RESTATED CERTIFICATE OF INCORPORATION
OF
INTERFILM, INC.
INTERFILM, INC., a corporation duly organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
The name under which the Corporation was originally incorporated was Cinedco,
Inc. The original Certificate of Incorporation of the Corporation was filed with
the Secretary of State of the State of Delaware on November 21, 1986.
1. This Restated Certificate of Incorporation restates and integrates,
but does not amend, the Restated Certificate of Incorporation of the Corporation
to read as set forth herein.
2. Pursuant to Section 245 of the General Corporation Law of the State
of Delaware, the text of the Certificate of Incorporation as heretofore amended
or supplemented is hereby restated to read in full as follows:
ARTICLE I
Name
The name of the Corporation is INTERFILM, INC.
ARTICLE II
Registered Office and Registered Agent
The registered office of the Corporation in the State of Delaware is
located at c/o the Corporation Trust Company, 1209 Orange Street, City of
Wilmington, County of New Castle, State of Delaware, and the registered agent in
charge thereof is The Corporation Trust Company.
ARTICLE III
Corporate Purpose
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "General Corporation Law").
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ARTICLE IV
Capital Stock
Section 1. AUTHORIZED CAPITAL STOCK. The Corporation shall be authorized
to issue two classes of shares of capital stock to be designated, respectively,
"Preferred Stock" and "Common Stock"; the total number of shares of capital
stock which the Corporation shall have the authority to issue is 12,000,000,
comprised of 10,000,000 shares of Common Stock, par value $.01 per share, and
2,000,000 shares of Preferred Stock, par value $.01 per share.
Section 2. ISSUANCE OF PREFERRED STOCK. The Board of Directors is
authorized, subject to limitations prescribed by law and the provisions of this
Article IV, to provide for the issuance of the shares of Preferred Stock in
series, and by filing a certificate pursuant to the applicable law of the State
of Delaware, to establish from time to time the number of shares to be included
in each such series, and to fix the designation, powers, preferences, rights and
privileges of the shares of each such series and the qualifications, limitations
or restrictions thereof.
The authority of the Board of Directors with respect to each such series
shall include, but not be limited to, determination of the following:
(a) The number of shares constituting such series and the distinctive
designation of such series;
(b) The dividend rate on the shares of such series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of such series;
(c) Whether such series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(d) Whether such series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of such series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
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(f) Whether such series shall have a sinking fund for the redemption or
purchase of shares of such series, and, if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of such series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the corporation, and the
relative rights of priority, if any, of payment of shares of such series;
(h) Any other relative powers, preferences, rights, privileges,
qualifications, limitations and restrictions of such series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the Common Stock with respect to the same
dividend period.
If upon any voluntary or involuntary liquidation, dissolution or winding
up of the corporation, the assets available for distribution to holders of
shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
Section 3. NO PREEMPTIVE RIGHTS. No holders of capital stock of the
Corporation shall be entitled to preemptive rights to purchase or subscribe for
any shares of any class of capital stock of the Corporation whether now or
hereafter authorized.
ARTICLE V
Directors
Section 1. ELECTION OF DIRECTORS. Elections of directors of the
Corporation need not be by written ballot, except and to the extent provided in
the By-laws of the Corporation.
Section 2. POWER WITH RESPECT TO BY-LAWS. The directors of the
Corporation shall have the power to adopt, amend or repeal By-laws.
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Section 3. PERSONAL LIABILITY OF DIRECTORS. To the fullest extent
permitted by the General Corporation Law as it now exists and as it may
hereafter be amended, no director of the Corporation shall be personally liable
to the Corporation or its stockholders for monetary damages for breach of a
fiduciary duty as a director.
ARTICLE VI
Indemnification of Directors, Officers and Others
(1) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he or she is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner he or she reasonably believed to be
in, or not opposed to, the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person
seeking indemnification did not act in good faith and in a manner which he or
she reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
(2) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he or she is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection with the
defense or
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5
settlement of such action or suit if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(3) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections (1) and (2) of this Article
VI, or in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith.
(4) Any indemnification under Sections (1) and (2) of this Article VI
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in such Sections (1) and (2).
Such determination shall be made (a) by the Board of Directors of the
Corporation by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (b) if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion or (c) by the
stockholders of the Corporation.
(5) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation authorized in this Article VI. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors of the
Corporation deems appropriate.
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(6) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other sections of this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(7) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of Section 145 of the General
Corporation Law.
(8) For purposes of this Article VI, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article VI with respect to the
resulting or surviving corporation as he or she would have with respect to such
constituent corporation if its separate existence had continued.
(9) For purposes of this Article VI, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves service by, such director, officer, employee or
agent with respect to any employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
VI.
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(10) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VI shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE VII
Amendment
The Corporation reserves the right to amend, alter, change or repeal any
provision of this Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by law, and all rights conferred on stockholders in this
Restated Certificate of Incorporation are subject to this reservation.
3. This Restated Certificate of Incorporation was duly adopted by the
Board of Directors of the Corporation without the approval of the holders of
outstanding stock of the Corporation in accordance with the provisions of
Section 245 of the General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by its President, Chief Executive Officer and Secretary this 1st day of
November, 1993.
INTERFILM, INC.
By: /s/ Lawrence B. Kuppin
--------------------------
Lawrence B. Kuppin
President, Chief Executive
Officer and Secretary
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CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
INTERFILM, INC.
--------------------------
Under Section 242 of the
General Corporation Law
--------------------------
The undersigned officer of Interfilm, Inc., a Delaware corporation (the
"Corporation"), in order to amend the Restated Certificate of Incorporation of
the Corporation, pursuant to the provisions of Section 242 of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
1. The name of the Corporation is "Interfilm, Inc."
2. The name under which the Corporation was originally incorporated was
"Cinedco, Inc." The original Certificate of Incorporation of the Corporation was
filed by the Secretary of State of the State of Delaware on November 21, 1986.
3. The purpose of this amendment to the Restated Certificate of
Incorporation of the Corporation is: (i) to change the name of the Corporation
to "Palatin Technologies, Inc.", (ii) to increase the authorized shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), from
10,000,000 to 25,000,000, and (iii) to effect a 1-for-10 reverse split of the
Common Stock.
4. The Restated Certificate of Incorporation of the Corporation is hereby
amended by striking out Article I thereof in its entirety and by substituting in
lieu of said Article the following new Article I:
"ARTICLE I
Name
The name of the Corporation is PALATIN TECHNOLOGIES, INC."
5. The Restated Certificate of Incorporation of the Corporation is hereby
amended by striking out Section 1 of Article IV thereof in its entirety and by
substituting in lieu of said Section 1 the following new Section 1:
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"Section 1. Authorized Capital Stock. The Corporation shall be authorized
to issue two classes of shares of capital stock to be designated, respectively,
"Preferred Stock" and "Common Stock." The total number of shares of capital
stock which the Corporation shall have the authority to issue is 27,000,000,
comprised of 25,000,000 shares of Common Stock, par value $.01 per share, and
2,000,000 shares of Preferred Stock, par value $.01 per share.
On the effective date of this amendment to the Restated Certificate of
Incorporation (the "Effective Date"), the Common Stock of the Corporation will
be reverse split on a one-for-ten basis so that each share of Common Stock
issued and outstanding immediately prior to the Effective Date shall
automatically be converted into and reconstituted as one-tenth of a share of
Common Stock (the "Reverse Split"). No fractional shares will be issued by the
Corporation as a result of the Reverse Split. In lieu thereof, each stockholder
whose shares of Common Stock are not evenly divisible by ten will receive an
amount of cash equal to the average of the average last reported bid and asked
price of the Common Stock of the Corporation on the OTC Electronic Bulletin
Board for each of the first three days subsequent to the Effective Date on which
the Common Stock of the Corporation is traded multiplied by the fractional
interest."
6. The foregoing amendment to the Corporation's Restated Certificate of
Incorporation was duly authorized and adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware by
unanimous written consent of the Board of Directors of the Corporation dated
June 13, 1996, and by written consent of a majority of the Common Stockholders
of the Corporation dated June 13, 1996.
IN WITNESS WHEREOF, the undersigned has signed this Certificate and does
hereby affirm, under penalty of perjury, that the statements contained herein
are true and correct, this 19th day of July 1996.
/s/ John J. McDonough
-------------------------
Name: John J. McDonough
Title: Vice President
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CERTIFICATE OF DESIGNATIONS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
PALATIN TECHNOLOGIES, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
PALATIN TECHNOLOGIES, 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 Certificate of Incorporation, as amended to
date (the "Certificate of Incorporation"), 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 264,000 shares of Preferred Stock of the Corporation
designated as "Series A Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the
Board of Directors of this Corporation by the Certificate of
Incorporation, a series of Preferred Stock, par value $.01 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 A CONVERTIBLE PREFERRED STOCK
1. DESIGNATION AND AMOUNT. There shall be a series of Preferred Stock
designated as "Series A Convertible Preferred Stock" and the number of shares
constituting such series shall be 264,000. Such series is referred to herein as
the "Series A Preferred Stock". Such number of shares of Series A Preferred
Stock may be increased prior to the Final Closing Date (as defined below) 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 A
Preferred Stock to less than the number of shares then issued and outstanding.
2. DIVIDENDS AND DISTRIBUTIONS. (a) Subject to the prior and superior
rights of the holders of any shares of any series or class of capital stock
ranking prior and superior to the shares of Series A Preferred Stock with
respect to dividends, the holders of shares of Series A
<PAGE>
Preferred Stock shall be entitled to receive, as, when and if declared by the
Board of Directors of the Corporation, out of assets legally available for that
purpose, dividends or distributions in cash, stock or otherwise.
(b) The Corporation shall not declare any dividend or distribution on any
Junior Stock (as defined below) or any other capital stock of the Company unless
and until a special dividend or distribution of $100.00 per share (subject to
appropriate adjustment to reflect any stock split, combination, reclassification
or reorganization of the Series A Preferred Stock) has been declared and paid on
the Series A Preferred Stock. In the event such special dividend or distribution
is declared and paid on the Series A Preferred Stock, an aggregate per share
dividend or distribution equal to (i) $100.00 divided by (ii) the effective
Conversion Rate at the time of such special dividend or distribution on the
Series A Preferred Stock may be declared and paid on the Common Stock. Except as
aforesaid, the Corporation shall not declare any dividend or distribution on any
Junior Stock, unless the Corporation shall, concurrently with the declaration of
such dividend or distribution on the Junior Stock, declare a like dividend or
distribution, as the case may be, on the Series A Preferred Stock, which in the
case of dividends or distributions on Common Stock or Junior Stock convertible
into Common Stock, shall be in an amount per share equal to at least (x) the
amount of the dividend or distribution per share of Common Stock multiplied by
(y) the effective Conversion Rate at the time of such dividend or distribution.
(c) Any dividend or distribution (other than that referenced in the first
sentence of Section 2(b)) payable to the holders of the Series A Preferred Stock
pursuant to this Section 2 shall be paid to such holders at the same time as the
dividend or distribution on the Junior Stock or any other capital stock of the
Company by which it is measured is paid.
(d) All dividends or distributions declared upon the Series A Preferred
Stock shall be declared pro rata per share.
(e) 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).
(f) "Junior Stock" shall mean the Common Stock and any shares of preferred
stock of any series or class of the Corporation, whether presently outstanding
or hereafter issued, which are junior to the shares of Series A Preferred Stock
with respect to (i) the distribution of assets on any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, (ii) dividends and
(iii) voting.
3. LIQUIDATION PREFERENCE. (a) In the event of a (i) liquidation,
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 stock or securities of another
entity, cash and/or any other property (a "Merger Transaction") (subparagraphs
(i), (ii) and (iii) being collectively referred to as a
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<PAGE>
"Liquidation Event"), after payment or provision for payment of debts and other
liabilities of the Corporation, the holders of the Series A Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, 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 any Junior Stock or any other
capital stock of the Company, an amount equal to $100.00 per share plus an
amount equal to all declared and unpaid dividends thereon; provided, however, in
the case of a Merger Transaction, such $100.00 per share may be paid in cash,
property (valued as provided in Section 3(b)) and/or securities (valued as
provided in Section 3(b)) 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 A Preferred Stock shall be insufficient
to permit the payment to such stockholders 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 A Preferred Stock on the
basis of the number of shares of Series A Preferred Stock held. A consolidation
or merger of the Corporation with or into another corporation, other than in a
transaction described in this Section 3(a) 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 A 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.
(b) Any securities or other property to be delivered to the holders of the
Series A Preferred Stock pursuant to Section 3(a) hereof shall be valued as
follows:
(i) Securities not subject to an investment letter or other similar
restriction on free marketability:
(A) If traded on a securities exchange or on Nasdaq (as defined
below), or if actively traded over-the-counter, the value shall be
deemed to be the Market Price (as defined below) of the securities as
of the third day prior to the date of valuation.
(B) If there is no such active public market for the securities, the
value shall be the Fair Market Value (as defined below) of the
securities.
"Market Price" of a security shall mean the average Closing Bid Price (as
defined below) of such security, for twenty (20) consecutive trading days,
ending with the day prior to the date as of which the Market Price is being
determined.
"Fair Market Value" of any asset (including any security) means the fair
market value thereof as mutually determined by the Corporation and the
holders of a majority (measured in terms of voting power) of the
outstanding Series A Preferred Stock.
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The "Closing Bid Price" for any security for each trading day shall be
the reported closing bid price of such security on the national securities
exchange on which such security is listed or admitted to trading, or, if
such security is not listed or admitted to trading on any national
securities exchange, shall mean the reported closing bid price of such
security on the Nasdaq SmallCap Market or the Nasdaq National Market System
(collectively referred to as, "Nasdaq") or, if such security is not listed
or admitted to trading on any national securities exchange or quoted on
Nasdaq, shall mean the reported closing bid price of such security on the
principal securities exchange on which such security is listed or admitted
to trading (based on the aggregate dollar value of all securities listed or
admitted to trading) or, if such security is not listed or admitted to
trading on a national securities exchange, quoted on Nasdaq or listed or
admitted to trading on any other securities exchange, shall mean 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.
"Trading day" shall mean a day on which the 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 such securities exchange is open for the
transaction of business.
(ii) For securities for which there is an active public market but
which are subject to investment letter or other restrictions on free
marketability, the value shall be the Fair Market Value thereof, determined
by discounting appropriately the Market Price thereof.
(iii) For all other securities, the value shall be the Fair Market
Value thereof.
If the holders of a majority of the Series A Preferred Stock and the Corporation
are unable to reach agreement on any valuation matter, such valuation shall be
submitted to and determined by a nationally recognized independent investment
bank selected by the Board of Directors of the Corporation and the holders of a
majority of the Series A Preferred Stock (or, if such selection cannot be agreed
upon promptly, or in any event within ten days, then such valuation shall be
made by a nationally recognized independent investment banking firm selected by
the American Arbitration Association in New York City in accordance with its
rules).
4. CONVERSION.
(a) RIGHT OF CONVERSION. The shares of Series A 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 Section 4(b) below, into fully paid
and nonassessable shares of Common Stock and such other securities and property
as hereinafter provided. The initial conversion price per share of Common Stock
is $1.78 (the "Conversion Price") and shall be subject to adjustment as provided
herein. The rate at which each share of Series A Preferred Stock is convertible
at any time into Common Stock (the "Conversion Rate") shall be determined by
dividing the then existing Conversion Price into $100.00.
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<PAGE>
Subject to adjustment pursuant to the provisions of Section 4(c) below, in
the event that the Conversion Price in effect at the time of each Interim
Closing Date (as defined below) and the Final Closing Date (as defined below) is
greater than 90% of the Market Price (as defined in Section 3(b)) of the Common
Stock as of (x) any interim closing date of the issuance and sale of the Series
A Preferred Stock (each an "Interim Closing Date") or (y) the final closing date
of the issuance and sale of the Series A Preferred Stock (the "Final Closing
Date") pursuant to the subscription agreements entered into in connection
therewith, then the Conversion Price shall be adjusted to equal 90% of the
lesser of any such Market 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 as set forth above. For purposes of this Section 4, in the event the
prices referenced in the definition of Closing Bid Price in Section 3(b) cannot
be determined, the Market Price of the Common Stock shall be deemed to be the
Fair Market Value (as defined in Section 3(b)) of the Common Stock as of the
date of determination.
The Board of Directors of the Corporation, or a committee designated by it
for such purpose, may specify an initial conversion price applicable to the
shares of Series A Preferred Stock issued at any closing lower than the initial
conversion price that would otherwise obtain pursuant to the preceding
paragraphs and, in the event an initial conversion price is so specified, it
shall be applicable to all shares of the Series A Preferred Stock.
The Corporation shall prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Corporation setting forth the Conversion Rate as of
the Final Closing Date, showing in reasonable detail the facts upon which such
adjusted Conversion Rate is based, and such certificate shall forthwith be filed
with the transfer agent of the Series A Preferred Stock. A notice stating that
the Conversion Rate has been adjusted pursuant to the second preceding
paragraph, or that no adjustment is necessary, and setting forth the Conversion
Rate in effect as of the Final Closing Date shall be mailed as promptly as
practicable after the Final Closing Date by the Corporation to all record
holders of the Series A Preferred Stock at their last addresses as they shall
appear in the stock transfer books of the Corporation.
(b) CONVERSION PROCEDURES. Any holder of shares of Series A Preferred Stock
desiring to convert such shares into Common Stock shall surrender the
certificate or certificates evidencing such shares of Series A Preferred Stock
at the office of the transfer agent for the Series A 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 A 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.
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The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series A 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 A 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 A
Preferred Stock to be converted, and the person or persons entitled to receive
the Common Stock deliverable upon conversion of such Series A 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 A Preferred Stock while the stock
transfer books of the Corporation are closed for any purpose, but the surrender
of Series A 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 A 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(f) hereof, a
holder of Series A Preferred Stock may, at its election, provide in its notice
of conversion that the conversion of its shares of Series A 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 Corporation prior to such record date or effective
date, as the case may be.
(c) ADJUSTMENT OF CONVERSION RATE AND CONVERSION PRICE.
(i) Except as otherwise provided herein, in the event the Corporation
shall, at any time or from time to time after the date hereof, (1) sell or
issue any shares of Common Stock for a consideration per share less than
either (i) the Conversion Price in effect on the date of such sale or
issuance or (ii) the Market Price of the Common Stock as of the date of the
sale or issuance, (2) issue any shares of Common Stock as a stock dividend
to the holders of Common Stock, or (3) subdivide or combine the outstanding
shares of Common Stock into a greater or lesser number of shares (any such
sale, issuance, subdivision or combination being herein called a "Change of
Shares"), then, and thereafter upon each further Change of Shares, the
Conversion Price in effect immediately prior to such Change of Shares shall
be changed to a price (rounded to the nearest cent) determined by
multiplying the Conversion Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to the sale or issuance of
such additional shares or such subdivision or combination and the number of
shares of Common Stock which the aggregate consideration received
(determined as provided in subsection 4(c)(v)(F) below) for the issuance of
such additional shares would purchase at the greater of (i) the Conversion
Price in effect on the date of such issuance or (ii) the Market Price as of
such date, and the denominator of which shall be the number of shares of
Common Stock outstanding
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immediately after the sale or issuance of such additional shares or
such subdivision or combination. Such adjustment shall be made successively
whenever such an issuance is made.
(ii) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Corporation with or into another corporation
(other than a consolidation or merger in which the Corporation is the
continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common
Stock other than the number thereof), or in case of any sale or conveyance
to another corporation of the property of the Corporation as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or
other financing transaction), the Corporation shall cause effective
provision to be made so that each holder of a share of Series A Preferred
Stock shall be entitled to receive, upon conversion of such share of Series
A Preferred Stock, the kind and number of shares of stock or other
securities or property (including cash) receivable upon such
reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common
Stock into which such share of Series A Preferred Stock was convertible
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Section 4(c). The
Corporation shall not effect any such consolidation, merger or sale unless
prior to or simultaneously with the consummation thereof the successor (if
other than the Corporation) resulting from such consolidation or merger or
the corporation purchasing assets or other appropriate corporation or
entity shall assume, by written instrument executed and delivered to the
transfer agent for the Series A Preferred Stock (the "Transfer Agent"), the
obligation to deliver to the holder of each share of Series A Preferred
Stock such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holders may be entitled to purchase and the
other obligations under this Agreement. The foregoing provisions shall
similarly apply to successive reclassifications, capital reorganizations
and other changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(iii) If, at any time or from time to time, the Corporation shall
issue or distribute to the holders of shares of Common Stock evidence of
its indebtedness, any other securities of the Corporation or any cash,
property or other assets (excluding an issuance or distribution governed by
one of the preceding subsections of this Section 4(c) and also excluding
cash dividends or cash distributions paid out of net profits legally
available therefor in the full amount thereof (any such non-excluded event
being herein called a "Special Dividend")), then in each case the holders
of the Series A Preferred Stock shall be entitled to a proportionate share
of any such Special Dividend as though they were the holders of the number
of shares of Common Stock of the Corporation into which their shares of
Series A Preferred Stock are convertible as of the record date fixed for
the determination of the holders of Common Stock of the Corporation
entitled to receive such Special Dividend.
(iv) After each adjustment of the Conversion Price pursuant to this
Section 4(c), the Corporation will promptly prepare a certificate signed by
the Chairman or President, and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary, of the Corporation setting
forth: (i) the Conversion Price as so adjusted, (ii) the Conversion Rate
corresponding to such
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Conversion and (iii) a brief statement of the facts accounting for such
adjustment. The Corporation will promptly file such certificate with the
Transfer Agent and cause a brief summary thereof to be sent by ordinary
first class mail to each registered holder of Series A Preferred Stock at
his last address as it shall appear on the registry books of the Transfer
Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of such adjustment. The affidavit
of an officer of the Transfer Agent or the Secretary or an Assistant
Secretary of the Corporation that such notice has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. The
Transfer Agent may rely on the information in the certificate as true and
correct and has no duty or obligation to independently verify the amounts
or calculations set forth therein.
(v) For purposes of Section 4(c)(i) hereof, the following provisions
(A) to (F) shall also be applicable:
(A) The number of shares of Common Stock deemed outstanding at
any given time shall include all shares of capital stock convertible
into or exchangeable for Common Stock and all shares of Common Stock
issuable upon the exercise of any convertible debt, warrants
outstanding on the date thereof and options outstanding on the date
thereof.
(B) No adjustment of the Conversion Price shall be made unless
such adjustment would require an increase or decrease of at least $.01
in such price; provided that any adjustments which by reason of this
clause (B) are not required to be made shall be carried forward and
shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment(s) so carried forward,
shall require an increase or decrease of at least $.01 in the
Conversion Price then in effect hereunder.
(C) In case of (1) the sale by the Corporation (including as a
component of a unit) of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or any
securities convertible into or exchangeable for Common Stock (such
securities convertible, exercisable or exchangeable into Common Stock
being herein called "Convertible Securities"), or (2) the issuance by
the Corporation, without the receipt by the Corporation of any
consideration therefor, of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or
Convertible Securities, whether or not such rights, warrants or
options, or the right to convert or exchange such Convertible
Securities, are immediately exercisable, and the consideration per
share for which Common Stock is issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum
aggregate consideration, as set forth in the instrument relating
thereto without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, payable
to the Corporation upon the exercise of such rights, warrants or
options, plus the consideration received by the Corporation for the
issuance or sale of such rights, warrants or options, plus, in the
case of such
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Convertible Securities, the minimum aggregate amount, as set forth in
the instrument relating thereto without regard to any antidilution or
similar provisions contained therein for a subsequent adjustment of
such amount, of additional consideration, if any, other than such
Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number, as set forth in the
instrument relating thereto without regard to any antidilution or
similar provisions contained therein for a subsequent adjustment of
such amount, of shares of Common Stock issuable upon the exercise of
such rights, warrants or options or upon the conversion or exchange of
such Convertible Securities issuable upon the exercise of such rights,
warrants or options) is less than either the Conversion Price or the
Market Price of the Common Stock as of the date of the issuance or
sale of such rights, warrants or options, then such total maximum
number of shares of Common Stock issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (as of the date of the issuance or sale of such
rights, warrants or options) shall be deemed to be "Common Stock" for
purposes of Section 4(c)(i) hereof and shall be deemed to have been
sold for an amount equal to such consideration per share and shall
cause an adjustment to be made in accordance with Section 4(c)(i).
(D) In case of the sale by the Corporation of any Convertible
Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for
which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Corporation for the sale of such
Convertible Securities, plus the minimum aggregate amount, as set
forth in the instrument relating thereto without regard to any
antidilution or similar provisions contained therein for a subsequent
adjustment of such amount, of additional consideration, if any, other
than such Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number, as set forth in the
instrument relating thereto without regard to any antidilution or
similar provisions contained therein for a subsequent adjustment of
such amount, of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than either the
Conversion Price or the Market Price of the Common Stock as of the
date of the sale of such Convertible Securities, then such total
maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of the sale
of such Convertible Securities) shall be deemed to be "Common Stock"
for purposes of Section 4(c)(i) hereof and shall be deemed to have
been sold for an amount equal to such consideration per share and
shall cause an adjustment to be made in accordance with Section
4(c)(i).
(E) In case the Corporation shall modify the rights of
conversion, exchange or exercise of any of the securities referred to
in (C) and (D) above or any other securities of the Corporation
convertible, exchangeable or exercisable for shares of Common Stock,
for any reason other than an event that would require adjustment to
prevent dilution, so that the consideration per share received by the
Corporation
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<PAGE>
after such modification is less than either the Conversion Price or
the Market Price as of the date prior to such modification, then such
securities, to the extent not theretofore exercised, converted or
exchanged, shall be deemed to have expired or terminated immediately
prior to the date of such modification and the Corporation shall be
deemed for purposes of calculating any adjustments pursuant to this
Section 4(c) to have issued such new securities upon such new terms on
the date of modification. Such adjustment shall become effective as of
the date upon which such modification shall take effect. On the
expiration or cancellation of any such right, warrant or option or the
termination or cancellation of any such right to convert or exchange
any such Convertible Securities, the Conversion Price then in effect
hereunder shall forthwith be readjusted to such Conversion Price as
would have obtained (a) had the adjustments made upon the issuance or
sale of such rights, warrants, options or Convertible Securities been
made upon the basis of the issuance of only the number of shares of
Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such rights,
warrants or options or upon the conversion or exchange of such
Convertible Securities and (b) had adjustments been made on the basis
of the Purchase Price as adjusted under clause (a) for all
transactions (which would have affected such adjusted Purchase Price)
made after the issuance or sale of such rights, warrants, options or
Convertible Securities.
(F) In case of the sale of any shares of Common Stock, any
Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or
Convertible Securities, the consideration received by the Corporation
therefor shall be deemed to be the gross sales price therefor without
deducting therefrom any expense paid or incurred by the Corporation or
any underwriting discounts or commissions or concessions paid or
allowed by the Corporation in connection therewith. In the event that
any securities shall be issued in connection with any other securities
of the Corporation, together comprising one integral transaction in
which no specific consideration is allocated among the securities,
then each of such securities shall be deemed to have been issued for
such consideration as the Board of Directors of the Corporation
determines in good faith; provided, however that if holders of in
excess of 10% of the then outstanding Series A Preferred Stock
disagree with such determination, the Corporation shall retain an
independent investment banking firm for the purpose of obtaining an
appraisal.
(vi) Notwithstanding any other provision hereof, no adjustment to the
Conversion Price will be made
(A) upon the exercise of any of the options outstanding on the
date hereof under the Corporation's existing stock option plans; or
(B) upon the issuance or exercise of options which may hereafter
be granted with the approval of the Board of Directors, or exercised,
under the Corporation's 1996 Stock Option Plan or under any other
employee benefit plan of
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the Company to officers, directors or employees, but only with respect
to such options as are exercisable at prices no lower than the Closing
Bid Price (or, if the prices referenced in the definition of Closing
Bid Price cannot be determined, the Fair Market Value) of the Common
Stock as of the date of grant thereof; or
(C) upon the sale of any shares of Common Stock, warrants to
purchase Common Stock or Convertible Securities in a firm commitment
underwritten public offering, including, without limitation, shares
sold upon the exercise of any overallotment option granted to the
underwriters in connection with such offering; or
(D) upon issuance or exercise of the Placement Warrants (in each
case as defined in the placement agency agreement between the
Corporation and the placement agent for sales of the Series A
Preferred Stock), or upon the issuance or conversion of the Preferred
Stock included in Liquidity Enhanced Exchangeable Preferred Stock
Units of the Company issued (i) on or prior to the Final Closing Date
or (ii) pursuant to the exercise of the Placement Warrants, or
(E) upon the issuance or sale of Common Stock or Convertible
Securities pursuant to the exercise of any rights, options or warrants
to receive, subscribe for or purchase, or any options for the purchase
of, Common Stock or Convertible Securities, whether or not such
rights, warrants or options were outstanding on the date of the
original sale of the Series A Preferred Stock or were thereafter
issued or sold, provided that an adjustment was either made or not
required to be made in accordance with Section 4(c)(i) in connection
with the issuance or sale of such securities or any modification of
the terms thereof; or
(F) upon the issuance or sale of Common Stock upon conversion or
exchange of any Convertible Securities, provided that any adjustments
required to be made upon the issuance or sale of such Convertible
Securities or any modification of the terms thereof were so made, and
whether or not such Convertible Securities were outstanding on the
date of the original sale of the Series A Preferred Stock or were
thereafter issued or sold.
Section 4(c)(v)(E) shall nevertheless apply to any modification of the rights of
conversion, exchange or exercise of any of the securities referred to in (A)
through (C) or, to the extent effected with respect to less than all of the
outstanding Series A Preferred Stock, as the case may be, (D) above other than
automatic modifications made pursuant to applicable anti-dilution provisions
with respect to such securities.
(vii) As used in this Section 4(c), the term "Common Stock" shall mean
and include the Corporation's Common Stock authorized on the date of the
original issue of the Units and shall also include any capital stock of any
class of the Corporation thereafter authorized which shall not be limited
to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends and in the distribution of assets upon
the voluntary liquidation, dissolution or winding up of the Corporation;
provided, however, that the shares issuable upon conversion of the Series A
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Preferred Stock shall include only shares of such class designated in the
Corporation's Certificate of Incorporation as Common Stock on the date of
the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 4(c)(ii) hereof, the stock, securities or
property provided for in such section or (ii), in the case of any
reclassification or change in the outstanding shares of Common Stock
issuable upon conversion of the Series A Preferred Stock as a result of a
subdivision or combination or consisting of a change in par value, or from
par value to no par value, or from no par value to par value, such shares
of Common Stock as so reclassified or changed.
(ix) Any determination as to whether an adjustment in the Conversion
Price in effect hereunder is required pursuant to Section 4(c), or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Series A Preferred Stock and the Company if made in good
faith by the Board of Directors of the Company.
(d) NO FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon conversion of shares of
Series A Preferred Stock. If more than one certificate evidencing shares of
Series A 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 A Preferred
Stock so surrendered. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of any shares of Series A 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 as of the
close of business on the day of conversion.
(e) RESERVATION OF SHARES; TRANSFER TAXES; ETC. The Corporation shall at
all times reserve and keep available, out of its authorized and unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
Series A Preferred Stock, such number of shares of its Common Stock free of
preemptive rights as shall be sufficient to effect the conversion of all shares
of Series A Preferred Stock from time to time outstanding. The Corporation shall
authorize and reserve a sufficient number of shares of the Common Stock to
permit the conversion in full of the Series A Preferred Stock (including in the
event of a Reset Event, as defined in Section 5). The Corporation shall use its
best efforts to effect such authorization by the date which is 90 days following
the Final Closing Date but in any event no later than the date which is 270 days
following the Final Closing Date. If such authorization is not effected by the
date which is 270 days following the Final Closing Date, the holder shall be
entitled at its option, to require the Corporation to repurchase the shares of
Series A Preferred Stock then held by such holder at $100.00 per share. In the
event that on the date that a holder of Series A Preferred Stock elects to
convert such holder's shares of Series A Preferred Stock the Corporation has not
authorized and reserved a sufficient number of shares of Common Stock to permit
such conversion in full, the holder will be entitled upon conversion to receive
the fair market value per share of Common Stock on account of the shares which
would have been issuable to the holder upon conversion but which the Corporation
was unable to issue due to the lack of authorized and reserved shares. The fair
market value shall be paid in cash, or, if the Corporation does not have
sufficient cash, then with secured demand notes. Fair market value per share of
Common Stock for purposes of this Section 4(e) shall mean the Closing Bid Price
per share of the Common Stock for the trading day immediately preceding the
conversion. The
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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 authorized, unissued and
unreserved Common Stock shall not be sufficient to permit the conversion of all
the then-outstanding shares of Series A Preferred Stock (including in the event
of a Reset Event, (as defined in Section 5).
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 A 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 A 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.
(f) PRIOR NOTICE OF CERTAIN EVENTS. In case:
(i) the Corporation shall declare any dividend (or any other
distribution); 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 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
(iv) of any consolidation or merger (including, without limitation, a
Merger Transaction) 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
(v) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation (including, without limitation, a Liquidation
Event);
then the Corporation shall cause to be filed with the transfer agent for the
Series A Preferred Stock, and shall cause to be mailed to the holders of record
of the Series A Preferred Stock, at their last addresses as they shall appear
upon the stock transfer books of the Corporation, at least 20 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
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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 or other Liquidation Event 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 or other Liquidation Event 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 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 A 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.
Notwithstanding anything to the contrary herein, in no case shall the
Conversion Price be adjusted to an amount less than $.01 per share, the current
par value of the Common Stock into which the Series A Preferred Stock is
convertible.
(h) AMBIGUITIES/ERRORS. The Board of Directors of the Corporation shall
have the power to resolve any ambiguity or correct any error in the provisions
relating to the convertibility of the Series A Preferred Stock, and its actions
in so doing shall be final and conclusive.
5. CONVERSION PRICE RESET EVENT. The Conversion Price (subject to the
adjustments pursuant to the provisions of Section 4(c) above), is subject to
adjustment on the date which is twelve (12) months after the Final Closing Date
(the "Reset Date") if the average Closing Bid Price of the Common Stock for the
thirty (30) consecutive trading days immediately preceding the Reset Date (the
"Reset Trading Price") is less than 130% of the then applicable Conversion Price
(a "Reset Event"). Upon a Reset Event, the then applicable Conversion Price
shall be reduced to equal the greater of (i) the Reset Trading Price divided by
1.3 and (ii) 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 as set forth above. 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 A
Preferred Stock. 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
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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 A Preferred Stock at
their last addresses as they shall appear in the stock transfer books of the
Corporation.
6. MANDATORY CONVERSION. At any time on or after the date that is 12 months
after the Final Closing Date, the Corporation, at its option, may cause the
Series A Preferred Stock to be converted in whole, or in part, on a pro rata
basis, into fully paid and nonassessable shares of Common Stock at the then
effective Conversion Rate and such other securities and property as herein
provided if the Closing Bid Price of the Common Stock (or, if the prices
referenced in the definition of Closing Bid Price cannot be determined, the Fair
Market Value (as defined in Section 3(b)) 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 ending three days prior to the
date of conversion. Any shares of Series A 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 A 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 A Preferred
Stock, and the then effective Conversion Rate pursuant to Section 4.
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 A 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 A
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.
7. VOTING RIGHTS.
(a) GENERAL. Except as otherwise provided herein, in the Certificate of
Incorporation or the By-laws or as required by applicable law, the holders of
shares of Series A 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 A
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
15
<PAGE>
Series A Preferred Stock is convertible (regardless of whether the Corporation
has sufficient authorized Shares of Common Stock to issue upon the conversion of
all outstanding Series A Preferred Stock) 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 A Preferred Stock held by the Corporation or any 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 Section 7(a),
so long as 50% of the shares of Series A Preferred Stock (including those shares
of Series A 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 A Preferred Stock or any other options for the
purchase of Series A Preferred Stock) shall be outstanding, the Corporation
shall not, without the affirmative vote or consent of the holders of at least
66.67% of all outstanding Series A Preferred Stock voting separately as a class,
(i) amend, alter or repeal any provision of the Certificate of Incorporation, or
the Bylaws of the Corporation so as adversely to affect the relative rights,
preferences, qualifications, limitations or restrictions of the Series A
Preferred Stock, (ii) declare or pay any dividend or distribution on any
securities of the Corporation other than the Series A Preferred Stock pursuant
to and accordance with the provisions of this Certificate of Designations, or
authorize the repurchase of any securities of the Corporation, or (iii)
authorize or issue, or increase the authorized amount of, any security ranking
prior to the Series A Preferred Stock (A) upon a Liquidation Event or (B) with
respect to the payment of any dividends or distributions or (C) with respect to
voting rights. The vote as contemplated herein shall specifically not be
required for (x) issuances of Common Stock or capital stock of the Corporation
on parity with the Series A Preferred Stock , (y) the authorization, issuance or
increase in the amount of the Series A Preferred Stock prior to the Final
Closing Date or (z) 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.
8. OUTSTANDING SHARES. For purposes of this Certificate of Designations,
all shares of Series A Preferred Stock shall be deemed outstanding except (i)
from the date, or the deemed date, of surrender of certificates evidencing
shares of Series A Preferred Stock, all shares of Series A Preferred Stock
converted into Common Stock, (ii) from the date of registration of transfer, all
shares of Series A Preferred Stock held of record by the Corporation or any
subsidiary of the Corporation and (iii) any and all shares of Series A Preferred
Stock held in escrow prior to delivery of such stock by the Corporation to the
initial beneficial owners thereof.
16
<PAGE>
9. STATUS OF ACQUIRED SHARES. Shares of Series A Preferred Stock received
upon conversion pursuant to Section 4 or Section 5 or Section 6 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 A Preferred Stock.
10. PREEMPTIVE RIGHTS. The Series A Preferred Stock is not entitled to any
preemptive or subscription rights in respect of any securities of the
Corporation.
11. NO AMENDMENT OR IMPAIRMENT. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoid ing or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the rights of the holders of the Series A Preferred Stock
against impairment.
12. 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.
17
<PAGE>
IN WITNESS WHEREOF, Palatin Technologies, Inc. has caused this certificate
to be signed on its behalf by Edward J. Quilty, its Chairman and Chief Executive
Officer, this 21 day of February , 1997.
PALATIN TECHNOLOGIES, INC.
By: /s/ Edward J. Quilty
------------------------------
Name: Edward J. Quilty
Title: Chairman and Chief Executive Officer
ATTEST:
/s/ John J. McDonough
-------------------------------
Secretary
18
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
PALATIN TECHNOLOGIES, INC.
Under Section 242 of the
General Corporation Law
of the State of Delaware
The undersigned officer of Palatin Technologies, Inc., a Delaware
corporation (the "Corporation"), in order to amend the Restated Certificate of
Incorporation of the Corporation, pursuant to the provisions of Section 242 of
the General Corporation Law of the State of Delaware, does hereby certify as
follows:
1. The Restated Certificate of Incorporation of the Corporation is hereby
amended by striking out Section 1 of Article IV thereof in its entirety and by
substituting in lieu of said Section 1 the following new Section 1:
Section 1. AUTHORIZED CAPITAL STOCK. The Corporation shall be
authorized to issue two classes of shares of capital stock to be
designated, respectively, "Preferred Stock" and "Common Stock." The
total number of shares of capital stock which the Corporation shall
have the authority to issue is 85,000,000, comprised of 75,000,000
shares of Common Stock, par value $.01 per share, and 10,000,000 shares
of Preferred Stock, par value $.01 per share.
2. The Restated Certificate of Incorporation of the Corporation is hereby
amended by including a new Section 4 of Article IV thereof as follows:
SECTION 4. Upon the date the Certificate of Amendment,
including this Section 4, is filed with the Secretary of State of the
State of Delaware (the "Effective Date"), each four shares of issued
and outstanding shares of Common Stock of this Corporation shall be
<PAGE>
automatically combined into one share of Common Stock of this
Corporation (the "Reverse Stock Split"). In lieu of the issuance of
any fractional shares that would otherwise result from the Reverse
Stock Split, the Corporation shall pay the cash value of fractions of
a share determined by the average closing price of the Common Stock
for the five (5) trading days immediately preceding the Effective Date
multiplied by the fractional interest. Following the Effective Date,
certificates representing the shares of Common Stock to be outstanding
thereafter shall be exchanged for certificates now outstanding
pursuant to procedures adopted by the Corporation's Board of Directors
and communicated to those who are to receive new certificates.
3. The foregoing amendments to the Corporation's Restated Certificate of
Incorporation were duly authorized and adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
4. This Certificate of Amendment shall become effective at 11:59 p.m., EDT,
on September 5, 1997.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Amendment and does hereby affirm, under penalty of perjury, that the statements
contained herein are true and correct, this 5th day of September, 1997.
Palatin Technologies, Inc.
/s/ John J. McDonough
-------------------------
Name: John J. McDonough
Title: Vice President
<PAGE>
CERTIFICATE OF DESIGNATIONS
of
SERIES B CONVERTIBLE PREFERRED STOCK
of
PALATIN TECHNOLOGIES, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
PALATIN TECHNOLOGIES, 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 Certificate of Incorporation, as amended to date (the "Certificate of
Incorporation"), 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 18,875
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 Certificate of
Incorporation, a series of Preferred Stock, par value $.01 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
Section 1. Designation, Amount and Par Value. The series of preferred stock
shall be designated as Series B Convertible Preferred Stock (the "Preferred
Stock") and the number of shares so designated shall be 18,875 (which shall not
be subject to increase without the consent of the holders of the Preferred Stock
(each, a "Holder")). Each share of Preferred Stock shall have a par value of
$.01 per share and a stated value of $100 per share (the "Stated Value").
<PAGE>
Section 2. Dividends and Certain Distributions.
(a) Holders of Preferred Stock shall not be entitled to receive periodic
dividends on the Preferred Stock.
(b) So long as any Preferred Stock shall remain outstanding, neither the
Company nor any subsidiary thereof shall redeem, purchase or otherwise acquire
directly or indirectly any Junior Securities (as defined in Section 7), nor
shall the Company directly or indirectly pay or declare any dividend or make any
distribution (other than a dividend or distribution described in Section 5)
upon, nor shall any distribution be made in respect of, any Junior Securities,
nor shall any monies be set aside for or applied to the purchase or redemption
(through a sinking fund or otherwise) of any Junior Securities or shares pari
passu with the Preferred Stock, except for repurchases effected by the Company
on the open market, pursuant to a direct stock purchase plan.
Section 3. Voting Rights. Except as otherwise provided herein and as
otherwise required by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the Company
shall not and shall cause its subsidiaries not to, without the affirmative vote
of the Holders of 66 2/3% of the shares of the Preferred Stock then outstanding,
(a) alter or change adversely the powers, preferences or rights given to the
Preferred Stock, (b) alter or amend this Certificate of Designation, (c)
authorize or create any class of stock ranking as to distribution of assets upon
a Liquidation (as defined in Section 4) or as to dividends, voting rights or
otherwise senior to the Preferred Stock, (d) amend its Certificate of
Incorporation, bylaws or other charter documents so as to affect adversely any
rights of any Holders, (e) increase the authorized number of shares of Preferred
Stock, or (f) enter into any agreement with respect to the foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary (a "Liquidation"), the Holders
shall be entitled to receive out of the assets of the Company, whether such
assets are capital or surplus, for each share of Preferred Stock an amount equal
to the Stated Value before any distribution or payment shall be made to the
holders of any Junior Securities, and if the assets of the Company shall be
insufficient to pay in full such amounts, then the entire assets to be
distributed to the Holders of Preferred Stock shall be distributed among the
Holders of Preferred Stock ratably in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in
full. A sale, conveyance or disposition of all or substantially all of the
assets of the Company or the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of, or a consolidation or merger of the Company with or into
any other company or companies shall not be treated as a Liquidation, but
instead shall be subject to the provisions of Section 5. The Company shall mail
written notice of any such Liquidation, not less than 45 days prior to the
payment date stated therein, to each record Holder of Preferred Stock.
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<PAGE>
Section 5. Conversion.
(a)(i) Each share of Preferred Stock shall be convertible into shares of
Common Stock (subject to reduction pursuant to Section 5(a)(ii) hereof and
Section 4.8 of the Purchase Agreement) at the Conversion Ratio (as defined in
Section 7) at the option of the Holder in whole or in part at any time after the
Original Issue Date (as defined in Section 7). The Holders shall effect
conversions by surrendering the certificate or certificates representing the
shares of Preferred Stock to be converted to the Company, together with the form
of conversion notice attached hereto as Exhibit A (a "Conversion Notice"). 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 pursuant to Section 5(h). Subject to Sections 5(b)
and 5(a)(ii) hereof, each Conversion Notice, once given, shall be irrevocable.
If the Holder is converting less than all shares of Preferred Stock represented
by the certificate or certificates tendered by the Holder with the Conversion
Notice, or if a conversion hereunder cannot be effected in full for any reason,
the Company shall promptly deliver to such Holder (in the manner and within the
time set forth in Section 5(b)) a certificate for such number of shares as have
not been converted.
(ii) If on any Conversion Date (A) the Common Stock is listed for trading
on the Nasdaq National Market or the Nasdaq SmallCap Market, (B) the Conversion
Price then in effect is such that the aggregate number of shares of Common Stock
that would then be issuable upon conversion in full of all then outstanding
shares of Preferred Stock, together with any shares of the Common Stock
previously issued upon conversion of the shares of Preferred Stock, would equal
or exceed 20% of the number of shares of the Common Stock outstanding on the
Original Issue Date (such number of shares as would not equal or exceed such 20%
limit, the "Issuable Maximum"), and (C) the Company shall not have previously
obtained the vote of stockholders (the "Shareholder Approval"), if any, as may
be required by the rules and regulations of The Nasdaq Stock Market (or any
successor association) applicable to approve the issuance of Common Stock in
excess of the Issuable Maximum in a private placement whereby shares of Common
Stock are deemed to have been issued at a price that is less than the greater of
book or fair market value of the Common Stock, then the Company shall issue to
the Holder so requesting a conversion a number of shares of Common Stock equal
to the Issuable Maximum and, with respect to the remainder of the aggregate
Stated Value of the shares of Preferred Stock then held by such Holder for which
a conversion in accordance with the Conversion Price would result in an issuance
of Common Stock in excess of the Issuable Maximum, the Company shall use its
best efforts to obtain the Shareholder Approval applicable to such issuance as
soon as is possible, but in any event not later than the 60th day after such
request.
(b) (i) Not later than three (3) Trading Days after any Conversion Date,
the Company will deliver to the Holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than those
required by Section 4.1(b) of the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the
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<PAGE>
conversion of shares of Preferred Stock (subject to reduction pursuant to
Section 5(a)(ii) hereof and Section 4.8 of the Purchase Agreement) and (ii) one
or more certificates representing the number of shares of Preferred Stock
tendered for conversion that were not requested to be converted (or that the
Company is prohibited from converting); provided, however, that the Company
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon conversion of any shares of Preferred Stock until
certificates evidencing such shares of Preferred Stock are either delivered for
conversion to the Company or any transfer agent for the Preferred Stock or
Common Stock, or the Holder of such Preferred Stock notifies the Company that
such certificates have been lost, stolen or destroyed and provides a bond (or
other adequate security) reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection therewith. The Company shall,
upon request of the Holder, if available, use its best efforts to deliver any
certificate or certificates required to be delivered by the Company 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 are not delivered to or
as directed by the applicable Holder by the third Trading Day after the
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the shares of Preferred Stock
tendered for conversion, (such recission shall be in addition to, and not in
lieu of, the rights set forth elsewhere herein).
(c) (i) The conversion price for each share of Preferred Stock (the
"Conversion Price") in effect on any Conversion Date shall be $5.50; provided,
that, if the Reset Price (as defined in Section 7) is less than $6.05, then the
Conversion Price shall be reduced to the greater of (A) the Reset Price divided
by 1.1 and (B) $2.75 ($5.50 as so reset, the "Initial Conversion Price");
provided, however, that, (a) if the Underlying Securities Registration Statement
is not filed on or prior to the Filing Date (as defined in the Registration
Rights Agreement) (for purposes hereof, in the event the Company files such
Underlying Securities Registration Statement without complying with the
provisions of Section 3(a) of the Registration Rights Agreement, such filing
shall not be deemed to have occurred), or (b) if the Company fails to file with
the Commission a request for acceleration in accordance with Rule 12d1-2
promulgated under the Exchange Act within five (5) days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that an Underlying Securities Registration Statement will not be
"reviewed" or not subject to further review, or (c) if the Underlying Securities
Registration Statement is not declared effective by the Commission on or prior
to the 120th day after the Original Issue Date, or (d) if such Underlying
Securities Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement) at any
time prior to the expiration of the "Effectiveness Period" (as such term is
defined in the Registration Rights Agreement), without being succeeded within 10
Trading Days by a subsequent Underlying Securities Registration Statement filed
with and declared effective by the Commission, or (e) if the conversion rights
of the Holders are suspended for any reason, or if a Holder is not permitted to
resell Registrable Securities under an Underlying Securities Registration
Statement, or (f) if the Company is required to convene a stockholders meeting
-4-
<PAGE>
pursuant to Section 5(a)(ii) and fails to convene such meeting within the time
period specified in such Section or does so convene such a meeting within such
time period but fails to obtain Shareholder Approval at such meeting, or (g) if
an amendment to the Underlying Securities Registration Statement is not filed by
the Company with the Commission within ten (10) days of the Commission's
notifying the Company that such amendment is required in order for the
Underlying Securities Registration Statement to be declared effective, or (h) if
the Company fails to comply with requests for conversion of any Preferred Stock
into shares of Common Stock in accordance with the terms hereof (any such
failure or breach being referred to as an "Event" and for purposes of clauses
(a), (c), (e), (f) and (h) the date on which such Event occurs, or for purposes
of clause (b) the date on which such five (5) day period is exceeded, or for
purposes of clauses (d) and (g) the date which such 10 Trading Day-period is
exceeded, being referred to as "Event Date"), then each Holder shall have the
right, exercisable by notice to the Company (an "Initial Reduced Conversion
Notice"), to decrease the Conversion Price by 1.5% as of the Event Date, and by
an additional 2.5% (on a cumulative basis) as of each monthly anniversary of
such Event Date until the Event at issue has been cured. The Holder can
discontinue and recontinue such election as to subsequent periods by notice to
the Company to such effect. Any decrease in the Conversion Price pursuant to
this Section shall continue notwithstanding the fact that the Event causing such
decrease has been subsequently cured. If the Common Stock shall fail to be
listed on, or be suspended from trading from, the Nasdaq National Market or
Nasdaq SmallCap Market for three (3) Trading Days (which need not be consecutive
Trading Days), then each Holder shall have the right, exercisable by notice to
the Company (the "Subsequent Reduced Conversion Price Notice"), to discount the
Conversion Price by 25% (which discount shall be cumulative with any other
discounts herein provided). For purposes hereof, shares of Preferred Stock for
which a conversion has been requested in accordance with the terms hereof shall
be deemed to be outstanding and held by the converting holder if such Event,
delisting or suspension (as the case may be) occurs on or prior to the date that
the Holder receives the Underlying Shares from the Company in respect thereof.
(ii) If the Company, 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 of
shares of Common Stock any shares of capital stock of the Company, 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)(ii) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any shares of Preferred Stock are
outstanding, shall issue rights or warrants to all holders of Common Stock
entitling them to
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<PAGE>
subscribe for or purchase shares of Common Stock at a price per share less than
the Per Share Market Value of the Common Stock at the record date mentioned
below, the Initial Conversion Price shall be multiplied by a fraction, of which
the denominator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding on the
date of issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at such Per Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants. However, upon the expiration of any right or warrant to
purchase Common Stock the issuance of which resulted in an adjustment in the
Initial Conversion Price pursuant to this Section 5(c)(iii), if any such right
or warrant shall expire and shall not have been exercised, the Initial
Conversion Price shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Initial Conversion
Price made pursuant to the provisions of this Section 5 after the issuance of
such rights or warrants) had the adjustment of the Initial Conversion Price made
upon the issuance of such rights or warrants been made on the basis of offering
for subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and not to Holders
of Preferred Stock) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Sections 5(c)(ii) and (iii) above), then in each such case the Conversion
Price at which each share of Preferred Stock shall thereafter be convertible
shall be determined by multiplying the Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Per Share Market Value of Common Stock determined as of the record date
mentioned above, and of which the numerator shall be such Per Share Market Value
of the Common Stock on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent (10%) of the net assets of the Company, if
the Holders of a majority in interest of the Preferred Stock dispute such
valuation, such fair market value shall be determined by a nationally recognized
or major regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the Holders of a majority in interest of the shares of Preferred
Stock then outstanding; and provided, further, that the Company, after receipt
of the determination by such Appraiser shall have the right to select an
additional Appraiser, in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to
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<PAGE>
the Holders of Preferred Stock of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one share
of Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date mentioned
above.
(v) All calculations under this Section 5 shall be made to the nearest cent
or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Conversion Price is adjusted pursuant to Section
5(c)(i),(ii),(iii) or (iv), the Company shall promptly mail to each Holder of
Preferred Stock, a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(vii) A. In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
cash or property, 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 the shares of the Common Stock of
the Company into which such shares of Preferred Stock could have been converted
immediately prior to such reclassification or share exchange would have been
entitled.
B. In the case of any consolidation or merger of the Company with or into
another Person pursuant to which the Company will not be the surviving entity,
any sale of all or substantially all of the assets of the Company, or any sale
or transfer or compulsory share exchange pursuant to which the Common Stock is
converted into securities of an entity other than the Company, each Holder of
Preferred Stock then outstanding shall have the option to either (1) convert
their shares of Preferred Stock into shares of Common Stock pursuant to the
terms hereof prior to the effective date of such transaction, or (2) subject to
the liquidation rights of the Company's Series A Convertible Preferred Stock, be
issued shares of convertible preferred stock or convertible debentures of the
Person with which such consolidation, merger, sale, transfer or share exchange
takes place, which newly issued shares or debentures (as the case may be) shall
have terms substantially similar in all material respects to the terms of the
Preferred Stock (including with respect to conversion) and shall be entitled to
all of the rights and privileges of a Holder set forth in this Certificate of
Designation, the Registration Rights Agreement and the Purchase Agreement
(including, without limitation, as such rights relate to the acquisition,
transferability, registration and listing of the freely tradeable securities
issuable upon a conversion or exchange thereof). Simultaneously with such
issuance of such convertible preferred stock or convertible debentures, the
Holders of Preferred Stock shall have the right to convert such shares of
preferred stock only into shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such consolidation, merger, sale, transfer or exchange. In the case of
clause (2) of the immediately preceding sentence, the conversion price for such
newly issued shares or debentures (as the case may be) shall be based
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<PAGE>
upon the amount of securities, cash or property that each share of Common Stock
would receive in such transaction and the Conversion Price stated herein. The
terms of any such reclassification, consolidation, merger, sale or exchange
under this Section shall include such terms so as to continue to give the
Holders the right to receive the securities, cash or property set forth in this
Section upon any conversion or redemption following such reclassification,
consolidation, merger, sale, transfer or exchange. This provision shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
(viii) If:
A. the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
B. the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
C. the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
D. the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is
a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share of exchange
whereby the Common Stock is converted into other securities, cash
or property; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the Holders of Preferred Stock at their last addresses as they shall appear upon
the stock books of the Company, at least 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 shares of
-8-
<PAGE>
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange;
provided, however, that the failure to mail such notice or any defect therein or
in the mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice. Holders are entitled to convert shares
of Preferred Stock during the 20-day period commencing the date of such notice
to the effective date of the event triggering such notice.
(ix) If the Company (i) makes a public announcement that it intends to
enter into a Change of Control Transaction or (ii) any person, group or entity
(including the Company, but excluding a Holder or any affiliate of a Holder)
publicly announces a bona fide tender offer, exchange offer or other transaction
to purchase 50% or more of the Common Stock (such announcement being referred to
herein as a "Major Announcement" and the date on which a Major Announcement is
made, the "Announcement Date"), then, in the event that a Holder seeks to
convert shares of Preferred Stock on or following the Announcement Date, the
Conversion Price shall, effective upon the Announcement Date and continuing
through the earlier to occur of the consummation of the proposed transaction or
tender offer, exchange offer or other transaction and the Abandonment Date (as
defined below), be equal to the lower of (x) the average Per Share Market Value
on the five Trading Days immediately preceding (but not including) the
Announcement Date and (y) the Conversion Price in effect on the Conversion Date
for such Preferred Stock. "Abandonment Date" means with respect to any proposed
transaction or tender offer, exchange offer or other transaction for which a
public announcement as contemplated by this paragraph has been made, the date
upon which the Company (in the case of clause (i) above) or the person, group or
entity (in the case of clause (ii) above) publicly announces the termination or
abandonment of the proposed transaction or tender offer, exchange offer or
another transaction which caused this paragraph to become operative.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Preferred Stock free from preemptive rights or
any other actual contingent purchase rights of persons other than the Holders of
Preferred Stock, not less than such number of shares of Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5(a) and Section 5(c)) upon the
conversion of all outstanding shares of Preferred Stock. The Company covenants
that all shares of Common Stock that shall be so issuable shall, upon issue, be
duly and validly authorized, issued and fully paid, nonassessable and freely
tradeable, subject to the legend requirements of Section 4.1(b) of the Purchase
Agreement.
(e) Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of Common Stock, but must
make a cash payment in respect of any final fraction of a share based on the Per
Share Market Value at such time.
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<PAGE>
(f) The issuance of certificates for shares of Common Stock on conversion
of Preferred Stock shall be made without charge to the Holders thereof for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a name other
than that of the Holder of such shares of Preferred Stock so converted and the
Company shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
(g) Shares of Preferred Stock converted into Common Stock shall be canceled
and shall have the status of authorized but unissued shares of undesignated
stock.
(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 Executive Officer of the Company at the
facsimile telephone number or address of the principal place of business of the
Company as set forth in the Purchase Agreement. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile or sent by a nationally
recognized overnight courier service, addressed to each Holder of Preferred
Stock at the facsimile telephone number or address of such Holder appearing on
the books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the Holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 8:00 p.m. (Eastern Standard 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.
(Eastern Standard Time) on any date and earlier than 11:59 p.m. (Eastern
Standard 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. Redemption at Option of Company.
(a) The Company shall have the right, exercisable at any time upon 20
Trading Days notice (an "Optional Redemption Notice") to the Holders of the
Preferred Stock given at any time after the Original Issue Date to redeem all or
any portion of the shares of Preferred Stock which have not previously been
converted or redeemed, at a price equal to the Optional Redemption Price (as
defined below). The entire Optional Redemption Price shall be paid in cash.
Holders of Preferred Stock may convert (and the Company shall honor such
conversions in accordance with the terms hereof) any shares of Preferred Stock,
including shares subject to an Optional Redemption Notice, during the period
from the date thereof through the 20th Trading Day after the receipt of an
Optional Redemption Notice.
-10-
<PAGE>
(b) If any portion of the Optional Redemption Price shall not be paid by
the Company within seven (7) calendar days after the 20th Trading Day after the
delivery of an Optional Redemption Notice, interest shall accrue thereon at the
rate of 15% per annum until the Optional Redemption Price plus all such interest
is paid in full (any such amount shall be paid as liquidated damages and not as
a penalty). In addition, if any portion of the Optional Redemption Price remains
unpaid for more than seven (7) calendar days after the date due, the Holder of
the Preferred Stock subject to such redemption may elect, by written notice to
the Company given at any time thereafter, to either (i) demand conversion in
accordance with the formula and the time frame therefor set forth herein of all
or any portion of the shares of Preferred Stock for which such Optional
Redemption Price, plus accrued liquidated damages thereof, has not been paid in
full (the "Unpaid Redemption Shares"), in which event the Per Share Market Value
for such shares shall be the lower of the Per Share Market Value calculated on
the date the Optional Redemption Price was originally due and the Per Share
Market Value as of the Holder's written demand for conversion, or (ii)
invalidate ab initio such redemption, notwithstanding anything herein contained
to the contrary. If the Holder elects option (i) above, the Company shall within
three (3) Trading Days of its receipt of such election deliver to the Holder the
shares of Common Stock issuable upon conversion of the Unpaid Redemption Shares
subject to such Holder conversion demand and otherwise perform its obligations
hereunder with respect thereto; or, if the Holder elects option (ii) above, the
Company shall promptly, and in any event not later than three (3) Trading Days
from receipt of Holder's notice of such election, return to the Holder all of
the Unpaid Redemption Shares.
(c) The "Optional Redemption Price" shall equal the sum of (i) the product
of (A) the number of shares of Preferred Stock to be redeemed and (B) the
product of (1) the average Per Share Market Value for the five (5) Trading Days
immediately preceding (x) the date of the Optional Redemption Notice or (y) the
date of payment in full by the Company of the Optional Redemption Price,
whichever is greater, and (2) the Conversion Ratio calculated on the date of the
Optional Redemption Notice, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of such shares of Preferred Stock.
Section 7. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, $.01 par value, and
stock of any other class into which such shares may hereafter have been
reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which the
numerator is Stated Value and of which the denominator is the Conversion
Price at such time.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
-11-
<PAGE>
"Junior Securities" means the Common Stock and all other equity
securities of the Company, other than the Company's Series A Convertible
Preferred Stock and Series C Convertible Preferred Stock (provided it is
issued in a financing contemplated in Section 6(b) to the Registration
Rights Agreement) or any other security that the Holders consent to be pari
passu with the Preferred Stock.
"Original Issue Date" shall mean the date of the first issuance of any
shares of the Preferred Stock regardless of the number of transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on the Nasdaq National
Market or Nasdaq SmallCap Market or any other stock exchange or quotation
system on which the Common Stock is then listed or if there is no such
price on such date, then the closing bid price on such exchange or
quotation system on the date nearest preceding such date, or (b) if the
Common Stock is not listed then on the Nasdaq National Market or Nasdaq
SmallCap Market or any stock exchange or quotation system, the closing bid
price for a share of Common Stock in the over-the-counter market, as
reported by the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at
the close of business on such date, or (c) if the Common Stock is not then
reported by the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices),
then the average of the "Pink Sheet" quotes for the relevant conversion
period, as determined in good faith by the Holder, or (d) if the Common
Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the
Holders of a majority in interest of the shares of the Preferred Stock;
provided, however, that the Company, after receipt of the determination by
such Appraiser, shall have the right to select an additional Appraiser, in
which case, the fair market value shall be equal to the average of the
determinations by each such Appraiser; and provided, further that all
determinations of the Per Share Market Value shall be appropriately
adjusted for any stock dividends, stock splits or other similar
transactions during such period.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock Purchase
Agreement, dated as of the Original Issue Date, among the Company and the
original Holder of the Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, by and among the Company
and the original Holder of the Preferred Stock.
-12-
<PAGE>
"Reset Price" means the average of Per Share Market Value for the 30
consecutive Trading Days immediately preceding the 120th day after the
Original Issue Date.
"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 National Market or Nasdaq SmallCap Market or other stock
exchange or market on which the Common Stock has been listed, or (b) if the
Common Stock is not listed on the Nasdaq SmallCap Market or any stock
exchange or market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if
the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however,
that in the event that the Common Stock is not listed or quoted as set
forth in (a), (b) and (c) hereof, then Trading Day shall mean any day
except Saturday, Sunday and any day which shall be a legal holiday or a day
on which banking institutions in the State of New York are authorized or
required by law or other government action to close.
"Underlying Securities Registration Statement" means a registration
statement under the Securities Act prepared by the Company and filed with
the Commission in accordance with the Registration Rights Agreement,
covering the resale of the Underlying Shares and naming the Holders as
"selling stockholders" thereunder.
"Underlying Shares" means shares of Common Stock into which the
Preferred Stock are convertible in accordance with the terms hereof.
[Remainder of page left blank intentionally]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this certificate to
be signed on its behalf by Edward J. Quilty, its Chairman and Chief Executive
Officer, this 27th day of April, 1998.
The Company:
PALATIN TECHNOLOGIES, INC.
By: /s/Edward J. Quilty
-------------------------
Name: Edward J. Quilty
Title: Chairman and Chief Executive Officer
ATTEST
/s/ Stephen T. Wills
---------------------------
Stephen Wills
Assistant Secretary
<PAGE>
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 Series B
Convertible Preferred Stock indicated below, into shares of Common Stock, $.01
par value (the "Common Stock"), of Palatin Technologies, Inc. (the "Company")
according to the conditions hereof, as of the date written below. If shares are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the Holder for any
conversion, except for such transfer taxes, if any.
Conversion calculations:
-------------------------------------------------
Date to Effect Conversion
-------------------------------------------------
Number of shares of Preferred Stock to be Converted
-------------------------------------------------
Number of shares of Common Stock to be Issued
-------------------------------------------------
Applicable Conversion Price
-------------------------------------------------
Signature
-------------------------------------------------
Name
-------------------------------------------------
Address
<PAGE>
[GRAPHIC OMITTED]
CERTIFICATE OF DESIGNATIONS
of
SERIES C CONVERTIBLE PREFERRED STOCK
of
PALATIN TECHNOLOGIES, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
PALATIN TECHNOLOGIES, 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 certificate of incorporation, as amended to date (the "Certificate of
Incorporation"), 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 1,400,000
shares of Preferred Stock of the Corporation designated as "Series C Convertible
Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the
Board of Directors of this Corporation by the Certificate of
Incorporation, a series of Preferred Stock, par value $.01 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 C Convertible Preferred Stock
Section 1. Designation, Amount and Par Value. The series of preferred stock
shall be designated as Series C Convertible Preferred Stock (the "Preferred
Stock") and the number of shares so designated shall be 1,400,000. Each share of
Preferred Stock shall have a par value of $.01 per share and shall have a stated
value of $18.57 per share (the "Stated Value").
Section 2. Dividends and Certain Distributions.
(a) The holders (the "Holders" and, individually, a "Holder") of Preferred
Stock shall not be entitled to receive periodic dividends on the Preferred
Stock.
(b) So long as any Preferred Stock shall remain outstanding, neither the
Corporation nor any subsidiary thereof shall directly or indirectly pay or
declare any dividend or make any distribution (other than a dividend or
distribution described in Section 5) upon, nor shall any distribution be made in
respect of, any Junior Securities (as defined in Section 6).
Section 3. Voting Rights. Except as otherwise required by law, the
Preferred Stock shall have no voting rights.
<PAGE>
Section 4. Liquidation. Upon any liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary (a "Liquidation"), the Holder
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 before any distribution or payment shall be made to
the Holders of any Junior Securities, and if the assets of the Corporation shall
be insufficient to pay in full such amounts, then the entire assets to be
distributed to the Holder of the Preferred Stock shall be distributed to such
Holder of the Preferred Stock ratably in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in
full. Any Change in Control shall not be deemed to be a Liquidation, except to
the extent it is a Change of Control within the meaning of clause (e) of the
definition of Change of Control set forth in Section 6.
Section 5. Conversion.
(a) On or after August 15, 2004, or upon a Change in Control with respect
to the Corporation, and in either such case effective upon written notice,
described below, by the Holder to the Corporation, the Holder may convert some
or all of the shares of Preferred Stock, including any shares of Preferred Stock
obtained by the Holder pursuant to Section 5(c), into fully paid and
nonassessable shares of the Common Stock on a one-share-for-one-share basis,
without payment of funds or other consideration of any kind. The Holder shall
effect conversions by surrendering to the Corporation the certificate or
certificates representing the shares of Preferred Stock to be converted,
together with a completed and duly executed conversion notice in the form
attached hereto as Exhibit A (a "Conversion Notice"). 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 to the
Corporation (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 pursuant to Section 5(f). Subject to Section 5(b)
hereof, each Conversion Notice, once given, shall be irrevocable. If a Holder is
converting less than all the shares of the Preferred Stock represented by the
certificate or certificates tendered by such Holder, 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 for such number of shares as have not been
converted.
(b) Not later than 10 Business Days after any Conversion Date, the
Corporation will use its best efforts to deliver to the Holder (i) a certificate
or certificates representing the number of shares of Common Stock being acquired
upon the conversion of shares of Preferred Stock and (ii) one or more
certificates representing the number of shares of Preferred Stock surrendered to
the Company for conversion that were not requested to be converted; 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 certificates evidencing such shares of Preferred Stock are
either delivered for conversion to the Corporation or any transfer agent for the
Preferred Stock or Common Stock, 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) satisfactory to the Corporation to
indemnify the Corporation from any loss that may be incurred by it in connection
therewith.
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<PAGE>
(c) So long as the Purchase Agreement is in effect with respect to any
portion of the Territory (as defined in the Purchase Agreement), in the event at
any time a Dilutive Event (as defined in Section 6) results in a decrease in the
percentage of outstanding Common Stock then owned by the Holder (assuming full
conversion of the Preferred Stock) (the "Holder Ownership"), then the Holder
shall have the right, exercisable as provided below, (i) if, at the time of the
occurrence of the Dilutive Event, the Preferred Stock is not then convertible,
to receive that number of shares of Preferred Stock which, when converted along
with all other shares of Preferred Stock and combined with all other shares of
Common Stock then owned by the Holder, would be required to preserve the Holder
Ownership at the same percentage immediately before and after the Dilutive Event
or (ii) if, at the time of the occurrence of the Dilutive Event, the Preferred
Stock is then convertible, to receive that number of shares of Common Stock
which, when combined with all other shares of Common Stock owned by the Holder
(including Common Stock underlying any Preferred Stock then owned by the
Holder), would be required to preserve the Holder Ownership at the same
percentage immediately before and after the Dilutive Event. The foregoing right
shall be exercisable by payment to the Corporation of the purchase price and
delivery to the Corporation of the Purchase Notice (defined below). The purchase
price per share of Preferred Stock or Common Stock, as the case may be, to be
paid by the Holder upon exercise of the foregoing right shall be equal to the
consideration per share (if any) paid or to be paid by the person to whom
securities are being issued in connection with the Dilutive Event. If the
consideration paid by any such third party for such securities is other than
cash, such consideration shall be presumed to be cash equal to the fair market
value of such consideration as determined by an independent party acceptable to
both the Holder and the Corporation. The cost of making such determination, if
any, shall be borne by the Corporation. The Corporation shall provide written
notice to the Holder of a Dilutive Event within five (5) days after the issuance
of any securities giving rise to such Dilutive Event, and the Holder shall make
its election to purchase all or any portion of the securities which it is
entitled to purchase or receive in accordance herewith to preserve its
percentage interest in the Common Stock by written notice to the Corporation
(the "Purchase Notice") no more than thirty (30) days following its receipt of
the Corporation's written notice of such Dilutive Event. Upon the Holder's
failure timely to return the Purchase Notice to the Corporation, the Holder
shall be deemed to have waived its right to purchase or receive any additional
securities of the Corporation on such occasion. Upon the Holder's timely return
to the Corporation of the Purchase Notice, the Holder shall pay to the
Corporation the purchase price (if any) for the securities it so elects to
purchase or receive within thirty (30) days subsequent to its notice of election
to purchase or receive additional securities. Any failure by the Holder on any
occasion to purchase or receive all or some of the securities which it is
entitled to purchase or receive pursuant to this Section 5(c) as a consequence
of the occurrence of a single Dilutive Event shall not affect the right of the
Holder, on the subsequent occurrence of any different Dilutive Event, to
purchase or receive all or any portion of the securities which it is then
entitled to purchase or receive as a consequence of the operation of this
Section 5(c).
(d) In determining the amount of consideration paid to the Corporation for
the issuance of Common Stock upon the exercise or conversion of exercisable or
convertible securities, all amounts paid to the Corporation in consideration for
the issuance of the convertible or exercisable securities shall be included as
part of the consideration to be paid by the Holder pursuant to this Section.
3
<PAGE>
(e) The provisions of the foregoing Section 5(c) shall not apply with
respect to the issuance of Common Stock in connection with, or upon the exercise
or conversion of securities issued in connection with, the following
transactions:
(i) exercise of rights or options granted or which may be granted
under a stock option or other plan for the benefit of employees, directors
and/or consultants;
(ii) exercise of rights, warrants or options outstanding on the date
hereof;
(iii) conversion of any shares of outstanding Preferred Stock, or any
additional shares of Preferred Stock issued pursuant to Section 5(c)
hereof;
(iv) after such time as the Holder first becomes eligible to convert
any of the Preferred Stock in accordance with Section 5(c) above, upon the
issuance and sale of any shares of Common Stock, including the issuance of
Common Stock upon exercise of convertible or exercisable securities, sold
in a firm commitment underwritten public offering, including, without
limitation, shares sold upon the exercise of any overallotment option
granted to the underwriters in connection with such offering; and
(v) issuance of Common Stock pursuant to antidilution or price
protection provisions contained in existing employment agreements and the
issuance of Common Stock pursuant to antidilution provisions described in
the certificate of designations with respect the Corporation's Series A
Convertible Preferred Stock.
(f) Any notice or other communication or delivery required or permitted to
be provided hereunder shall be in writing and shall be deemed to have been
received on the earliest of (i) the date of transmission or hand delivery, if
such notice or communication is delivered to the address or to the facsimile
telephone number of the addressee prior to 6:00 p.m. (Eastern Standard or
Daylight time) on a Business Day, (ii) the Business Day after the date of
transmission or hand delivery, if such notice or communication is delivered to
the address or to the facsimile telephone number of the addressee later than
6:00 p.m. (Eastern Standard or Daylight time) on any date and earlier than 11:59
p.m. (Eastern Standard or Daylight time) on such date, (iii) the Business Day
following the date of sending, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
Section 6. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"Business Day" means any day except Saturday, Sunday and any day which
shall be in New York, New York a day on which banking institutions are
closed.
"Change in Control" means the occurrence, with respect to the
Corporation, of any one of the following events:
(a) any "person" as such term is defined in Section 3(a)(9) of the
Exchange Act (and as used in Sections 13(d)(3) and 14(d)(2) of the
Exchange Act) is or becomes a
4
<PAGE>
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing
greater than fifty percent (50%) of the combined voting power of the
Corporation's then outstanding securities eligible to vote for the
election of its board of directors; provided, however, that the event
described in this clause (a) shall not be deemed to be a change in
control by virtue of any of the following acquisitions: (i) by the
Corporation or any wholly owned subsidiary of the Corporation, (ii) by
any employee benefit plan sponsored or maintained by the Corporation
or any subsidiary of the Corporation, (iii) by any underwriter
temporarily holding securities pursuant to an offering of such
securities, or (iv) except as provided in subsection (c) below, in
which voting securities of the Corporation are acquired from the
Corporation, if a resolution providing expressly that the acquisition
pursuant to this clause (iv) does not constitute a change in control
is approved by a vote of at least a majority of the directors who are
directors of the Corporation on and as of the date hereof;
(b) individuals who, on the date hereof, constitute the board of
directors of the Corporation cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof, whose election, or nomination for
election, by the Corporation's stockholders was approved by a vote of
at least a majority of the directors comprising the current board of
directors (either by a specific vote or by approval of the proxy
statement of the Corporation in which such person is named as a
nominee for director, without objection to such nomination) shall be,
for purposes of this subsection (b), considered as though such person
were a member of the current board of directors; provided, however,
that no individual initially elected or nominated as a director of the
Corporation as a result of an actual or threatened election contest
with respect to directors or any other actual or threatened
solicitation of proxies or consents by or on behalf of any person
other than the board of directors shall be deemed to be a member of
the current board of directors;
(c) a merger, consolidation, share exchange or similar form of
corporate reorganization of the Corporation requiring the approval of
the Corporation's stockholders (whether for such transaction or the
issuance of securities in the transaction or otherwise); provided,
however, that a "Change in Control" shall not be deemed to occur upon
a merger, consolidation, share exchange or similar form of corporate
reorganization of the Corporation, whether or not stockholder approval
is required, so long as (i) the board of directors of any entity
surviving or resulting from such reorganization contains at least
fifty percent (50%) of the directors who were members of the board of
directors of the Corporation immediately prior to such reorganization
and (ii) the Chief Executive Officer of any such surviving entity is
the same person as the Chief Executive Officer of the Corporation
immediately prior to such reorganization;
(d) the direct or indirect sale or other disposition of all,
substantially all or any substantial parts of the assets or lines of
business of the Corporation, whether or not approval of any such
transaction by stockholders is required; provided, however, that the
Corporation shall be able to sell or otherwise dispose of non-LeuTech
(as defined in the Purchase Agreement) assets or lines of business in
a transaction not otherwise qualifying as a "Change in Control" under
subsections (a), (b) and (c) set forth immediately above, whether or
not approval of such transaction by stockholders is required, and such
sale or other disposition shall not constitute a "Change in Control";
or
5
<PAGE>
(e) the stockholders of the Corporation approve a plan of complete
liquidation or dissolution of the Corporation.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Corporation's voting common stock, $.01 par
value.
"Dilutive Event" shall mean (i) the issuance and sale by the
Corporation of any shares of Common Stock (including the issuance of Common
Stock upon exercise or conversion of securities exercisable for or
convertible into Common Stock) or (ii) the issuance by the Corporation of
any Common Stock or other securities in connection with any stock split,
stock dividend or other recapitalization.
"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, other than the Corporation's Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock (which
are senior to the Preferred Stock) or any other security that the Holder
consents in writing to be pari passu with 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 Strategic Collaboration Agreement,
dated as of the date hereof, among the Corporation and the original Holder
of the Preferred Stock.
"Securities Act" means the Securities Act of 1933, as amended.
[Remainder of page left blank intentionally]
6
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed on its behalf by Edward J. Quilty, its Chairman and Chief Executive
Officer, this 17th day of August, 1999.
The Corporation:
PALATIN TECHNOLOGIES, INC.
By: /s/ Edward J. Quilty
----------------------------------------------
Name: Edward J. Quilty
Title: Chairman and Chief Executive Officer
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Holder in order to
Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series C
Convertible Preferred Stock indicated below, into shares of voting Common Stock,
$.01 par value (the "Common Stock"), of Palatin Technologies, Inc. (the
"Corporation") according to the conditions of the Certificate of Designations,
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:
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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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Signature
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Name
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Address
