AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

ETON PHARMACEUTICALS, INC.

A Delaware Corporation

 

(Pursuant to Sections 242 and 245 of the

General Corporation Law of the State of Delaware)

 

Eton Pharmaceuticals, Inc., a corporation organized and existing under and by
virtue of the provisions of the General Corporation Law of the State of Delaware
(the “DGCL”),

 

DOES HEREBY CERTIFY:

 

1. That the name of this corporation is Eton Pharmaceuticals, Inc., and that
this corporation was originally incorporated pursuant to the DGCL on April 27,
2017.

 

2. This Amended and Restated Certificate of Incorporation of the Corporation was
duly adopted in accordance with Sections 242 and 245 of the DGCL and restates,
integrates and further amends the provisions of the Corporation’s Certificate of
Incorporation as follows:

 

FIRST: The name of this corporation is Eton Pharmaceuticals, Inc. (the
“Corporation”).

 

SECOND: The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 850 New Burton
Road, Suite 201, Dover, DE 19904, County of Kent; and the name of the registered
agent of the Corporation in the State of Delaware at such address is Cogency
Global Inc.

 

THIRD: The nature of the business and of the purposes to be conducted and
promoted by the Corporation is to conduct any lawful business, to promote any
lawful purpose, and to engage in any lawful act or activity for which
corporations may be organized under the DGCL.

 

FOURTH: The aggregate number of shares of stock which this Corporation shall
have authority to issue is Sixty Million (60,000,000) shares, consisting of (a)
Fifty Million (50,000,000) shares of common stock, par value $0.001 per share
(the “Common Stock”), and (b) Ten Million (10,000,000) shares of preferred
stock, par value $0.001 per share (the “Preferred Stock”).

 

The following is a statement of the designations and the powers, privileges and
rights, and the qualifications, limitations or restrictions thereof in respect
of each class of capital stock of the Corporation.

 

 

 

 

A. COMMON STOCK

 

4.1 Common Stock. The Corporation is authorized to issue up to Fifty Million
(50,000,000) shares of Common Stock. Each outstanding share of Common Stock of
the Corporation shall be entitled to one vote and each fractional share of
Common Stock shall be entitled to a corresponding fractional vote on each matter
submitted to a vote of the shareholders. A majority of all shares of stock,
based on the number of votes to which they are entitled, of both Common Stock
and Preferred Stock voting together as a single class represented in person or
by proxy, shall constitute a quorum at a meeting of shareholders or as required
for an action taken by written consent. Except as otherwise provided by this
Certificate of Incorporation, if a quorum is present, the affirmative vote of a
majority of the shares, based on the number of votes to which they are entitled,
represented at the meeting and entitled to vote on the subject matter shall be
the act of the shareholders. Cumulative voting shall not be allowed in the
election of directors of the Corporation.

 

B. PREFERRED STOCK

 

Ten Million (10,000,000) shares of Preferred Stock of the Corporation are hereby
designated “Series A Preferred Stock” with the following rights, preferences,
powers, privileges and restrictions, qualifications and limitations. Unless
otherwise indicated, references to “sections” or “subsections” in this Part B of
this Article Fourth refer to sections and subsections of Part B of this Article
Fourth.

 

1. Par Value; Stated Value. Each share of Series A Preferred Stock shall have a
par value of $0.001 and a stated value equal to $3.00 (the “Stated Value”).

 

2. Definitions. In addition to the terms defined elsewhere in this Certificate
of Designations, the following terms have the meanings indicated:

 

“Announced IPO Date” shall have the meaning given in Section 8(f).

 

“Business Day” means any day other than Saturday, Sunday and any day on which
banks are required or authorized by law to be closed in the State of California.

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Corporation, par value $0.001 per
share.

 

“Common Stock Equivalents” means any securities of the Corporation or its
subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, right,
option, warrant, other instrument, or other subscription or purchase right with
respect to Common Stock, that is at any time convertible into or exercisable or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

 

“Conversion Amount” means the sum of the Stated Value plus all accrued and
unpaid Dividends thereon plus, if any, other unpaid amounts due under this
Certificate of Designation.

 

Conversion Price” shall have the meaning given in Section 8.

 

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“Dividend Rate” means a percentage of the Stated Value per share, as adjusted
for any stock split, stock dividend, stock combination or other similar
transactions with respect to the Series A Preferred Stock, of six percent (6%)
per annum, provided, that if an Event of Default shall have occurred and be
continuing, the Dividend Rate shall automatically be increased to twelve percent
(12%) per annum during the period of such Event of Default, until such Event of
Default is later cured.

 

“Event of Default” shall have the meaning given in Section 17.

 

“Holder” means any holder of Series A Preferred Stock.

 

“IPO” means a firm commitment underwritten initial public offering of the
Corporation’s Common Stock pursuant to a registration statement filed on Form
S-1 (or any successor from thereto) that is declared effective by the SEC and
consummated prior to the Redemption Date.

 

“IPO Notice” shall have the meaning given in Section 8(f).

 

“IPO Price to Public” means the price to public specified in the IPO
registration statement.

 

“Junior Securities” means the (i) Common Stock and all other equity or equity
equivalent securities of the Corporation, and (ii) all equity or equity
equivalent securities issued by the Corporation after the Original Issue Date
that do not rank senior to or pari passu with the Series A Preferred Stock.

 

“Original Issue Date” means the date of the first issuance of any shares of the
Series A Preferred Stock regardless of the number of transfers of any particular
shares of Series A Preferred Stock and regardless of the number of certificates
that may be issued to evidence such Series A Preferred Stock.

 

“Person” means any individual or corporation, partnership, trust, incorporated
or unincorporated association, joint venture or other non-corporate business
enterprise, limited liability company, joint stock company, trust, organization,
business, labor union or government (or an agency or subdivision thereof) or any
court or other federal, state, local or other governmental authority or other
entity of any kind.

 

“Required Holders” means the Holders that hold at least a majority of the Series
A Preferred Stock then outstanding.

 

“Securities Purchase Agreement” means that certain securities purchase
agreement, dated as of June 16, 2017, by and among the Corporation and the
purchasers of the Series A Preferred Stock named therein.

 

“Series A Preferred Stock” means the Series A Convertible Preferred Stock,
$0.001 par value, of the Corporation, which is convertible into shares of Common
Stock.

 

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“Subsequent Placement” has the meaning given to it in Section 4(k) of the
Securities Purchase Agreement.

 

“Underlying Shares” means the shares of Common Stock issuable upon conversion of
the Series A Preferred Stock.

 

3. Voting Rights.

 

Except as otherwise required by law or hereunder, the Series A Preferred Stock
shall vote together, and not separately as a class, with the Common Stock and
all other shares of stock of the Corporation having general voting power. The
holder of each share of Series A Preferred Stock shall be entitled to the number
of votes equal to the number of shares of Common Stock into which such share of
Series A Preferred Stock could be converted at the record date for determination
of the stockholders entitled to vote on such matters, or, if no record date is
established, at the date such vote is taken or the effective date of any written
consent. Fractional votes of the holders of Series A Preferred Stock shall not,
however, be permitted and fractional voting rights shall be (after aggregating
all shares into which shares of Series A Preferred Stock held by each Holder
could be converted) rounded to the nearest whole number (with one-half being
rounded upward). Holders of Series A Preferred Stock shall be entitled to notice
of any stockholders meetings in accordance with the Bylaws of the Corporation,
as if such Holders owned shares of Common Stock.

 

Unless the consent or approval of a greater number of shares shall then be
required by law, the affirmative vote of the Required Holders shall be necessary
to (1) authorize, increase the authorized number of shares of or issue
(including on conversion or exchange of any convertible or exchangeable
securities or by reclassification) any additional shares of Series A Preferred
Stock or any shares of capital stock of the Corporation having any right,
preference or priority ranking senior to or pari passu with Series A Preferred
Stock, (2) authorize, adopt or approve any amendment to the Certificate of
Incorporation, the Bylaws or this Certificate of Designations that would
increase or decrease the par value of the shares of the Series A Preferred
Stock, alter or change the powers, preferences or rights of the shares of Series
A Preferred Stock or alter or change the powers, preferences or rights of any
other capital stock of the Corporation if after such alteration or change such
capital stock would be senior to or pari passu with Series A Preferred Stock,
(3) amend, alter or repeal the Certificate of Incorporation, the Bylaws or this
Certificate of Designations so as to affect the shares of Series A Preferred
Stock adversely, including in connection with a merger, recapitalization,
reorganization or otherwise, (4) authorize or issue any security convertible
into, exchangeable for or evidencing the right to purchase or otherwise receive
any shares of any class or classes of capital stock of the Corporation having
any right, preference or priority ranking senior to or pari passu with Series A
Preferred Stock, (5) organize a subsidiary of the Corporation or (6) pay or set
apart for payment any dividend on any Junior Securities or make any payment on
account of, or set apart for payment money for a sinking or other similar fund
for, the purchase, redemption or other retirement of, any Junior Securities or
any warrants, rights, calls or options exercisable for or convertible into any
Junior Securities whether in cash, obligations or shares of Corporation or other
property, and shall not permit any corporation or other entity directly or
indirectly controlled by the Corporation to purchase or redeem any Junior
Securities or any such warrants, rights, calls or options.

 

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4. Dividends.

 

(a) Holders shall be entitled to receive, out of funds legally available
therefor, and the Corporation shall pay, cumulative dividends on the Series A
Preferred Stock at the Dividend Rate per share. Dividends on the Series A
Preferred Stock shall accrue daily commencing as of the Original Issue Date at
the Dividend Rate then in effect, and shall be deemed to accrue from the
Original Issue Date whether or not earned or declared and whether or not there
are profits, surplus or other funds of the Corporation legally available for the
payment of dividends. Dividends on the Series A Preferred Stock shall (i) be
calculated on the basis of a 365-day year, and (ii) be payable quarterly in
arrears commencing on June 30, 2017 and thereafter on each June 30, September
30, December 31 and March 31, except if such date is not a Business Day, such
dividend shall be payable on the next succeeding Business Day (each, a “Dividend
Payment Date”).

 

(b) The Corporation shall pay required dividends in cash, except as otherwise
provided in this Certificate of Designations.

 

(c) Except as authorized in accordance with Section 3, so long as any Series A
Preferred Stock is outstanding, the Corporation shall not pay or set apart for
payment any dividend on any Junior Securities or make any payment on account of,
or set apart for payment money for a sinking or other similar fund for, the
purchase, redemption or other retirement of, any Junior Securities or any
warrants, rights, calls or options exercisable for or convertible into any
Junior Securities whether in cash, obligations or shares of Corporation or other
property, and shall not permit any corporation or other entity directly or
indirectly controlled by the Corporation to purchase or redeem any Junior
Securities or any such warrants, rights, calls or options.

 

5. Registration of Series A Preferred Stock. The Corporation or its Transfer
Agent shall register shares of the Series A Preferred Stock, upon records to be
maintained by the Corporation or its Transfer Agent, as the case may be, for
that purpose (the “Series A Preferred Stock Register”), in the name of the
record Holders thereof from time to time. The Corporation may deem and treat the
registered Holder of shares of Series A Preferred Stock as the absolute owner
thereof for the purpose of any conversion hereof or any distribution to such
Holder, and for all other purposes, absent actual written notice to the contrary
from the registered Holder.

 

6. Registration of Transfers. The Corporation shall register the transfer of any
shares of Series A Preferred Stock in the Series A Preferred Stock Register,
upon surrender of certificates evidencing such shares to the Corporation at its
address specified herein. Upon any such registration or transfer, a new
certificate evidencing the shares of Series A Preferred Stock so transferred
shall be issued to the transferee and a new certificate evidencing the remaining
portion of the shares not so transferred, if any, shall be issued to the
transferring Holder; provided that if the Corporation does not so record an
assignment, transfer or sale (as the case may be) within two (2) Business Days
of its receipt of such a request, then the Series A Preferred Stock Register
shall be automatically updated to reflect such assignment, transfer or sale (as
the case may be).

 

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7. Liquidation.

 

(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary (a “Liquidation Event”), the
Holders of Series A Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of Junior Securities by reason of their ownership
thereof, an amount per share in cash equal to the greater of (x) the Stated
Value for each share of Series A Preferred Stock then held by them (as adjusted
for any stock split, stock dividend, stock combination or other similar
transactions with respect to the Series A Preferred Stock), plus all accrued and
unpaid dividends on such Series A Preferred Stock as of the date of such event,
or (y) the amount payable per share of Common Stock which such Holder of Series
A Preferred Stock would have received if such Holder had converted to Common
Stock immediately prior to the Liquidation Event all of the shares of Series A
Preferred Stock then held by such Holder together with all accrued but unpaid
dividends on such Series A Preferred Stock as of the date of such event (the
“Series A Stock Liquidation Preference”). If, upon the occurrence of a
Liquidation Event, the funds thus distributed among the holders of the Series A
Preferred Stock shall be insufficient to permit the payment to such Holders of
the full Series A Stock Liquidation Preference, then the entire assets and funds
of the Corporation legally available for distribution shall be distributed
ratably among the Holders of the Series A Preferred Stock in proportion to the
aggregate Series A Stock Liquidation Preference that would otherwise be payable
to each of such Holders. Such payment shall constitute payment in full to the
holders of the Series A Stock upon the Liquidation Event. After such payment
shall have been made in full, or funds necessary for such payment shall have
been set aside by the Corporation in trust for the account of the holders of
Series A Preferred Stock, so as to be immediately available for such payment,
such holders of Series A Preferred Stock shall be entitled to no further
participation in the distribution of the assets of the Corporation. The sale of
all or substantially all of the assets of the Corporation, or merger, tender
offer or other business combination to which the Corporation is a party in which
the voting stockholders of the Corporation prior to such transaction do not own
a majority of the voting securities of the resulting entity or by which any
person or group acquires beneficial ownership of 50% or more of the voting
securities of the Corporation or resulting entity shall, for the purposes of
this Certificate of Designations, be deemed to be a Liquidation Event.

 

(b) In the event of a Liquidation Event, following completion of the
distributions required by the first sentence of paragraph (a) of this Section 7,
if assets or surplus funds remain in the Corporation, the holders of the Junior
Securities shall share in all remaining assets of the Corporation, in accordance
with the General Corporation Law of Delaware and the Certificate of
Incorporation of the Corporation, as amended.

 

8. Conversion. The Series A Preferred Stock held by a Holder may be converted
into validly issued, fully paid and non-assessable shares of Common Stock on the
terms and conditions set forth in this Section 8.

 

(a) Mandatory Conversion - IPO. Upon consummation of the IPO, each share of
Series A Preferred Stock shall automatically convert, through no further action
on the part of the Corporation or the Holder, into that number of shares of
Common Stock equal to the quotient of (A) the Conversion Amount divided by (B)
the Conversion Price. For the purpose of this Section 8(a), the “Conversion
Price” shall be equal to fifty percent (50%) of the IPO Price to Public (rounded
to two decimal places); provided; however, that in no event shall the Conversion
Price be greater than $3.00 or nor less than $2.25, in each case as adjusted for
stock splits, stock dividends, stock combinations, recapitalizations, or the
like that occur after the Original Issuance Date in accordance with Section 13.

 

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(b) Mandatory Conversion – Financing. Upon consummation of a Subsequent
Placement approved by the Required Holders pursuant to Section 4(k) of the
Securities Purchase Agreement, each share of Series A Preferred Stock shall
automatically convert, through no further action on the part of the Corporation
or the Holder, into that number of shares of Common Stock equal to the quotient
of (A) the Conversion Amount divided by (B) the Conversion Price. For the
purposes of this Section 8(b), the “Conversion Price” shall be equal to fifty
percent (50%) of the purchase price of the securities being sold by the
Corporation in such Subsequent Placement (rounded to two decimal places);
provided; however, that in no event shall the Conversion Price be greater than
$3.00 or nor less than $2.25, in each case as adjusted for stock splits, stock
dividends, stock combinations, recapitalizations, or the like that occur after
the Original Issuance Date in accordance with Section 13.

 

(c) Optional Conversion. At any time after the Issuance Date and until ten (10)
calendar days prior to the consummation of the IPO (as set forth in the IPO
Notice), each Holder shall be entitled to convert its Series A Preferred Stock
into that number of shares of Common Stock equal to the quotient of (A) the
Conversion Amount divided by (B) the Conversion Price. For the purposes of this
Section 8(c), the “Conversion Price” shall be equal to $3.00, as adjusted for
stock splits, stock dividends, stock combinations, recapitalizations, or the
like that occur after the Issuance Date in accordance with Section 13.

 

(d) Mechanics of Conversion. To convert Series A Preferred stock pursuant to
Sections 8(c) above into shares of Common Stock on any date (a “Conversion
Date”), the Holder shall deliver (whether via facsimile or otherwise) a copy of
a properly and fully-completed and executed notice of conversion in the form
attached hereto as Exhibit A (the “Conversion Notice”) to the Corporation. On or
before the second Business Day following the date of receipt of such Conversion
Notice, the Corporation shall transmit by facsimile or email (by attachment in
PDF format) an acknowledgment of confirmation of receipt of such Conversion
Notice to the Holder and the Corporation’s transfer agent (the “Transfer
Agent”). On or before the third Business Day following the date of receipt of a
Conversion Notice or the triggering of a mandatory conversion pursuant to
Section 8(a) or 8(b) above, the Corporation shall instruct the Transfer Agent to
issue and deliver (via reputable overnight courier) to the Holder a certificate,
registered in the name of the Holder or its designee, for the number of shares
of Common Stock to which the Holder shall be entitled, with the legends required
by the Securities Purchase Agreement or applicable law. The Holder shall not be
required to physically surrender the Series A Preferred Stock in connection with
any conversion in accordance with this Section 8.

 

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(e) No Fractional Shares; Transfer Taxes. The Corporation shall not issue any
fraction of a share of Common Stock upon any conversion. If the issuance would
result in the issuance of a fraction of a share of Common Stock, the Corporation
shall round such fraction of a share of Common Stock up to the nearest whole
share. The Corporation shall pay any and all transfer, stamp, issuance and
similar taxes that may be payable with respect to the issuance and delivery of
Common Stock upon any conversion.

 

(f) Announcement of Initial Public Offering. After such time as the Company
determines that it will consummate an IPO, it shall send a notice to the Holder
(the “IPO Notice”) of the proposed consummation date of the IPO (the expected
date of such consummation is the “Announced IPO Date”), but such IPO Notice
shall be dispatched in any event no later than ten (10) calendar days prior to
such Announced IPO Date. To the extent that the Announced IPO Date is
subsequently advanced or delayed, the Company shall send an amended IPO Notice
of the revised proposed consummation date of the IPO to the Holder; provided,
however, the Company may not advance the Announced IPO Date to a date less than
five (5) Business Days after the date of the latest amending IPO Notice. If any
Announced IPO Date is delayed, the amending IPO Notice will be deemed the
establishment of a new Announced IPO Date and any Conversion Notice given based
on a previously Announced IPO Date will be deemed cancelled unless the Holder
affirms in writing the Conversion Notice as given.

 

9. Redemption Rights.

 

(a) No Optional Redemption. The Corporation shall have no right to redeem the
Series A Preferred Stock except as set forth in this Section 9.

 

(b) Mandatory Cash Redemption. On December 31, 2018, subject to extension upon
the prior written approval of the Required Holders (the “Mandatory Redemption
Date”), the Corporation shall repurchase all of the outstanding shares of Series
A Preferred Stock at a price equal to the Stated Value (as adjusted for any
stock split, stock dividend, stock combination or other similar transactions
with respect to the Series A Preferred Stock) of such shares of Series A
Preferred Stock, plus all accrued but unpaid dividends thereon to the date of
payment (the “Redemption Price”), in cash (“Mandatory Cash Redemption”).

 

(c) Redemption In-Kind. Upon an Event of Default, and while the Event of Default
is continuing, the Required Holders may elect in writing to cause the
Corporation (“Mandatory Redemption Notice”) to repurchase the Series A Preferred
Stock through the Corporation’s distribution of the assets of the Corporation
having a value equal to the Redemption Price to the Holders or, upon the
election of the Required Holders, a trust or other entity established by the
Required Holders for purposes of receiving the assets of the Corporation
(“Mandatory In-Kind Redemption”). Within ten days of the Corporation’s receipt
of the Mandatory Redemption Notice, the Corporation shall hire an independent
nationally recognized valuation firm (“Valuation Firm”) not unacceptable to the
Required Holders for purposes of determining the fair market value of the
Corporation’s assets (“Valuation”). The Valuation Firm shall conduct the
Valuation using such criteria and methodologies as are proposed by the Valuation
Firm and not unacceptable to the Corporation or the Required Holders. The
Valuation shall assign fair market values to each significant group of assets
(each an “Asset Class”) of the Corporation. The Valuation Firm shall deliver the
Valuation no later than thirsty (30) days of its engagement. In the event that
the Valuation is less than the Redemption Price, the Corporation shall
distribute to the Holders all of the assets of the Corporation within ten (10)
days of the Valuation Firm’s delivery of the Valuation. If the Valuation is
greater than the Redemption Price, the Corporation shall distribute to the
Holders a proportional amount of each Asset Class equal to the Valuation amount
assigned to each Asset Class by the Valuation Firm multiplied by a fraction the
denominator of which is the Valuation and the numerator is the Redemption Price.
Each Holder shall be entitled to receive its proportional share of distributed
assets in each Asset Class equal to the Valuation amount assigned to the
distributed assets in each Asset Class multiplied by a fraction the denominator
of which is the aggregate Redemption Price for all Holders and the numerator is
the Redemption Price for such Holder. From the time of the Corporation’s receipt
of the Mandatory Redemption Notice until the Corporation’s distribution of the
assets in accordance with this Section 9(c), the Corporation shall take no
action to sell, transfer or diminish the assets of the Corporation except (i) in
the ordinary course of business or (ii) as approved in writing by the required
Holders.

 

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(d) Mechanics of Redemption. Upon receipt of payment of the Redemption Price by
the Holders of Series A Preferred Stock in the event of a Mandatory Cash
Redemption or the Holders’ receipt of their proportional share of the assets of
the Corporation in the event of a Mandatory In-Kind Redemption, each Holder will
deliver the certificate(s) evidencing the Series A Preferred Stock to be
redeemed by the Corporation, unless such Holder is awaiting receipt of a new
certificate evidencing such shares from the Corporation pursuant to another
provision hereof.

 

10. Reservation of Common Stock. The Corporation shall at all times reserve and
keep available for issuance upon the conversion of shares of Series A Preferred
Stock, such number of its authorized but unissued shares of Common Stock as will
from time to time be sufficient to permit the conversion of all outstanding
shares of Series A Preferred Stock, and shall take all action to increase the
authorized number of shares of Common Stock if at any time there shall be
insufficient authorized but unissued shares of Common Stock to permit such
reservation or to permit the conversion of all outstanding shares of Series A
Preferred Stock; provided, that the Holders vote such shares in favor of any
such action that requires a vote of stockholders.

 

11. Charges, Taxes and Expenses. The issuance of certificates for shares of
Series A Preferred Stock and for Underlying Shares issued upon conversion of (or
otherwise in respect of) the Series A Preferred Stock shall be made without
charge to the Holders for any issue or transfer tax, withholding tax, transfer
agent fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Corporation;
provided, however, that the Corporation shall not be required to pay any tax
that may be payable in respect of any transfer involved in the registration of
any certificates for Common Stock or Series A Preferred Stock in a name other
than that of the Holder. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring the Series A
Preferred Stock or receiving Underlying Shares in respect of the Series A
Preferred Stock.

 

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12. Replacement Certificates. If any certificate evidencing Series A Preferred
Stock or Underlying Shares is mutilated, lost, stolen or destroyed, the
Corporation shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof, or in lieu of and substitution for such
certificate, a new certificate, but only upon receipt of evidence reasonably
satisfactory to the Corporation of such loss, theft or destruction and customary
and reasonable indemnity, if requested. Applicants for a new certificate under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Corporation
may prescribe.

 

13. Certain Adjustments. The Conversion Price is subject to adjustment from time
to time as set forth in this Section 13.

 

(a) Stock Dividends and Splits. If the Corporation, at any time while any shares
of Series A Preferred Stock are outstanding, (i) pays a stock dividend on its
Common Stock or otherwise makes a distribution on any class of capital stock
that is payable in shares of Common Stock, (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, or (iii) combines outstanding
shares of Common Stock into a smaller number of shares, then in each such case
the Conversion Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately following the
close of business on the record date for the determination of stockholders
entitled to receive such dividend or distribution, and any adjustment pursuant
to clause (ii) or (iii) of this paragraph shall become effective immediately
following the close of business on the effective date of such subdivision or
combination.

 

(b) Fundamental Transactions. If, at any time while any shares of Series A
Preferred Stock are outstanding, (i) the Corporation effects any merger of the
Corporation into or consolidation of the Corporation with another Person, (ii)
the Corporation effects any sale of all or substantially all of its assets in
one or a series of related transactions, or (iii) the Corporation effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (other than as a result of a subdivision or
combination of shares of Common Stock covered by Section 13(a) above) (in any
such case, a “Fundamental Transaction”), then upon any subsequent conversion of
Series A Preferred Stock, each Holder shall have the right to receive, for each
Underlying Share that would have been issuable upon such conversion absent such
Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the record holder of such Underlying Shares immediately prior to
such record date (the “Alternate Consideration”). For purposes of any such
conversion, the determination of the Conversion Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in such
Fundamental Transaction, and the Corporation shall apportion the Conversion
Price among the Alternate Consideration in a manner reasonably acceptable to the
holders of more than 50% of the outstanding shares of Series A Preferred Stock
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
each Holder shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of Series A Preferred Stock following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Corporation or surviving entity in such
Fundamental Transaction shall issue to the Holder a new series of preferred
stock consistent with the foregoing provisions and evidencing the Holders’ right
to convert such preferred stock into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is effected shall include
terms requiring any such successor or surviving entity to comply with the
provisions of this Section 13 and insuring that the Series A Preferred Stock (or
any such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.

 

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(c) Calculations. All calculations under this Section 13 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Corporation, and the disposition of
any such shares shall be considered an issue or sale of Common Stock.

 

(d) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to
this Section 13, the Corporation at its expense will promptly compute such
adjustment in accordance with the terms hereof and prepare a certificate
describing in reasonable detail such adjustment and the transactions giving rise
thereto, including all facts upon which such adjustment is based. Upon written
request, the Corporation will promptly deliver a copy of each such certificate
to each Holder.

 

(e) Notice of Corporate Events. If the Corporation (i) declares a dividend or
any other distribution of cash, securities or other property in respect of its
Junior Stock, including, without limitation, any granting of rights or warrants
to subscribe for or purchase any capital stock of the Corporation or any
subsidiary, or (ii) authorizes or approves, enters into any agreement
contemplating or solicits stockholder approval for any Liquidation Event or
Fundamental Transaction then the Corporation shall deliver to each Holder a
notice which shall specify (A) the record date for the purposes of such
dividend, distribution of cash, securities or property or vote of the
stockholders of the Corporation, or if a record is not to be taken, the date as
of which the holders of shares of Common Stock of record to be entitled to such
dividend, distribution of cash, securities or other property or vote of the
stockholders is to be determined, (B) the date on which such Liquidation Event
or Fundamental Transaction is expected to become effective, and (C) the material
terms and conditions of such transaction, at least ten Business Days prior to
the applicable record or effective date on which a Person would need to hold
Common Stock in order to participate in or vote with respect to such
transaction, and the Corporation will take all steps reasonably necessary in
order to insure that each Holder is given the practical opportunity to convert
its Series A Preferred Stock prior to such time so as to participate in or vote
with respect to such transaction; provided, however, that the failure to deliver
such notice or any defect therein shall not affect the validity of the corporate
action required to be described in such notice.

 

14. Fractional Shares. The Corporation shall not be required to issue or cause
to be issued fractional Underlying Shares upon conversion of Series A Preferred
Stock. If any fraction of an Underlying Share would, except for the provisions
of this Section, be issuable upon conversion of Series A Preferred Stock, the
number of Underlying Shares to be issued will be rounded up to the nearest whole
share.

 

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15. Notices. Any and all notices or other communications or deliveries hereunder
(including without limitation any Conversion Notice) shall be in writing and
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 number specified in this Section prior to 3:30 p.m. (California time)
on a Business Day, (ii) the next Business Day after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Business Day or later than 3:30
p.m. (California time) on any Business Day, (iii) the Business Day following the
date of mailing, 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. The addresses for such communications shall be: (i) if to the
Corporation, to 12264 El Camino Real, Suite 350, San Diego, CA 92130, facsimile:
(858) 345-1743, attention Chief Executive Officer, or (ii) if to a Holder, to
the address or facsimile number appearing on the Corporation’s stockholder
records or such other address or facsimile number as such Holder may provide to
the Corporation in accordance with this Section 15.

 

16. Dispute Resolution. In the case of a dispute as to the determination of the
fair value of consideration other than cash or securities, or the arithmetic
calculation of the Conversion Rate or the Redemption Price, the Corporation
shall, as soon as practicable upon discovery, and following a good faith effort
to resolve the dispute with the Holder, submit (a) the disputed determination of
the fair value of consideration other than cash or securities to an independent,
reputable investment bank selected by the Corporation or (b) the disputed
arithmetic calculation of the Conversion Rate or the Redemption Price to the
Corporation’s independent, outside accountant. The Corporation, at the
Corporation’s expense, shall cause the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify the
Corporation and the Holder of the results no later than five (5) Business Days
from the time it receives the disputed determinations or calculations. Such
investment bank’s or accountant’s determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.

 

17. Event of Default.

 

(a) Each of the following events shall constitute an “Event of Default”:

 

(i) any default by the Corporation with respect to any provision, condition or
requirement of this Certificate of Designations:

 

(ii) any breach of Sections 4(k), 4(l), 4(m), or 4(w) of the Securities Purchase
Agreement;

 

(iii) liquidation proceedings shall be instituted by or against the Corporation
and, if instituted against the Corporation by a third party, shall not be
dismissed within sixty (60) days of their initiation;

 

12

 

 

(iv) bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for the relief of debtors shall be instituted by or against the
Corporation and, if instituted against the Corporation by a third party, shall
not be dismissed within sixty (60) days of their initiation;

 

(v) the commencement by the Corporation of a voluntary case or proceeding under
any applicable federal, state or foreign bankruptcy, insolvency, reorganization
or other similar law or the consent by it to the entry of a decree, order,
judgment or other similar document in respect of the Corporation in an
involuntary case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or
the filing by it of a petition or answer or consent seeking reorganization or
relief under any applicable federal, state or foreign law, or the consent by it
to the filing of such petition or to the appointment of or taking possession by
a custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Corporation or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or the
execution of a composition of debts, or the occurrence of any other similar
federal, state or foreign proceeding, or the admission by it in writing of its
inability to pay its debts generally as they become due, the taking of corporate
action by the Corporation in furtherance of any such action; or

 

(vi) the entry by a court of (i) a decree, order, judgment or other similar
document in respect of the Corporation of a voluntary or involuntary case or
proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law; or (ii) a decree, order,
judgment or other similar document adjudging the Corporation as bankrupt or
insolvent, or approving as properly filed a petition seeking liquidation,
reorganization, arrangement, adjustment or composition of or in respect of the
Corporation under any applicable federal, state or foreign law; or (iii) a
decree, order, judgment or other similar document appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official
of the Corporation or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any such
decree, order, judgment or other similar document or any such other decree,
order, judgment or other similar document unstayed and in effect for a period of
sixty (60) consecutive days.

 

(vii) bankruptcy, insolvency, reorganization or other proceedings for the relief
of debtors shall be instituted against the Corporation and shall not be
dismissed within sixty (60) days of their initiation;

 

(viii) a final judgment or judgments for the payment of money aggregating in
excess of $500,000 are rendered against the Corporation and which judgments are
not, within sixty (60) days after the entry thereof, satisfied, bonded,
discharged or stayed pending appeal, or are not satisfied, bonded or discharged
within sixty (60) days after the expiration of such stay;

 

13

 

 

(ix) the Corporation fails to pay, when due, or within any applicable grace
period, any payment with respect to any indebtedness in excess of $500,000 due
to any third party (other than, with respect to unsecured indebtedness only,
payments contested by the Corporation in good faith by proper proceedings and
with respect to which adequate reserves have been set aside for the payment
thereof in accordance with GAAP) or is otherwise in breach or violation of any
agreement for monies owed or owing by the Corporation in an amount in excess of
$500,000, which breach or violation permits the other party thereto to declare a
default or otherwise accelerate amounts due thereunder;

 

(x) other than as specifically set forth in another clause of this Section
17(a), the Corporation breaches any material covenant or other term or condition
of any Transaction Document, if such breach remains uncured for a period of
thirty (30) days after actual knowledge of the Company of such breach, or any
representation or warranty made by the Corporation in any Transaction Document
is not accurate in any material respect when made or deemed made; or

 

(xi) the validity or enforceability of any provision of any Transaction Document
shall be contested by the Corporation, or a proceeding shall be commenced by the
Corporation seeking to establish the invalidity or unenforceability thereof. .

 

(b) Notice of an Event of Default. Upon the occurrence of an Event of Default,
the Corporation shall within two (2) Business Days deliver written notice
thereof via facsimile and overnight courier (with next day delivery specified)
(an “Event of Default Notice”) to the Holders.

 

18. Miscellaneous.

 

(a) The headings herein are for convenience only, do not constitute a part of
this Certificate of Designations and shall not be deemed to limit or affect any
of the provisions hereof.

 

(b) No provision of this Certificate of Designations may be amended, except in a
written instrument signed by the Corporation and the Required Holders.

 

(c) The Series A Preferred Stock is (i) senior to all other equity interests in
the Corporation outstanding as of the Original Issue Date in right of payment,
whether with respect to dividends or upon liquidation or dissolution, or
otherwise and (ii) will be senior to all other equity or equity equivalent
securities issued by the Corporation after the Original Issue Date.

 

(d) Any of the rights of the Holders of Series A Preferred Stock set forth
herein may be waived by the affirmative vote of the Required Holders. No waiver
of any default with respect to any provision, condition or requirement of this
Certificate of Designations shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right.

 

14

 

 

FIFTH: Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or any creditor or stockholder thereof or on the application of any
receiver or receivers appointed for this Corporation under the provisions of
Section 291 of the DGCL or on the application of trustees in dissolution or of
any receiver or receivers appointed for this Corporation under the provisions
Section 279 of the DGCL order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders, of this Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or class
of creditors, and/or of the stockholders or class of stockholders, of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.

 

SIXTH: The original Bylaws of the Corporation shall be adopted by the
incorporator. Thereafter, subject to Section 4.2(d) herein, the power to make,
alter, or repeal the Bylaws, and to adopt any new Bylaw, shall be vested in the
Board of Directors.

 

SEVENTH: To the fullest extent that the DGCL, as it exists on the date hereof or
as it may hereafter be amended, permits the limitation or elimination of the
liability of directors, no director of this Corporation shall be personally
liable to this Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director. Notwithstanding the foregoing, a director shall
be liable to the extent provided by applicable law: (a) for any breach of the
directors’ duty of loyalty to the Corporation or its stockholders; (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (c) under Section 174 of the DGCL; or (4) for any
transaction from which the director derived any improper personal benefit.
Neither the amendment nor repeal of this Article, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article,
shall adversely affect any right or protection of a director of the Corporation
existing at the time of such amendment or repeal.

 

EIGHTH: The Corporation shall, to the fullest extent permitted by DGCL Section
145, as the same may be amended and supplemented, indemnify any and all persons
whom it shall have power to indemnify under said section from and against any
and all of the expenses, liabilities or other matters referred to in or covered
by said section. The Corporation shall advance expenses to the fullest extent
permitted by said section. Such right to indemnification and advancement of
expenses shall 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. The indemnification and advancement of expenses
provided for herein shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise.

 

15

 

 

IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has
been executed by a duly authorized officer of this Corporation on this 15th day
of June, 2017.

 

  ETON PHARMACEUTICALS, INC.         By: /s/ Mark L. Baum   Name: Mark L. Baum  
Title: Executive Director

 

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EXHIBIT A

 

FORM OF CONVERSION NOTICE

 

(To be executed by the registered Holder

in order to convert shares of Series A Preferred Stock)

 

The undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below into shares of common stock, $0.001
par value (the “Common Stock”), of Eton Pharmaceuticals, Inc., a Delaware
corporation (the “Corporation”), according to the conditions hereof, as of the
date written below.

 

      Date to Effect Conversion           Number of shares of Series A Preferred
Stock owned prior to Conversion           Number of shares of Series A Preferred
Stock to be Converted           Stated Value of shares of Series A Preferred
Stock to be Converted           Number of shares of Common Stock to be Issued  
        Applicable Conversion Price           Number of shares of Series A
Preferred Stock subsequent to Conversion           Name of Holder       By:    
Name:     Title:  

 

 A-1