076 56-1755527
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
111 ROCK RD. HORSHAM, PA 19044
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code 215) 442-1700
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
Not applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Not applicable.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
Not applicable.
ITEM 5. OTHER EVENTS
On August 23, 1996, Sparta Pharmaceuticals, Inc. filed a Certificate
of Designations for its Series B' Preferred Stock filed as Exhibit
3.4(A).
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS.
Not applicable.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Sparta Pharmaceuticals, Inc.
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Not applicable.
(b) Pro Forma Financial Information
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Not applicable
(c) Exhibits
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3.4(A) -- Certificate of Designations for Sparta Pharmaceuticals,
Inc. Series B' Preferred Stock.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
SPARTA PHARMACEUTICALS, INC.
September 25, 1996 By: /s/ Jerry B. Hook
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Date Jerry B. Hook, Ph.D.
President, Chief
Executive Officer &
Director (principal
executive officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
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3.4(A) -- Certificate of Designations for Sparta 5
Pharmaceutical Inc.
Series B' Preferred Stock.
EXHIBIT 3.4(A)
CERTIFICATE OF DESIGNATIONS
of
SERIES B' CONVERTIBLE PREFERRED STOCK
of
SPARTA PHARMACEUTICALS, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
SPARTA PHARMACEUTICALS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), does hereby certify
that, pursuant to the authority conferred on the Board of Directors of the
Corporation by the Amended and Restated Certificate of Incorporation, as
amended, of the Corporation and in accordance with Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation adopted the following resolution establishing a series of 3,000,000
shares of Preferred Stock of the Corporation designated as "Series B'
Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the Board of
Directors of this Corporation by the Amended and Restated Certificate of
Incorporation, as amended, a series of Preferred Stock, par value $.001
per share, of the Corporation is hereby established and created, and that
the designation and number of shares thereof and the voting and other
powers, preferences and relative, participating, optional or other rights
of the shares of such series and the qualifications, limitations and
restrictions thereof are as follows:
Series B' Convertible Preferred Stock
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1. Designation and Amount. There shall be a series of Preferred
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Stock designated as "Series B' Convertible Preferred Stock" and the number of
shares constituting such series shall be 3,000,000. Such series is referred to
herein as the "Series B' Convertible Preferred Stock". Such number of shares
may be increased or decreased by resolution of the Board of Directors of the
Corporation; provided, however, that no decrease shall reduce the number of
shares of Series B' Convertible Preferred Stock to less than the number of
shares then issued and outstanding.
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2. Dividends. Subject to the prior and superior rights of the
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holders of any shares of any series of Preferred Stock ranking prior and
superior to the shares of Series B' Convertible Preferred Stock with respect to
dividends and distributions, the holders of shares of Series B' Convertible
Preferred Stock, shall be entitled to receive dividends and distributions, when,
as and if dec lared by the Board of Directors out of funds legally available
for such purpose. If the Corporation declares a dividend or distribution on the
common stock, par value $.001 per share (the "Common Stock"), of the
Corporation, the holders of shares of Series B' Convertible Preferred Stock
shall be entitled to receive for each share of Series B' Convertible Preferred
Stock a dividend or distribution in the amount of the dividend or distribution
that would be received by a holder of the Common Stock into which such share of
Series B' Convertible Preferred Stock is convertible on the record date for such
dividend or distribution. If the Corporation declares a dividend or
distribution on any other class or series of preferred stock, the holders of
shares of Series B' Convertible Preferred Stock shall be entitled to receive a
dividend or distribution in an amount per share in proportion to the dividend or
distribution declared on a share of such other class or series based upon the
liquidation preference of a share of the Series B' Convertible Preferred Stock
relative to that of a share of such other class or series, unless the holders of
at least 66-2/3% of the outstanding shares of Series B' Convertible Preferred
Stock consent otherwise. In any such case, the Corporation shall declare a
dividend or distribution on the Series B' Convertible Preferred Stock at the
same time that it declares a dividend or distribution on the Common Stock or
such other class or series of preferred stock and shall establish the same
record date for the dividend or distribution on the Series B' Convertible
Preferred Stock as is established for such dividend or distribution on the
Common Stock or such other class or series of preferred stock. Each such
dividend or distribution will be payable to holders of record of the Series B'
Convertible Preferred Stock as they appeared on the records of the Corporation
at the close of business on the record date declared for such dividend or
distribution, as shall be fixed by the Board of Directors. If the corporation
declares or pays a dividend or distribution on the Series B' Convertible
Preferred Stock as a result of the declaration or payment of a dividend or
distribution on the Common Stock or any other class or series of preferred stock
as described above, the holders of the Series B' Convertible Preferred Stock
shall not be entitled to any additional dividend or distribution solely because
such first dividend or distribution also required the declaration or payment of
a dividend or distribution on any other class or series of preferred stock. Any
reference to "distribution" contained in this Section 2 shall not be deemed to
include any distribution made in connection with or in lieu of any Liquidation
Event (as defined below).
3. Liquidation Preference. In the event of a (i) liquidation,
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dissolution or winding up of the Corporation, whether voluntary or involuntary,
(ii) a sale or other disposition of all or substantially all of the assets of
the Corporation or (iii) any consolidation, merger, combination, reorganization
or other transaction in which the Corporation is not the surviving entity or the
shares of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into other stock or securities, cash
and/or any other property (a "Merger Transaction") (subparagraphs (i), (ii) and
(iii) being collectively referred to as a "Liquidation Event"), after payment or
provision for payment of debts and other liabilities of the Corporation, the
holders of the Series B' Convertible Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its shareholders, whether such assets are capital, surplus, or
earnings, before any payment or declaration and setting apart for payment of any
amount shall be made in respect of the stock junior to the Series B' Convertible
Preferred Stock, an amount equal to $13.00 per share plus an amount equal to all
declared and unpaid dividends thereon; provided, however, in the case of Section
3(iii) above, such $13.00 per share may be paid in cash and/or securities
(valued at the closing price (as defined in Section 5) of such security) of the
entity surviving such Merger Transaction. If upon any Liquidation Event,
whether voluntary or involuntary, the assets to be distributed to the holders of
the Series B'
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Convertible Preferred Stock shall be insufficient to permit the
payment to such shareholders of the full preferential amounts aforesaid, then
all of the assets of the Corporation to be distributed shall be so distributed
ratably to the holders of the Series B' Convertible Preferred Stock on the basis
of the number of shares of Series B' Convertible Preferred Stock held. A
consolidation or merger of the Corporation with or into another corporation,
other than in a transaction described in Section 3(iii) above, shall not be
considered a liquidation, dissolution or winding up of the Corporation or a sale
or other disposition of all or substantially all of the assets of the
Corporation and accordingly the Corporation shall make appropriate provision to
ensure that the terms of this Certificate of Designations survive any such
transaction. All shares of Series B' Convertible Preferred Stock shall rank as
to payment upon the occurrence of any Liquidation Event senior to the Common
Stock as provided herein and, unless the terms of such series shall provide
otherwise, senior to all other series of the Corporation's preferred stock.
4. Conversion.
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(a) Right of Conversion. The shares of Series B' Convertible
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Preferred Stock shall be convertible, in whole or in part, at the option of the
holder thereof and upon notice to the Corporation as set forth in paragraph (b)
below, into fully paid and nonassessable shares of Common Stock and such other
securities and property as hereinafter provided. The shares of Series B'
Convertible Preferred Stock shall be convertible initially at the rate of
6.666667 shares of Common Stock for each full share of Series B' Convertible
Preferred Stock and shall be subject to adjustment as provided herein. The
initial conversion price per share of Common Stock is $1.50 and shall be subject
to adjustment as provided herein. For purposes of this resolution, the
"conversion rate" applicable to a share of Series B' Convertible Preferred Stock
shall be the number of shares of Common Stock and number or amount of any other
securities and property as hereinafter provided into which a share of Series B'
Convertible Preferred Stock is then convertible and shall be determined by
dividing the then existing conversion price into $10.00.
The conversion price (subject to adjustments pursuant to the
provisions of paragraph (c) below) in effect immediately prior to the date that
is 12 months after the final closing date (the "Final Closing Date") of the
issuance and sale of the Series B' Convertible Preferred Stock (the "Reset
Date") shall be adjusted and reset effective as of the Reset Date if the average
closing bid price of the Common Stock for the 30 consecutive trading days
immediately preceding the Reset Date (the "12-Month Trading Price") is less than
130% of the then applicable conversion price (a "Reset Event"). Upon the
occurrence of a Reset Event, the conversion price shall be reduced to be equal
to the greater of (A) the 12-Month Trading Price divided by 1.3, and (B) 50% of
the then applicable conversion price. If there is any change in the conversion
price as a result of the preceding sentence, then the conversion rate shall be
changed accordingly, and shall be determined by dividing the new conversion
price into $10.00. The Corporation shall prepare a certificate signed by the
principal financial officer of the Corporation setting forth the conversion rate
as of the Reset Date, showing in reasonable detail the facts upon which such
conversion rate is based, and such certificate shall forthwith be filed with the
transfer agent of the Series B' Convertible Preferred Stock. Notwithstanding
the provisions of subparagraph (vi) of paragraph (c) below, a notice stating
that the conversion rate has been adjusted pursuant to this paragraph, or that
no adjustment is necessary, and setting forth the conversion rate in effect as
of the Reset Date shall be mailed as promptly as practicable after the Reset
Date by the Corporation to all record holders of the Series B' Convertible
Preferred Stock at their last addresses as they shall appear in the stock
transfer books of the Corporation.
The "closing bid price" for each trading day shall be the reported
closing bid price on the NASDAQ Small-Cap Market or the NASDAQ National Market
System (collectively referred to as, "NASDAQ") or, if the Common Stock is not
quoted on NASDAQ, on the principal national securities
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exchange on which the Common Stock is listed or admitted to trading (based on
the aggregate dollar value of all securities listed or admitted to trading) or,
if not listed or admitted to trading on any national securities exchange or
quoted on NASDAQ, the closing bid price in the over-the-counter market as
furnished by any NASD member firm selected from time to time by the Corporation
for that purpose, or, if such prices are not available, the fair market value
set by, or in a manner established by, the Board of Directors of the Corporation
in good faith. "Trading day" shall mean a day on which the national securities
exchange or NASDAQ used to determine the closing bid price is open for the
transaction of business or the reporting of trades or, if the closing bid price
is not so determined, a day on which NASDAQ is open for the transaction of
business.
(b) Conversion Procedures. Any holder of shares of Series B'
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Convertible Preferred Stock desiring to convert such shares into Common Stock
shall surrender the certificate or certificates evidencing such shares of Series
B' Convertible Preferred Stock at the office of the transfer agent for the
Series B' Convertible Preferred Stock, which certificate or certificates, if the
Corporation shall so require, shall be duly endorsed to the Corporation or in
blank, or accompanied by proper instruments of transfer to the Corporation or in
blank, accompanied by irrevocable written notice to the Corporation that the
holder elects so to convert such shares of Series B' Convertible Preferred Stock
and specifying the name or names (with address) in which a certificate or
certificates evidencing shares of Common Stock are to be issued. The
Corporation need not deem a notice of conversion to be received unless the
holder complies with all the provisions hereof. The Corporation will instruct
the transfer agent (which may be the Corporation) to make a notation of the date
that a notice of conversion is received, which date shall be deemed to be the
date of receipt for purposes hereof.
The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series B' Convertible Preferred Stock
accompanied by the written notice and compliance with any other conditions
herein contained, deliver at such office of such transfer agent to the person
for whose account such shares of Series B' Convertible Preferred Stock were so
surrendered, or to the nominee or nominees of such person, certificates
evidencing the number of full shares of Common Stock to which such person shall
be entitled as aforesaid, together with a cash adjustment of any fraction of a
share as hereinafter provided. Subject to the following provisions of this
paragraph, such conversion shall be deemed to have been made as of the date of
such surrender of the shares of Series B' Convertible Preferred Stock to be
converted, and the person or persons entitled to receive the Common Stock
deliverable upon conversion of such Series B' Convertible Preferred Stock shall
be treated for all purposes as the record holder or holders of such Common Stock
on such date; provided, however, that the Corporation shall not be required to
convert any shares of Series B' Convertible Preferred Stock while the stock
transfer books of the Corporation are closed for any purpose, but the surrender
of Series B' Convertible Preferred Stock for conversion during any period while
such books are so closed shall become effective for conversion immediately upon
the reopening of such books as if the surrender had been made on the date of
such reopening, and the conversion shall be at the conversion rate in effect on
such date. No adjustments in respect of any dividends on shares surrendered for
conversion or any dividend on the Common Stock issued upon conversion shall be
made upon the conversion of any shares of Series B' Convertible Preferred Stock.
All notices of conversion shall be irrevocable; provided, however,
that if the Corporation has sent notice of an event pursuant to Section 4(g)
hereof, a holder of Series B' Convertible Preferred Stock may, at its election,
provide in its notice of conversion that the conversion of its shares of Series
B' Convertible Preferred Stock shall be contingent upon the occurrence of the
record date or effectiveness of such event (as specified by such holder),
provided that such notice of conversion is received by the
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Corporation prior to such record date or effective date, as the case may be.
(c) Certain Adjustments of Conversion Rate. In addition to
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adjustment pursuant to paragraph (a) above, the conversion rate (and the
corresponding conversion price) shall be subject to adjustment from time to time
as follows:
(i) In case the Corporation shall (A) pay a dividend in Common
Stock or make a distribution in Common Stock, (B) subdivide its
outstanding Common Stock, (C) combine its outstanding Common Stock into a
smaller number of shares of Common Stock or (D) issue by reclassification
of its Common Stock other securities of the Corporation, then in each
such case the conversion rate in effect immediately prior thereto shall
be adjusted so that the holder of any shares of Series B' Convertible
Preferred Stock thereafter surrendered for conversion shall be entitled
to receive the kind and number of shares of Common Stock or other
securities of the Corporation which such holder would have owned or would
have been entitled to receive immediately after the happening of any of
the events described above had such shares of Series B' Convertible
Preferred Stock been converted immediately prior to the happening of such
event or any record date with respect thereto. Any adjustment made
pursuant to this subparagraph (i) shall become effective immediately
after the effective date of such event retroactive to the record date, if
any, for such event.
(ii) In case the Corporation shall issue rights, options, warrants
or convertible securities to all or substantially all holders of its
Common Stock, without any charge to such holders, entitling them to
subscribe for or purchase Common Stock at a price per share which is
lower at the record date mentioned below than both (A) the then effective
conversion price and (B) the closing bid price (as defined in Section 4)
for the trading day immediately prior to such record date (the "Current
Market Price"), then the conversion rate shall be determined by
multiplying the conversion rate theretofore in effect by a fraction, of
which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such rights, options,
warrants or convertible securities plus the number of additional shares
of Common Stock offered for subscription or purchase, and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such rights, options, warrants or
convertible securities plus the number of shares which the aggregate
offering price of the total number of shares offered would purchase at
such Current Market Price. Such adjustment shall be made whenever such
rights, options, warrants or convertible securities are issued, and shall
become effective immediately and retroactive to the record date for the
determination of stockholders entitled to receive such rights, options,
warrants or convertible securities. Notwithstanding any of the
foregoing, no adjustment shall be made pursuant to the provisions of this
subsection (ii), if such adjustment would result in a decrease of the
conversion rate.
(iii) In case the Corporation shall distribute to all or
substantially all holders of its Common Stock evidences of its
indebtedness or assets (excluding cash dividends or distributions out of
earnings) or rights, options, warrants or convertible securities
containing the right to subscribe for or purchase Common Stock (excluding
those referred to in subparagraph (ii) above), then in each case the
conversion rate shall be determined by multiplying the conversion rate
theretofore in effect by a fraction, of which the numerator shall be the
then fair value as determined in good faith by the Corporation's Board
of Directors on the date of such distribution, and of which the
denominator shall be such fair value on such date minus the then fair
value (as so determined) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription
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rights, options, warrants or convertible securities applicable to one
share. Such adjustment shall be made whenever any such distribution is
made and shall become effective on the date of distribution retroactive
to the record date for the determination of stockholders entitled to
receive such distribution.
(iv) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the
conversion rate shall, upon such expiration, be readjusted and shall
thereafter be such as it would have been had it been originally adjusted
(or had the original adjustment not been required, as the case may be) on
the basis of (A) the fact that Common Stock, if any, actually issued or
sold upon the exercise of such rights, options, warrants or conversion
privileges, and (B) the fact that such shares of Common Stock, if any,
were issued or sold for the consideration actually received by the
Corporation upon such exercise plus the consideration, if any, actually
received by the Corporation for the issuance, sale or grant of all such
rights, options, warrants or conversion privileges whether or not
exercised.
(v) No adjustment in the conversion rate shall be required unless
such adjustment would require an increase or decrease of at least 1% in
such rate; provided, however, that the Corporation may make any such
adjustment at its election; and provided, further, that any adjustments
which by reason of this subparagraph (v) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 4 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may
be.
(vi) Whenever the conversion rate is adjusted as provided in any
provision of this Section 4:
(A) the Corporation shall compute (or may retain a firm of
independent public accountants of recognized national standing
(which may be any such firm regularly employed by the Corporation)
to compute) the adjusted conversion rate in accordance with this
Section 4 and shall prepare a certificate signed by the principal
financial officer of the Corporation (or cause any such independent
public accountants to execute a certificate) setting forth the
adjusted conversion rate and showing in reasonable detail the facts
upon which such adjustment is based, and such certificate shall
forthwith be filed with the transfer agent of the Series B'
Convertible Preferred Stock; and
(B) a notice stating that the conversion rate has been
adjusted and setting forth the adjusted conversion rate shall
forthwith be required, and as soon as practicable after it is
required, such notice shall be mailed by the Corporation to all
record holders of Series B' Convertible Preferred Stock at their
last addresses as they shall appear in the stock transfer books of
the Corporation.
(vii) In the event that at any time, as a result of any adjustment
made pursuant to this Section 4, the holder of any shares of Series B'
Convertible Preferred Stock thereafter surrendered for conversion shall
become entitled to receive any shares of the Corporation other than
shares of Common Stock or to receive any other securities, the number of
such other shares or securities so receivable upon conversion of any
share of Series B' Convertible Preferred Stock shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions contained in this Section 4
with respect to the Common Stock.
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(d) No Fractional Shares. No fractional shares or scrip
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representing fractional shares of Common Stock shall be issued upon conversion
of Series B' Convertible Preferred Stock. If more than one certificate
evidencing shares of Series B' Convertible Preferred Stock shall be surrendered
for conversion at one time by the same holder, the number of full shares
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares of Series B' Convertible Preferred Stock so surrendered.
Instead of any fractional share of Common Stock which would otherwise be
issuable upon conversion of any shares of Series B' Convertible Preferred Stock,
the Corporation shall pay a cash adjustment in respect of such fractional
interest in an amount equal to the same fraction of the market price per share
of Common Stock (which shall be the closing price as defined in Section 5) at
the close of business on the day of conversion.
(e) Reservation of Shares; Transfer Taxes; Etc. The Corporation
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shall at all times reserve and keep available, out of its authorized and
unissued stock, solely for the purpose of effecting the conversion of the Series
B' Convertible Preferred Stock, such number of shares of its Common Stock free
of preemptive rights as shall from time to time be sufficient to effect the
conversion of all shares of Series B' Convertible Preferred Stock from time to
time outstanding. The Corporation shall use its best efforts from time to time,
in accordance with the laws of the State of Delaware, to increase the authorized
number of shares of Common Stock if at any time the number of shares of Common
Stock not outstanding shall not be sufficient to permit the conversion of all
the then-outstanding shares of Series B' Convertible Preferred Stock.
The Corporation shall pay any and all issue or other taxes that may
be payable in respect of any issue or delivery of shares of Common Stock on
conversion of the Series B' Convertible Preferred Stock. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of Common Stock (or other securities
or assets) in a name other than that in which the shares of Series B'
Convertible Preferred Stock so converted were registered, and no such issue or
delivery shall be made unless and until the person requesting such issue has
paid to the Corporation the amount of such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
Notwithstanding anything to the contrary herein, before taking any
action that would cause an adjustment reducing the conversion rate or before any
such adjustment is made as a result of a Reset Event, in either event, such that
the effective conversion price (for all purposes an amount equal to $10.00
divided by the conversion rate as in effect at such time) would be below the
then par value of the Common Stock, the Corporation shall take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Common Stock at the conversion rate as so adjusted.
(f) Prior Notice of Certain Events. In case:
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(i) the Corporation shall declare any dividend (or any other
distribution) on its Common Stock; or
(ii) the Corporation shall authorize the granting to the holders of
Common Stock of rights or warrants to subscribe for or purchase any
shares of stock of any class or of any other rights or warrants; or
(iii) of any reclassification of Common Stock (other than a
subdivision or combination
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of the outstanding Common Stock, or a change in par value, or from par
value to no par value, or from no par value to par value), or of any
consolidation or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation shall be required, or of
the sale or transfer of all or substantially all of the assets of the
Corporation or of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or other property; or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed with the transfer agent for the
Series B' Convertible Preferred Stock, and shall cause to be mailed to the
holders of record of the Series B' Convertible Preferred Stock, at their last
addresses as they shall appear upon the stock transfer books of the Corporation,
at least 10 days prior to the applicable record date hereinafter specified, a
notice stating (x) the date on which a record (if any) is to be taken for the
purpose of such dividend, distribution or granting of rights or warrants or, if
a record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights or warrants are to
be determined and a description of the cash, securities or other property to be
received by such holders upon such dividend, distribution or granting of rights
or warrants or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding up
is expected to become effective, the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such exchange,
dissolution, liquidation or winding up and the consideration, including
securities or other property, to be received by such holders upon such exchange;
provided, however, that no failure to mail such notice or any defect therein or
in the mailing thereof shall affect the validity of the corporate action
required to be specified in such notice.
(g) Other Changes in Conversion Rate. The Corporation from time to
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time may increase the conversion rate by any amount for any period of time if
the period is at least 20 days and if the increase is irrevocable during the
period. Whenever the conversion rate is so increased, the Corporation shall
mail to holders of record of the Series B' Convertible Preferred Stock a notice
of the increase at least 15 days before the date the increased conversion rate
takes effect, and such notice shall state the increased conversion rate and the
period it will be in effect.
The Corporation may make such increases in the conversion rate, in
addition to those required or allowed by this Section 4, as shall be determined
by it, as evidenced by a resolution of the Board of Directors, to be advisable
in order to avoid or diminish any income tax to holders of Common Stock
resulting from any dividend or distribution of stock or issuance of rights or
warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
(h) Ambiguities/Errors. The Board of Directors of the Corporation
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shall have the power to resolve any ambiguity or correct any error in the
provisions relating to the convertibility of the Series B' Convertible Preferred
Stock, and its actions in so doing shall be final and conclusive.
5. Mandatory Conversion. At any time on or after the Reset Date,
--------------------
the Corporation, at its option, may cause the Series B' Convertible Preferred
Stock to be converted in whole, or in part, on a pro rata basis, into fully paid
and nonassessable shares of Common Stock and such other securities and property
as herein provided if the closing price of the Common Stock shall have exceeded
200% of the then applicable conversion price for at least 20 trading days in any
30 consecutive trading day period. Any
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shares of Series B' Convertible Preferred Stock so converted shall be treated as
having been surrendered by the holder thereof for conversion pursuant to Section
4 on the date of such mandatory conversion (unless previously converted at the
option of the holder).
Not more than 60 nor less than 20 days prior to the date of any such
mandatory conversion, notice by first class mail, postage prepaid, shall be
given to the holders of record of the Series B' Convertible Preferred Stock to
be converted, addressed to such holders at their last addresses as shown on the
stock transfer books of the Corporation. Each such notice shall specify the
date fixed for conversion, the place or places for surrender of shares of Series
B' Convertible Preferred Stock, and the then effective conversion rate pursuant
to Section 4.
The "closing price" for each trading day shall be the reported last
sales price regular way or, in case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices regular way, in
either case on the NASDAQ Small-Cap Market or the NASDAQ National Market System
(collectively referred to as, "NASDAQ") or, if the Common Stock is not quoted on
NASDAQ, on the principal national securities exchange on which the Common Stock
is listed or admitted to trading (based on the aggregate dollar value of all
securities listed or admitted to trading) or, if not listed or admitted to
trading on any national securities exchange or quoted on NASDAQ, the average of
the closing bid and asked prices in the over-the-counter market as furnished by
any NASD member firm selected from time to time by the Corporation for that
purpose, or, if such prices are not available, the fair market value set by, or
in a manner established by, the Board of Directors of the Corporation in good
faith. "Trading day" shall have the meaning given in Section 4 hereof.
Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Corporation on the date deposited in the
mail, whether or not the holder of the Series B' Convertible Preferred Stock
receives such notice; and failure properly to give such notice by mail, or any
defect in such notice, to the holders of the shares to be converted shall not
affect the validity of the proceedings for the conversion of any other shares of
Series B' Convertible Preferred Stock. On or after the date fixed for
conversion as stated in such notice, each holder of shares called to be
converted shall surrender the certificate evidencing such shares to the
Corporation at the place designated in such notice for conversion.
Notwithstanding that the certificates evidencing any shares properly called for
conversion shall not have been surrendered, the shares shall no longer be deemed
outstanding and all rights whatsoever with respect to the shares so called for
conversion (except the right of the holders to convert such shares upon
surrender of their certificates therefor) shall terminate.
6. Voting Rights.
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(a) General. Except as otherwise provided herein, in the Amended
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and Restated Certificate of Incorporation or the By-laws, the holders of shares
of Series B' Convertible Preferred Stock, the holders of shares of Common Stock
and the holders of any other class or series of shares entitled to vote with the
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation. In any such vote, each share of Series B'
Convertible Preferred Stock shall entitle the holder thereof to cast the number
of votes equal to the number of votes which could be cast in such vote by a
holder of the Common Stock into which such share of Series B' Convertible
Preferred Stock is convertible on the record date for such vote, or if no record
date has been established, on the date such vote is taken. Any shares of Series
B' Convertible Preferred Stock held by the Corporation or any
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<PAGE>
entity controlled by the Corporation shall not have voting rights hereunder
and shall not be counted in determining the presence of a quorum.
(b) Class Voting Rights. In addition to any vote specified in
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paragraph (a) of this Section 6, so long as 50% of the shares of Series B'
Convertible Preferred Stock (including those shares of Series B' Convertible
Preferred Stock issued or issuable upon the exercise of the warrants issued to
Paramount Capital, Inc., the placement agent in connection with the offer and
sale of the Series B' Convertible Preferred Stock) shall be outstanding, the
Corporation shall not, without the affirmative vote or consent of the holders of
at least 66-2/3% of all outstanding Series B' Convertible Preferred Stock voting
separately as a class, (i) amend, alter or repeal any provision of the Amended
and Restated Certificate of Incorporation, as amended, or the Bylaws of the
Corporation so as adversely to affect the relative rights, preferences,
qualifications, limitations or restrictions of the Series B' Convertible
Preferred Stock, (ii) declare any dividend or distribution on the Common Stock
or any other class or series of preferred stock or authorize the repurchase of
any securities of the Corporation or (iii) authorize or issue, or increase the
authorized amount of, any additional class or series of stock, or any security
convertible into stock of such class or series, (A) ranking prior to, or on a
parity with, the Series B' Convertible Preferred Stock upon liquidation,
dissolution or winding up of the Corporation or a sale of all or substantially
all of the assets of the Corporation or (B) providing for the payment of any
dividends or distributions. A class vote on the part of the Series B'
Convertible Preferred Stock shall, without limitation, specifically not be
deemed to be required (except as otherwise required by law or resolution of the
Corporation's Board of Directors) in connection with: (a) the authorization,
issuance or increase in the authorized amount of Common Stock or of any shares
of any other class or series of stock ranking junior to the Series B'
Convertible Preferred Stock in respect of distributions upon liquidation,
dissolution or winding up of the Corporation; (b) the authorization, issuance or
increase in the amount of the Series B' Convertible Preferred Stock or any
bonds, mortgages, debentures or other obligations of the Corporation (other than
bonds, mortgages, debentures or other obligations convertible into or
exchangeable for or having option rights to purchase any shares of stock of the
Corporation the authorization issuance or increase in amount of which would
require the consent of the holders of the Series B' Preferred Stock); or (c) any
consolidation or merger of the Corporation with or into another corporation in
which the Corporation is not the surviving entity, a sale or transfer of all or
part of the Corporation's assets for cash, securities or other property, or a
compulsory share exchange.
7. Outstanding Shares. For purposes of this Certificate of
------------------
Designations, all issued shares of Series B' Convertible Preferred Stock shall
be deemed outstanding except (i) from the date, or the deemed date, of surrender
of certificates evidencing shares of Series B' Convertible Preferred Stock, all
shares of Series B' Convertible Preferred Stock converted into Common Stock,
(ii) from the date of registration of transfer, all shares of Series B'
Convertible Preferred Stock held of record by the Corporation or any subsidiary
of the Corporation and (iii) any and all shares of Series B' Convertible
Preferred Stock held in escrow prior to delivery of such stock by the
Corporation to the initial beneficial owners thereof.
8. Status of Acquired Shares. Shares of Series B' Convertible
-------------------------
Preferred Stock received upon conversion pursuant to Section 4 or Section 5 or
otherwise acquired by the Corporation will be restored to the status of
authorized but unissued shares of Preferred Stock, without designation as to
class, and may thereafter be issued, but not as shares of Series B' Convertible
Preferred Stock.
9. Preemptive Rights. The Series B' Convertible Preferred Stock
-----------------
is not entitled to any preemptive or subscription rights in respect of any
securities of the Corporation.
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<PAGE>
10. Severability of Provisions. Whenever possible, each provision
--------------------------
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
IN WITNESS WHEREOF, Sparta Pharmaceuticals, Inc. has caused
this certificate to be signed on its behalf by Jerry B. Hook, Ph.D., its
--------------------
President and Chief Executive Officer, this 23rd day of August,1996.
- ------------------------------------- ---- ------
SPARTA PHARMACEUTICALS, INC.
By: /s/ Jerry B. Hook
-------------------------------
Name: Jerry B. Hook, Ph.D.
Title: President and Chief
Executive Officer
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