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Item 5.03.
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Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
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The rights,
preferences and privileges of the Preferred Stock issuable in the Rights Offering are set forth in a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Certificate of
Designation”) and the First Amendment to the Certificate of Designation (the “Amendment” and together with the Certificate of Designation, the “Series C Certificate of Designation”), copies of which are attached as Exhibits
3.1 and 3.2, respectively, to this Current Report on Form
8-K
and incorporated herein by reference. The Board of Directors of the Company (the “Board”) approved the Certificate of Designation on
December 5, 2016, and the Certificate of Designation was filed with the Delaware Secretary of State on January 30, 2017. On February 2, 2017, the Board approved the Amendment in order to conform the terms of the royalties in the
Series C Certificate of Designation to the description of the royalties in the Prospectus, and the Amendment was filed with the Delaware Secretary of State on February 3, 2017.
The following summary of certain terms and provisions of the Preferred Stock is subject to, and qualified in its entirety by reference to, the
terms and provisions set forth in the Series C Certificate of Designation.
Dividends
The holders of Preferred Stock will be entitled to receive cumulative dividends at the rate per share of seven percent (7%) per annum until the
second anniversary of the date of issuance of the Preferred Stock payable in kind, calculated as provided in the Series C Certificate of Designation. The dividends become payable in shares of Common Stock (i) upon any conversion of the
Preferred Stock, (ii) on each such other date as the Board may determine, subject to written consent of the holders of Preferred Stock holding a majority of the then issued and outstanding Preferred Stock, (iii) upon the Company’s
liquidation, dissolution or winding up, and (iv) upon occurrence of a Fundamental Transaction (as defined in the Series C Certificate of Designation). The aggregate dividend accrued at the expiration of the first anniversary of the issuance
date of the Preferred Stock will be approximately 0.5801 shares of Common Stock per share of Preferred Stock, and the aggregate dividend accrued at the second anniversary of the issuance date of the Preferred Stock will be approximately 1.2022
shares of Common Stock per share of Preferred Stock, subject to adjustment as provided in the Series C Certificate of Designation.
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Conversion
The Preferred Stock is convertible into shares of Common Stock at a conversion ratio of eight (8) shares of Common Stock for each share of
Preferred Stock, subject to adjustment as provided in the Series C Certificate of Designation, at any time at the option of the holder, provided that the holder will be prohibited from converting Preferred Stock into shares of Common Stock if, as a
result of such conversion, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of Common Stock then issued and outstanding. However, any holder may increase or decrease such percentage to any other
percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after such notice to the Company.
Royalties
Pursuant to the terms of the
Series C Certificate of Designation, holders of the Preferred Stock will be entitled to receive, in the aggregate, (i) a royalty payment equal to a percentage (the “Applicable Percentage,” as set forth in the table below) of any Net
Licensing Proceeds or any Net Sales (each as defined in the Series C Certificate of Designation) from
PV-10
and
PH-10
(for all indications of such drugs), if and when
the Company enters enter into one or more licensing agreements (the “Royalty Payments”); (ii) the Applicable Percentage of the total consideration receivable as a result of (x) a Fundamental Transaction or (y) any sale, lease,
conveyance or other disposition, whether in a single transaction or a series of related transactions, of any intellectual property relating to
PV-10
or
PH-10
(the
“Transaction Payments”); and (iii) the Applicable Percentage of any amounts distributed in connection with the Company’s liquidation, dissolution, or winding up (the “Liquidation Payments”); provided, however, that
holders of Preferred Stock shall be entitled to receive Royalty Payments, Transaction Payments and Liquidation Payments, if any, only until the Company has paid Royalty Payments, Transaction Payments and Liquidation Payments, in the aggregate, equal
to ten times the net offering proceeds received by the Company in the Rights Offering (after deducting dealer-manager fees and expenses and other expenses associated with the Rights Offering) (the “Maximum Payment Amount”), at which time
all remaining outstanding shares of Preferred Stock will automatically convert into shares of Common Stock in accordance with the paragraph above. Upon conversion of any shares of Preferred Stock (the “Converted Shares”) to Common Stock
prior to the payment of the Maximum Payment Amount in full, the holder of such Converted Shares shall no longer be entitled to receive any Royalty Payments, Transaction Payments or Liquidation Payments for such Converted Shares and the Maximum
Payment Amount will be reduced by the maximum amount of any remaining Royalty Payments, Transaction Payments and Liquidation Payments, if any, that the holder of the Converted Shares would have been entitled to receive had such holder not converted
such shares of Preferred Stock. The Applicable Percentage is to be determined based on the gross offering proceeds received by the Company in the Rights Offering (without deducting dealer-manager fees and expenses and other expenses of the Rights
Offering) as follows:
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Gross Proceeds Received by the Company
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Applicable
Percentage
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$10 million or less
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10
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%
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More than $10 million to $20 million
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20
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%
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More than $20 million
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30
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%
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Liquidation Preference
In the event of the Company’s liquidation, dissolution, or winding up, any amounts remaining available for distribution to stockholders
after payment of all liabilities of the Company and payment of
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the Liquidation Payments will be distributed
pari passu
to the holders of the Preferred Stock (on an as converted basis without giving effect for such purposes to the 4.99% or 9.99%
beneficial ownership limitation, as applicable), the Company’s Series B Preferred Stock (on an as converted basis without giving effect for such purposes to the 4.99% or 9.99% beneficial ownership limitation, as applicable) and the Common
Stock.
Voting Rights
The holders of
the Preferred Stock have no voting rights, except as required by law. Any amendment to the Company’s certificate of incorporation, bylaws or Series C Certificate of Designation that adversely affects the powers, preferences and rights of the
Preferred Stock requires the approval of the holders of a majority of the shares of Preferred Stock then outstanding.