<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1998
REGISTRATION NO. __________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NOVAVAX, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2816046
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8320 GUILFORD ROAD, COLUMBIA, MD 21046
(301) 854-3900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
RICHARD F. MARADIE
NOVAVAX, INC.
8320 GUILFORD ROAD
COLUMBIA, MD 21046
(301) 854-3900
(Name, address, including zip code, and telephone number, including area
code, of agent for service of process)
With a copy to:
DAVID A. WHITE, ESQ.
WHITE & MCDERMOTT, P.C.
65 WILLIAM STREET, SUITE 209
WELLESLEY, MA 02181
(781) 431-1700
Approximate date of commencement of proposed sale to the public: As soon
as practicable and from time to time after the effective date of this
Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box.[X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
<PAGE> 2
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Securities Amount to Offering Price Aggregate Offering Amount of
to be Registered be Registered Per Share Price Registration Fee
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 2,206,350
($.01 par value) shares (1) $ 5.09 (2) $11,230,321.50 $3,312.94
</TABLE>
(1) Includes (i) shares of Common Stock to be issued upon conversion of the
Company's Series A Custom Convertible Preferred Stock (the "Series A Preferred
Stock") and (ii) an indeterminate number of additional shares of Common Stock as
may from time to time become issuable upon conversion of the Series A Preferred
Stock by reason of stock splits, stock dividends and other similar transactions,
which shares are registered hereunder pursuant to Rule 416 under the Securities
Act.
(2) Estimated solely for the purpose of determining the registration fee and
computed pursuant to Rule 457(c), based upon the average of the high and low
sale prices on February 12, 1998, as reported by the American Stock Exchange.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
ii
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NOVAVAX, INC.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(b)
OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF FORM S-3
FORM S-3 REGISTRATION
STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
- -------------------------- ----------------------
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus............................... Facing Page of Registration
Statement; Cross-Reference
Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus................ Inside Front Cover and
Outside Back Cover of
Prospectus; Available
Information; Incorporation
by Reference
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges....... Risk Factors; Available
Information
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... *
6. Dilution................................. *
7. Selling Security Holders................. Selling Stockholders
8. Plan of Distribution..................... Plan of Distribution
9. Description of Securities to be Registered *
10. Interests of Named Experts and Counsel... Legality of Common Stock;
Experts
11. Material Changes......................... *
12. Incorporation of Certain Documents
by Reference............................. Incorporation of Certain
Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Indemnification
- ---------------------------
* Item is omitted because it is either not required or inapplicable.
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 17, 1998
PROSPECTUS
NOVAVAX, INC.
2,206,350 SHARES OF COMMON STOCK ($.01 PAR VALUE)
---------------------------------
This Prospectus relates to the offer and sale of shares (the "Shares") of
Novavax, Inc. (the "Company" or "Novavax") Common Stock, $.01 par value,
issuable upon conversion of the Company's Series A Custom Convertible Preferred
Stock (the "Series A Preferred Stock") acquired by certain persons listed herein
as "Selling Stockholders" (the "Selling Stockholders") on January 28, 1998,
consisting of up to 2,206,350 shares of Common Stock to be issued upon
conversion of the Series A Preferred Stock and an indeterminate number of
additional shares of Common Stock as may from time to time become issuable upon
conversion of the Series A Preferred Stock by reason of stock splits, stock
dividends and other similar transactions, which shares are registered hereunder
pursuant to Rule 416 under the Securities Act of 1933, as amended (the
"Securities Act"). The Shares may be offered by the Selling Stockholders or by
pledgees, donees, transferees or other successors in interest that receive such
Shares as a gift, partnership distribution or other non-sale related transfer.
The Series A Preferred Stock and the Common Stock issuable upon conversion of
the Series A Preferred Stock have been and will be issued in transactions exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) thereof. See "Recent Developments," "Selling Stockholders," and "Plan of
Distribution." The Shares are being registered by the Company pursuant to
registration rights granted to the Selling Stockholders.
The Shares may be offered and sold by the Selling Stockholders from time
to time in open market or privately negotiated transactions at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Stockholders may effect such
transactions by selling the Shares to or through broker-dealers and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders or the purchasers of the Shares for
whom such broker-dealers may act as agent or to whom they sell as principal or
both (which compensation to a particular broker-dealer might be in excess of
customary commissions). See "Plan of Distribution."
None of the proceeds from the sale of the Shares by the Selling
Stockholders will be received by the Company. The Company has agreed to bear
certain expenses (other than selling commissions) in connection with the
registration and sale of the Shares being offered by the Selling Stockholders,
estimated at $34,000. The Company has agreed to indemnify the Selling
Stockholders against certain liabilities, including certain liabilities under
the Securities Act.
The Common Stock of the Company is listed for quotation on the American
Stock Exchange under the symbol NOX. On February 12, 1998, the closing sale
price of the Common Stock, as reported by the American Stock Exchange, was
$5.13 per share.
The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in the distribution of the Shares
may be deemed to be "underwriters" within the meaning of the Securities Act,
and any commissions received by them and any profit on the resale
<PAGE> 5
of the Shares purchased by them may be deemed to be underwriting commission or
discounts under the Securities Act.
---------------------------------------------------------------
AN INVESTMENT IN THE SECURITIES REGISTERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE INFORMATION SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES IN ANY
JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
---------------------------------------------------------------
The date of this Prospectus is February 17, 1998.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange Commission (the
"Commission") are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997;
3. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1997;
4. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997;
5. The Company's definitive Proxy Statement, dated April 8, 1997
relating to the Annual Meeting of Stockholders held on May 15, 1997;
and
6. The description of the Common Stock contained in the Company's
Registration Statement on Form 10, File No. 0-26770 filed on
September 14, 1995, filed pursuant to Section 12(b) of the Exchange
Act.
All reports and other documents filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), subsequent to the date hereof and prior
to the filing of a post-effective amendment which indicates that all securities
covered by this Prospectus have been sold or which deregisters all such
securities then remaining unsold, shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of the filing of such
reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon written or oral request of any such person, a
copy of any or all of the documents which are incorporated herein by reference,
except for certain exhibits to such documents. Requests should be directed to
the principal executive offices of the Company, 8320 Guilford Road, Columbia, MD
21046, Attention: Brenda L. Fugagli, Vice President, Finance, telephone: (301)
854-3900.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports and other information with the
Commission. Reports, proxy and information statements and other information
filed by the Company with the Commission pursuant to the informational
requirements of the Exchange Act may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Commission's regional offices
located at Seven World Trade Center, 13th Floor, New York, New York 10048, and
at Citicorp Center, 500 West Madison
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Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials also
may be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 at prescribed rates. In
addition, the Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information filed electronically by
the Company since May 1996 at the following address: http://www.sec.gov. The
Company has filed with the Commission in Washington, D.C. a registration
statement (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the
securities offered hereby. This Prospectus does not contain all the information
included in the Registration Statement, certain items of which are omitted in
accordance with the rules and regulations of the Commission. For further
information pertaining to the Company and the Common Stock offered hereby,
reference is made to such Registration Statement and the exhibits thereto.
The Company's Common Stock is listed on the American Stock Exchange.
Reports, proxy and information statements and other information concerning the
Company can be examined at the American Stock Exchange Inc., 86 Trinity Place,
New York, New York 10006.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "The Company," "Recent
Developments" and "Risk Factors" contained in this Prospectus or as may
otherwise be incorporated by reference herein constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Forward-looking statements include, but are not
limited to, statements regarding future product development and related clinical
trials and statements regarding future research and development. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions; competition; technological
advances; ability to obtain rights to technology; ability to obtain and enforce
patents; ability to commercialize and manufacture products; results of
preclinical studies; results of research and development activities; business
abilities and judgment of personnel; availability of qualified personnel;
changes in, or failure to comply with, governmental regulations; ability to
obtain adequate financing in the future; and other factors referenced in this
Prospectus. See "Risk Factors." All forward-looking statements included in this
document are based on information available to the Company on the date hereof
and the Company assumes no obligation to update any such forward-looking
statements.
THE COMPANY
Novavax, Inc. ("Novavax" or the "Company") is a biopharmaceutical company
focusing on the research and development of proprietary topical and oral drug
delivery technologies and the applications of those technologies. The Company's
technology platforms involve the use of proprietary microscopic organized lipid
structures as vehicles for the delivery of a wide variety of drugs and other
therapeutic products, including certain hormones, anti-bacterial and anti-viral
products and vaccine adjuvants. The Company's three lead product candidates are
ESTRASORB(TM), a topical estrogen cream, ANDROSORB(TM), a topical testosterone
cream and Helicore(TM), an oral anti-bacterial preparation for the treatment of
Helicobacter pylori infection.
All three products are in various stages of clinical and pre-clinical trials as
set forth below:
- The Company has completed pre-clinical and human safety studies for
both ESTRASORB and ANDROSORB.
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- The Company is nearing completion of an ESTRASORB multiple dose,
dose ranging study and a multiple dose, placebo-controlled
pharmacokinetic study.
- The Company is currently completing a multiple dose pharmacokinetic
study with ANDROSORB which began in the third quarter of 1997.
- The Company currently has several formulations of Helicore in
pre-clinical and human safety studies.
THE NOVAVAX TECHNOLOGY PLATFORMS
Novavax has developed proprietary topical and oral drug delivery
technologies using organized lipid structures (collectively, the "Novavax
Technologies"). To date, the Company has utilized its technology in the
development of Novasome lipid vesicles and micellar nanoparticles, which are
sub-micron size lipid structures that also possess encapsulation capabilities.
These structures may help with targeted delivery and controlled release. The
Company believes its technologies may allow for the delivery of a wide variety
of drugs and other therapeutics in a more cost effective manner than
phospholipid liposomes and other delivery vehicles. Its technologies may be
preferred over other transdermal delivery systems because of the potential
reduction in side effects, primarily skin irritation. Additionally, future
applications may show advantages over injectable delivery technologies which
may be invasive, inconvenient and/or painful.
Most commercial liposomes are composed of delicate phospholipids. Due to
their inherent lack of stability and carrying capacity limitations, a limited
number of drugs may be used with phospholipid liposomes. While capable of
encapsulating certain (principally water soluble) drugs, phospholipid liposomes
have a number of significant disadvantages including their expense and the need
to use potentially hazardous organic solvents in their manufacture. In addition,
the standard, multi-step phospholipid manufacturing process yields relatively
small quantities of liposomes.
Novasome(R) lipid vesicles
Novasome lipid vesicles are proprietary organized lipid structures in
which drugs or other materials can be encapsulated for delivery into the body
topically or orally. Novasome lipid vesicles are made using the Company's
patented manufacturing process from a variety of readily available chemicals
called amphiphiles, which include fatty alcohols and acids, ethoxylated fatty
alcohols and acids, glycol esters of fatty acids, glycerol fatty acid mono and
diesters, ethoxylated glycerol fatty acid esters, glyceryl ethers, fatty acid
diethanolamides and dimethyl amides, fatty acyl sarcosinates, "alkyds" and
phospholipids. In December 1995, the Company entered into a licensing agreement
with IGI, Inc. ("IGI"), the Company's former parent, entitling IGI to the
exclusive use of the Novavax Technologies in certain fields. Currently, IGI uses
Novasome lipid vesicles in a wide variety of cosmetic applications, including
products sold by Estee Lauder and Revlon. The Company retains all rights to
Novasome lipid vesicle technologies for use in pharmaceuticals.
Micellar Nanoparticles
Micellar nanoparticles ("MNPs") are submicron-sized, water miscible lipid
structures that have different structural characteristics and are generally
smaller than Novasome lipid vesicles. MNPs, like Novasome lipid vesicles, are
derived from amphiphile molecules.
Novavax scientists have demonstrated the ability to incorporate alcohol
soluble drugs and pesticides, vaccine adjuvants, proteins, whole viruses,
flavors, fragrances and colors into MNPs. MNPs have the ability to entrap
ethanol or methanol soluble drugs and to deliver certain of these drugs through
intact skin. The MNP formulations used for the transdermal delivery of drugs
have
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cosmetic properties like creams and lotions. There may be inherent advantages
over injectable delivery systems, which may be more invasive and/or
inconvenient, and patch transdermal delivery systems, which may cause skin
irritation.
NOVAVAX PRODUCT CANDIDATES
Topical Drug Delivery
The Company is using its micellar nanoparticle technology in the
development of ESTRASORB, a cream designed for the delivery of 17B estradiol
(estrogen) through the skin. Estrogen replacement therapy is currently used
worldwide by menopausal (and post-menopausal) women to prevent osteoporosis,
cardiovascular disease and other menopausal symptoms (e.g. "hot flashes").
Current estrogen replacement products include oral tablets or, more recently,
transdermal patches. Oral estrogen tablets, however, have been associated with
side effects primarily resulting from fluctuating blood hormone levels. Because
of these side effects, transdermal patches for estrogen replacement were
developed. While these patches help reduce blood hormone fluctuations, they may
cause skin irritation and patient inconvenience associated with wearing and
changing an external patch.
The Company believes that ESTRASORB may offer several advantages over
existing therapies used for estrogen replacement. ESTRASORB is a lotion that may
be applied to the skin much like a typical cosmetic cream. The Company believes
ESTRASORB will be able to deliver a continuous amount of estrogen to the patient
without the fluctuations in blood hormone levels associated with oral tablets.
In addition, ESTRASORB does not contain materials that may cause the skin
irritation associated with transdermal patches.
In 1995, the Company completed preclinical testing of ESTRASORB in a
primate model. Results of this study demonstrated that ESTRASORB can be utilized
to deliver estradiol through intact skin with maintenance of therapeutic serum
estradiol levels for six days after a single topical application. Based on these
results, the Company initiated a Phase I human trial of ESTRASORB involving 10
symptomatic menopausal women. In this study, each woman received a single
topical application of ESTRASORB. This study was completed in the fourth quarter
of 1996 with no significant adverse experiences noted. The Company is in the
process of completing two additional human studies with ESTRASORB. The first is
a multiple-dose, dose ranging, pharmacokinetic study begun in the second quarter
of 1997. The second is a multiple-dose, pharmacokinetic, placebo controlled
study begun in the third quarter of 1997 and currently being completed.
In September 1996, the Company completed the animal testing of ANDROSORB
(testosterone) in its MNP transdermal drug delivery platform. In these tests,
peak blood levels of testosterone were approximately three times higher than
testosterone dissolved in ethanol. After a single topical cream application,
peak serum levels of testosterone were as high as 35 nanograms per milliliter
and persisted in the therapeutic range for 48 hours. The Company completed the
human safety studies and submitted the results to the FDA in the third quarter
of 1997. A multiple dose, pharmacokinetic human study which began in the third
quarter of 1997 is currently being completed.
Testosterone replacement therapy is currently used by males who are
testosterone deficient as a result of either primary or secondary hypogonadism.
Testosterone in males is required to maintain sexual function and libido,
maintain lean body mass, increase hemoglobin synthesis and maintain bone
density. Current testosterone replacement therapy products include deep
intramuscular injections or transdermal patches. The injections require frequent
visits to a physician and may be associated with pain at the injection site and
abscess. The transdermal
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patches may cause skin irritation and patient inconvenience associated with
wearing and changing two to three external patches per day.
The Company believes that ANDROSORB may offer several advantages over
current testosterone replacement therapies. ANDROSORB is a lotion that may be
applied to the skin. This would eliminate the need for intramuscular injections.
In addition, ANDROSORB does not contain materials that may cause the skin
irritation associated with transdermal patches.
The Company has developed several other applications of technology in its
MNP transdermal drug delivery technology platform. These product applications
are for hormone replacement therapies and are in various stages of development
and pre-clinical testing. The applications include Lo-ANDROSORB(TM),
PROGESTSORB(TM), ALPROSORB(TM) and PROESTRASORB(TM), each of which is briefly
described below:
- Lo-ANDROSORB(TM) - a low dose testosterone replacement therapy for
women.
- PROGESTSORB(TM) - a progesterone replacement therapy for women.
- ALPROSORB(TM) - a cream designed for the delivery of Prostaglandin
E(1) for men suffering from erectile dysfunction.
- PROESTRASORB(TM) - a combination progesterone and estrogen hormone
replacement therapy for women.
The Company believes its MNP and other technologies are suitable for the
delivery of additional alcohol soluble drugs.
Helicore Microbicidal Preparations
The Company has developed proprietary lipid structure formulations
that it is using in the development of a non-antibiotic anti-bacterial
preparation for the treatment of Helicobacter pylori ("H. pylori") infection
in humans. H. pylori was recognized in 1994 by the National Institutes of
Health as a causative agent of peptic ulcer disease, antral gastritis and
certain types of gastric cancer. It is estimated that 30-80 million adults
in the U.S. are infected with H. pylori. Each year the treatment of
complications of H. pylori infections (i.e. peptic ulcer disease) in the
U.S. alone costs in excess of five billion dollars. Current therapies for the
treatment of H. pylori include the use of antibiotics alone or antibiotics
in combination with drugs that inhibit acid production in the stomach.
Problems associated with such therapies include, but are not limited to,
cost, toxicity, failure to sufficiently eradicate all the bacteria, and
acquired resistance to the antibiotic.
In 1995 the Company began to test formulations of Helicore(TM) in both
animal studies and human safety studies. Results from studies completed in 1996
were submitted to the FDA. A multiple-dose, dose ranging study which began in
the second quarter of 1997 is currently being completed. Additional pre-clinical
studies on various formulations are still in process.
Vaccine Adjuvants
Adjuvants are substances that make vaccines more effective. The Company
believes that certain of its organized lipid structures (e.g., Novasome lipid
vesicles and MNPs) may provide effective and safe adjuvant carrier systems for a
variety of vaccines. The Company believes both Novasome lipid vesicles and MNPs
may be used as vaccine adjuvants and protective carriers in a variety of
circumstances, including: (i) encapsulation and protection of delicate antigenic
materials from destruction by the body's normal enzymatic processes; (ii)
encapsulation of toxic materials, such as endotoxins and other potent toxins,
for gradual releases, thereby providing protection of the body from the toxin
while generating an immune response to the toxic antigen; (iii) presentation of
small peptide antigens to elicit a heightened cellular immune response; and (iv)
delivery of genes and other molecules into targeted cells.
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The Company has entered into several research contracts to provide
vaccine products, services, and adjuvant technologies. These contracts accounted
for $229,678 of revenue for the nine months ended September 30, 1997.
Patents
The Company has 45 issued and 8 pending United States patents and 53
issued and 73 pending international patents covering the composition,
manufacture and use of its organized lipid structures and related technologies.
Incorporation and Spin-off
The Company was incorporated in Delaware in 1987. Its principal executive
offices are currently located at 8320 Guilford Road, Columbia, Maryland. On
December 12, 1995, the Company's former parent, IGI, Inc., distributed its
majority interest in Novavax to the IGI stockholders (the "Distribution").
RECENT DEVELOPMENTS
The primary focus of Novavax is the development of human pharmaceuticals
and drug delivery technologies. Historically, the focus of the Company was on
the development of human vaccines, vaccine adjuvants, drug delivery technologies
(such as ESTRASORB and ANDROSORB) and anti-infective pharmaceuticals (such as
Helicore). Novavax has developed several oral vaccines, two of which (ECOVAX
0157(TM) and Shigella flexneri 2a) completed Phase I human studies. The
Company's three lead product candidates are ESTRASORB(TM), a topical estrogen
cream, ANDROSORB(TM), a topical testosterone cream, and Helicore(TM), an oral
anti-bacterial preparation for the treatment of Helicobacter pylori infections.
These products are in various phases of development. The Company has completed
animal and human safety studies for both ESTRASORB and ANDROSORB and has other
clinical studies underway. Currently, several formulations of Helicore are in
animal and human safety studies.
Although the Company began development of its pharmaceutical product
candidates later than, and as byproducts of, its vaccine development, its
primary emphasis is now on these pharmaceutical product candidates for the
following reasons:
- Much larger potential markets
- Lower estimated clinical development costs
- Measurements of clinical efficacy are more easily defined
- Current financial resources do not permit concurrent development of
both multiple vaccine and pharmaceutical programs
Consistent with prudent use of the Company's limited cash resources, the
clinical development programs for both oral active vaccine immunization programs
have been presently suspended in favor of the development of its three lead
pharmaceutical product candidates. The Company submitted clinical study plans
for ESTRASORB, ANDROSORB and Helicore to the FDA in 1997. Those studies are in
various stages of completion. The Company has the potential, dependent upon
future capital, to develop other human pharmaceutical products utilizing its
proprietary drug delivery platform technologies. It has several such products in
various stages of pre-clinical development.
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Issuance of Series A Custom Convertible Preferred Stock
On January 23, 1998, the Company entered into Subscription Agreements (the
"Subscription Agreements") with each of the named Selling Stockholders to
effectuate the private placement (the "Private Placement") of 6,500 shares of
the Series A Preferred Stock. The closing of the sale of the Series A Preferred
Stock occurred on January 28, 1998 (the "Issuance Date") at an aggregate
purchase price of $6,500,000. The Company received the proceeds therefor and
paid Diaz & Altschul Capital, LLC a fee of $425,233 in consideration for its
services as placement agent. The Shares being registered hereunder represent
shares underlying the 6,500 shares of the Series A Preferred Stock issued to the
Selling Stockholders pursuant to the Subscription Agreements. The Series A
Preferred Stock, with a purchase price of $1,000 per share, is convertible into
shares of Common Stock at a conversion price equal to (i) during a period of 90
days following the Issuance Date, 100% of the lowest arithmetic average of the
lowest sale price of the Common Stock on each of two consecutive trading days
during the 25 consecutive trading days immediately preceding the conversion date
as reported on the American Stock Exchange (the "Two Day Average Trading Price")
or (ii) during the period on and after the date which is 91 days after the
Issuance Date, 94% of the Two Day Average Trading Price (the "Conversion
Price"). The Conversion Price has a ceiling price of $6.33 per share and,
within the first 180 days after the Issuance Date, applicable floor prices
based on conversion dates.
RISK FACTORS
In evaluating the Company and its business, prospective investors should
carefully consider the following risk factors in addition to the other
information appearing in or incorporated by reference in this Prospectus.
Early Stage of Product Development. Novavax has not yet completed the
development of any products and has not begun to generate any revenue from the
commercialization of products. All of Novavax's potential products are in
research, development or early-stage clinical trials. The development of
products, if any, will require significant additional research, development,
preclinical and clinical testing, regulatory approval and investment prior to
commercialization, which may never occur. None of Novavax's pharmaceuticals or
other products is expected to be commercially available for at least several
years.
Success in the pharmaceuticals market depends on Novavax's ability to
complete satisfactorily the development of pharmaceuticals based on the Novavax
Technologies that will be safe and efficacious and will have benefits not
available in competitive products; and no assurance can be given that it will be
successful in doing so. Novavax's potential products are subject to the risks of
failure inherent in the development of pharmaceutical products based on new
technologies. These risks include the possibilities that Novavax's approach will
not be successful; that any or all of Novavax's potential products will be found
to be unsafe, ineffective or otherwise fail to meet applicable regulatory
standards or receive necessary regulatory clearances; that the potential
products, if safe and effective, will be difficult to develop into commercially
viable products or manufacture on a large scale, be uneconomical to market, or
fail to obtain acceptance by the medical community; that proprietary rights of
third parties will preclude Novavax from marketing such products; or that third
parties will market superior or equivalent products. There can be no assurance
that any of these products will be successfully developed and, whether produced
by Novavax or by its licensees or partners, will meet applicable regulatory
standards, obtain required regulatory approvals, be capable of being produced in
commercial quantities at reasonable costs or be successfully marketed.
Absence of Revenue from Products. Novavax's future growth will depend on
its ability to commercialize its Novavax Technologies for human pharmaceutical
applications. To date, despite
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<PAGE> 13
entering into research contracts to provide vaccine products, services and
adjuvant technologies, Novavax has not generated any revenue from the sale of
pharmaceuticals. During the years ended December 31, 1994, 1995 and 1996 and
the nine months ended September 30, 1997, Novavax incurred net losses of
$5,690,036, $8,494,358, $5,494,985, and $3,482,481 respectively. The losses
have resulted from expenses incurred in the Company's research and development
programs, protection of intellectual property and, to a lesser extent, from
other general, administrative and operating expenses. Novavax expects
cumulative losses will increase in the near-term as it conducts additional
clinical trials and seeks regulatory approval for its product candidates.
Payments from collaborative partners, if any, and investment income are
expected to be the only sources of revenue for the foreseeable future and
revenues from commercial sales of products are not expected for a number of
years, if at all. There can be no assurance that the Company will be successful
in entering into strategic alliances or collaborative arrangements that will
result in significant revenues. Novavax expects to continue to incur
substantial operating losses unless and until such time, if ever, as product
sales, licensing fees and royalty payments generate sufficient revenue to fund
its continuing operations. The time required to reach profitability is highly
uncertain. There can be no assurance that the Company will be able to achieve
profitability on a sustained basis, if at all.
Additional Financing Requirements and Access to Capital. Novavax will
require substantial funds to continue its research and development, future
preclinical and clinical trials, regulatory approvals, establishment of
commercial-scale manufacturing capabilities, and marketing its products.
Novavax's capital requirements depend on numerous factors, including but not
limited to the progress of its research and development programs, the progress
of preclinical and clinical testing, the time and costs involved in obtaining
regulatory approvals, the cost of filing, prosecuting, defending and enforcing
any patent claims and other intellectual property rights, competing
technological and market developments, changes in Novavax's existing research
relationships, the ability of Novavax to establish collaborative arrangements,
the development of commercialization activities and arrangements, and the
purchase of additional facilities and capital equipment. Novavax estimates that
its existing cash resources, together with the net proceeds of the Private
Placement, will only be sufficient to finance its operations at its current
level for approximately 18-24 months. There can be no assurance, however, that
such estimate will be correct. Novavax will seek to obtain additional funds for
these purposes through public or private equity or debt financings,
collaborative arrangements with pharmaceutical companies or from other sources.
If additional funds are raised by issuing equity securities of Novavax, dilution
to then existing stockholders may result. There can be no assurance that
additional funding or bank financing will be available at all or on acceptable
terms to permit successful commercialization of the Novavax Technologies and
products. If adequate funds are not available, Novavax may be required to
significantly delay, reduce the scope of or eliminate one or more of its
research or development programs, or seek other alternatives to avoid
insolvency, including arrangements with collaborative partners or others that
may require Novavax to relinquish rights to certain of its technologies, product
candidates or products.
Uncertainty of Patents and Proprietary Rights. Although Novavax has 45
issued and 8 pending United States patents and 53 issued and 73 pending
international patents, its success will depend, in large part, on its ability to
maintain its existing patents, obtain new patents, maintain trade secret
protection and operate without infringing on the proprietary rights of third
parties or having third parties circumvent Novavax's rights. Novavax has U.S.
and foreign patent rights covering its Novavax Technologies, including its
Novamix production equipment. The patent positions of pharmaceutical companies
can be highly uncertain and involve complex legal, scientific and factual
questions. To date, no consistent policy has emerged regarding the breadth of
biotechnology patent claims that are granted by the United States Patent and
Trademark Office or enforced by the Federal courts. Thus, there can be no
assurance that any of Novavax's existing patents will not be challenged or
future patent applications will result in the issuance of patents, that Novavax
will develop additional proprietary products that are patentable, that any
patents issued to Novavax will provide Novavax with any competitive advantages
or will not be challenged by any
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<PAGE> 14
third parties, that the patents of others will not impede the ability of Novavax
to do business or that third parties will not be able to circumvent Novavax's
patents. Furthermore, there can be no assurance that others will not
independently develop or duplicate similar technology or products, or, if
patents are issued to Novavax, design around the patents issued to Novavax. The
failure of the Company or its licensors to obtain or maintain patent protection
for the Company's products could have a material adverse effect on the Company.
Novavax may be required to obtain licenses from third parties to avoid
infringing patents or other proprietary rights. No assurance can be given that
any licenses required under any such patents or proprietary rights would be made
available, if at all, on terms acceptable to Novavax. If Novavax does not obtain
such licenses, it could encounter delays in product introductions, or could find
that the development, manufacture or sale of products requiring such licenses
could be prohibited. In addition, Novavax could incur substantial costs in
defending itself in suits brought against Novavax on patents it might infringe
or in filing suits against others to have such patents declared invalid.
Some of Novavax's know-how and technology may not be patentable. To
protect its rights, Novavax requires employees, consultants, advisors and
collaborators to enter into confidentiality agreements. There can be no
assurance, however, that these agreements will provide meaningful protection for
Novavax's trade secrets, know-how or other proprietary information in the event
of any unauthorized use or disclosure. Further, Novavax's business may be
adversely affected by competitors who independently develop competing
technologies, especially if Novavax obtains no, or only narrow, patent
protection.
Technological Change and Competition. The pharmaceutical industry is
subject to rapid and substantial technological change and intense competition.
Competitors of Novavax in the United States and abroad are numerous and include,
among others, both large and small pharmaceutical companies, biotechnology
firms, universities and other research institutions. There can be no assurance
that Novavax's competitors will not succeed in developing technologies and
products that are more effective than any which are being developed by Novavax
or which would render Novavax's technologies and products obsolete or
noncompetitive. Most of these competitors have substantially greater financial
and technical resources and production and marketing capabilities than Novavax.
In addition, many of Novavax's competitors have significantly greater experience
than Novavax in conducting preclinical testing and clinical trials of human
pharmaceuticals and obtaining FDA and other regulatory approvals of products for
use in health care. Accordingly, Novavax's competitors may succeed in obtaining
FDA approval for products more rapidly than Novavax. If Novavax commences
significant commercial sales of any products, it will also be competing with
respect to manufacturing efficiency and marketing capabilities, areas in which
it has limited or no experience.
Need to Establish Collaborative Commercial Relationships; Dependence on
Partners. Novavax's business strategy for its products is to enter into
strategic alliances or licensing arrangements with corporate partners, primarily
pharmaceutical companies, relating to the development and commercialization of
certain products incorporating the Novavax Technologies for commercialization
outside the United States. There can be no assurance that Novavax will be able
to negotiate acceptable collaborative arrangements, that such collaborations
will be available to Novavax on acceptable terms, that any such relationships,
if established, will be scientifically or commercially successful or that any
collaborative partner will have economic motivation to continue funding provided
for under any such agreements or that such collaboration will be successful.
Novavax expects that under certain of these arrangements, the collaborative
partner will have the responsibility for conducting human clinical trials and
the submission for regulatory approval of the product candidate with the
appropriate regulatory agencies. Should the collaborative partner fail to
develop a marketable product, Novavax's business may be adversely affected.
There can be no assurance that Novavax's collaborative partners will not be
pursuing
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<PAGE> 15
alternative technologies either on their own or in collaboration with others,
including Novavax's competitors, as a means for developing treatments for the
diseases targeted by these collaborative programs. Novavax's business also will
be affected by the success of its corporate partners in marketing any
successfully developed products within the geographic areas in which such
partners are granted marketing rights. Novavax may retain manufacturing rights
for some of the products that it develops and licenses pursuant to arrangements
with corporate partners. However, there can be no assurance that Novavax will be
able to retain such rights on acceptable terms, if at all, or that Novavax will
have the ability to produce the quantities of product required under the terms
of such arrangements. Novavax's royalties from sales of products licensed to
collaborators, if any, may be less than the revenues Novavax could have
generated had it commercialized and marketed products itself.
Attraction and Retention of Key Employees and Scientific Collaborators.
Novavax is highly dependent on the principal members of its scientific and
managerial staff, the loss of whose services could have a material adverse
effect on Novavax. Furthermore, recruiting and retaining qualified scientific
personnel to perform research and development work in the future will also be
critical to Novavax's success. There can be no assurance that Novavax will be
able to attract and retain such personnel on acceptable terms given the
competition among numerous pharmaceutical companies, universities and non-profit
research institutions for experienced scientists. Novavax's anticipated growth
and expansion into areas and activities requiring additional expertise such as
clinical testing, governmental approvals, production and marketing, are expected
to place increased demands on Novavax's resources. These demands are expected to
require the addition of new management personnel and the development of
additional expertise by existing management personnel. The failure to acquire
such services or to develop such expertise could materially adversely affect
Novavax's business.
Limited Manufacturing Capability. The development and manufacture of
Novavax's products are subject to current good laboratory practices ("GLP") and
good manufacturing practices ("GMP") requirements prescribed by the FDA or other
standards prescribed by the appropriate regulatory agency in the country of use.
Novavax currently has the ability to produce quantities of Novasome lipid
vesicles sufficient to support its current needs. Novavax also has the ability
to produce quantities of its products sufficient to support its current research
and development and early-stage clinical trial needs. However, Novavax will need
to acquire additional manufacturing facilities and improve its manufacturing
technology in order to meet the volume and cost requirements for later clinical
trials and commercial production of its own pharmaceuticals if it elects to do
so. If Novavax decides to establish additional manufacturing facilities, doing
so will require substantial additional funds, the hiring and retention of
significant additional personnel and compliance with extensive regulations
applicable to such facilities. There can be no assurance that Novavax will be
able to obtain or manufacture such products in a timely fashion at acceptable
quality and prices, that it or its suppliers can comply with GLP or GMP, as
applicable, or that it or its suppliers will be able to manufacture an adequate
supply of product. If Novavax relies on collaborators, licensees or contract
manufacturers for the commercial manufacture of its products, the Company will
have only limited control over the commercial manufacturing of its products.
There can be no assurance that Novavax will be able to enter into any such
manufacturing arrangements on acceptable terms, if at all. If the Company is not
able to enter into commercial manufacturing agreements or develop its own
commercial manufacturing capacity, it could encounter delays in introducing its
products into certain markets, or find that the manufacture of its products in
these markets is adversely affected. There can be no assurance that the parties
to the Company's future commercial manufacturing agreements will perform their
obligations as expected, or that any revenue will be derived from these
commercial manufacturing agreements.
Absence of Sales and Marketing Experience. Novavax expects to
commercialize and sell certain of its products through co-marketing arrangements
with third parties. In addition, Novavax
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<PAGE> 16
may build a small targeted direct sales group for products in markets that can
be accessed with a small to medium size sales force, if and when such products
approach FDA marketing approval. To date, though, Novavax has had no experience
in sales, marketing or distribution of its products. In order to market its
products directly, Novavax would need to develop a marketing staff and sales
force with technical expertise. There can be no assurance that Novavax will be
able to build such a marketing staff or sales force, that the cost of
establishing such a marketing staff or sales force will not exceed any product
revenue or that Novavax's direct sales and marketing efforts will be successful.
In addition, if Novavax succeeds in bringing one or more products to market, it
may compete with other companies that currently have extensive and well-funded
marketing and sales operations. There can be no assurance that Novavax's
marketing and sales efforts would compete successfully against such other
companies. To the extent Novavax enters into co-marketing arrangements, any
revenue received by Novavax will be dependent on the efforts of third parties
and there can be no assurance that such efforts will be successful.
Government Regulation; Uncertainty of Clinical Trials. The production and
marketing of Novavax's products and ongoing research and development activities
are subject to regulation by numerous governmental authorities in the United
States and other countries. Prior to marketing, any human pharmaceuticals
developed by Novavax must undergo rigorous preclinical testing and clinical
trials, as well as an extensive regulatory approval process mandated by the FDA
and foreign regulatory agencies. These processes can take many years and require
the expenditure of substantial resources. The rate of completion of clinical
trials is dependent upon, among other factors, the rate of patient enrollment.
Patient enrollment is a function of many factors, including the size of the
patient population, the nature of the protocol, the Company's ability to manage
the clinical trial, the proximity of patients to clinical sites and the
eligibility criteria for the study. Several factors, such as delays in planned
patient enrollment, may result in increased costs and delays or termination of
clinical trials prior to completion, which could have a material adverse effect
on Novavax. Clinical trials generally must meet requirements for institutional
review board oversight and informed consent, as well as regulatory agency prior
review, oversight and good clinical practice requirements. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations
which could delay, limit or prevent regulatory approval. In addition, delays or
rejections may be encountered based upon changes in the policies of regulatory
authorities for drug approval during the period of product development and
regulatory review of each submitted new drug application or product license
application. Novavax may be required to demonstrate that the proposed product
represents an improved form of treatment over existing therapies. Novavax has
limited experience in conducting and managing the preclinical and clinical
trials necessary to obtain government approvals. There can be no assurance that
the results of such clinical trials will be consistent with the results obtained
in preclinical studies or that the results obtained in later phases of clinical
trials will be consistent with those obtained in earlier phases. A number of
companies in the biopharmaceutical industry have suffered significant setbacks
in advanced clinical trials, even after experiencing promising results in early
animal and human testing. There also can be no assurance that any human
pharmaceutical products will be shown to be safe and efficacious or that
regulatory approval for any such product will be obtained on a timely basis, if
at all. Delays in obtaining regulatory approvals would adversely affect the
marketing of products developed by Novavax and Novavax's ability to receive
product revenue or royalties. Moreover, if regulatory approval of a drug is
granted, such approval is likely to entail limitations on the indicated uses for
which it may be marketed. Further, even if such regulatory approval is obtained,
a marketed drug and its manufacturer are subject to continual review, and
discovery of previously unknown problems with a product or manufacturer may
result in restrictions on such product or manufacturer, including withdrawal of
the product from the market. There can be no assurance that Novavax will be able
to obtain the clearances and approvals necessary for clinical testing or for
manufacturing and marketing its products. Existing or additional government
regulation could prevent or delay regulatory approval of Novavax's products or
affect the pricing or marketing of such products.
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<PAGE> 17
Quarterly Fluctuations of Operating Results. Novavax's quarterly operating
results are likely to vary significantly depending on factors such as the timing
of new license agreements, the results of preclinical or clinical trials, the
timing of collaborative agreements for the development of products, the timing
of significant orders and the introduction of products by Novavax. Novavax's
expense levels are based in part on its expectations as to future revenue. If
revenue levels are below expectations, operating results will be adversely
affected. Novavax believes that period-to-period comparisons of its operating
results are not necessarily meaningful and should not be relied upon as
indications of future performance. As a result of the foregoing factors, it is
likely that in some future quarters, Novavax's revenue or operating results will
be below the expectations of public market analysts and investors. In such
event, the price of Novavax's Common Stock could be materially adversely
affected.
Product Liability. Although Novavax is not currently a party to any
product liability litigation, the testing, manufacturing, marketing and sale of
human medical products entail potential product liability risks, including
claims made by consumers, health care providers, pharmaceutical companies or
others selling such products. There can be no assurance that substantial product
liability claims will not be asserted against Novavax. Novavax currently has
limited product liability coverage for the clinical research use of its product
candidates. Novavax does not have product liability insurance for the commercial
sale of its potential product candidates but intends to obtain such coverage if
and when its products are commercialized. Such insurance, however, is expensive,
difficult to obtain and may not be available in the future on acceptable terms,
or at all. No assurance can be given that product liability insurance can be
maintained in the future at a reasonable cost or in sufficient amounts to
protect Novavax against losses due to liability. An inability to maintain
insurance at an acceptable cost or to otherwise protect against potential
product liability could prevent or inhibit the continued commercialization of
Novavax's products. In addition, a product liability claim in excess of relevant
insurance coverage, if any, or a product recall could have a material adverse
effect on Novavax's business, financial condition and results of operations.
Hazardous Materials. Novavax's development and commercial activities may
involve the controlled use of hazardous materials, chemicals, viruses, bacteria
and other pathogens. Although Novavax believes that its safety procedures for
handling and disposing of such materials comply with the standards prescribed by
state, federal and local regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, Novavax could be held liable for any damages that result and
any such liability could exceed the resources of Novavax. The Company may be
required to incur significant costs to comply with environmental laws and
regulations in the future.
Uncertainty of Third-Party Reimbursement. In both domestic and foreign
markets, the ability of Novavax to commercialize its product candidates will
depend, in part, on the availability of reimbursement from third-party payors,
such as government health administration authorities, private health insurers
and other organizations. Third-party payors are increasingly challenging the
price and cost-effectiveness of medical products. There can be no assurance that
Novavax-developed products will be considered cost effective. Significant
uncertainty exists as to the reimbursement status of newly-approved healthcare
products. There can be no assurance that adequate third-party insurance coverage
will be available for Novavax to establish and maintain price levels sufficient
for realization of an appropriate return on its investment in developing new
therapies. Government and other third-party payors are increasingly attempting
to contain medical costs by limiting both coverage and the level of
reimbursement of new therapeutic products approved for marketing by the FDA and
by refusing, in some cases, to provide coverage for uses of approved products
for disease indications for which the FDA has not granted marketing approval. If
adequate coverage and reimbursement levels are not provided by government or
third-party payors for uses of Novavax's products, the market acceptance of
these products would be
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<PAGE> 18
adversely affected, which could have a material adverse effect on Novavax's
business, financial condition and results of operations.
Uncertainty Related to Medical Reform Measures. There have been a number
of federal and state proposals during the last few years to subject the pricing
of pharmaceuticals to government control and to make other changes to the
medical care system of the United States. It is uncertain what legislative
proposals will be adopted or what actions federal, state or private payors for
medical goods and services may take in response to any medical reform proposals
or legislation. Novavax cannot predict the effect these reforms may have on its
business, and no assurance can be given that any such reforms will not have a
material adverse effect on Novavax.
Volatility of Stock Price; Possible Delisting; Absence of Dividends. The
market prices for securities of biotechnology and pharmaceutical companies,
including Novavax, have historically been highly volatile, and it is likely that
the market price of Novavax Common Stock will continue to be highly volatile.
Since its listing on the American Stock Exchange ("AMEX"), the closing price of
the Novavax Common Stock on the American Stock Exchange (the "AMEX") has ranged
between a low of $3.00 per share and a high of $8.13 per share. Announcements of
technological innovations or new commercial products by Novavax or its
competitors, regulatory developments, disputes concerning patent or proprietary
rights, publicity regarding actual or potential medical results relating to
products under development by Novavax or its competitors, public concern as to
the safety of Novavax's products, and economic and other external factors
unrelated to Novavax's business or operations, as well as period-to-period
fluctuations in financial results, may have a significant impact on the market
price of Novavax Common Stock.
Novavax Common Stock is currently traded on the AMEX. A failure to
continue to meet the AMEX's maintenance requirements may result in a delisting
of the Novavax Common Stock. In particular, Novavax may have difficulty
maintaining the minimum market capitalization requirements of the AMEX because
such capitalization is dependent on the price at which the shares of Novavax
Common Stock trade from time to time. The liquidity of delisted securities,
which would probably trade in the over-the-counter markets, may be impaired, not
only in the number of shares that could be bought or sold, but also through
delays in the timing of transactions, reductions in security analysts' and the
news media's coverage of Novavax, and lower prices than might otherwise be
attained.
Novavax has never paid cash dividends on the Novavax Common Stock and does
not anticipate paying any cash dividends in the foreseeable future.
Dilution. As of December 31, 1997, there were outstanding stock options
for an aggregate of 3,414,637 shares of Novavax Common Stock at a weighted
average exercise price of $3.34 per share. In addition, as of December 31,
1997, there were outstanding warrants to purchase an aggregate of 1,300,000
shares of Novavax Common Stock at a weighted average exercise price of $6.80
per share. The Private Placement also resulted in the adjustment to the number
and exercise price of shares subject to the warrants described herein, which
effect cannot be determined because the adjustment is based on a market price
formula dependent upon the time the Series A Preferred Stock is converted
and/or the time the warrant is exercised. Investors purchasing shares of
Novavax Common Stock in this offering may incur dilution to the extent that the
outstanding options and warrants are exercised.
Potential Conflicts of Interest. Dr.Hager, a director and Chairman of the
Board and former Chief Executive Officer of Novavax, serves as a director and as
Chairman of the Board and Chief Executive Officer of IGI. In addition, Dr.
Hager's wife, Jane E. Hager, serves as a director of both Novavax and IGI. Dr.
Hager and Mrs. Hager constitute two out of the nine members of the Novavax Board
of Directors. The presence of individuals serving in decision-making roles in
both companies may affect the ability of each company to receive the best arms'
length result in
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<PAGE> 19
transactions between the two companies as well as the ability of the officers
and directors to act in the best interests of both companies.
Novavax and IGI have entered into a variety of intercompany agreements,
the terms of which were unilaterally established by IGI. In connection with the
Distribution, IGI paid Novavax $5,000,000 in return for a fully paid-up ten-year
license entitling it to the exclusive use of the Novavax Technologies in certain
fields. IGI has the option, exercisable in the last year of the ten-year term,
to extend the License Agreement for an additional ten-year period for
$1,000,000. Novavax retains the right to use its Novavax Technologies for all
other applications, including most human pharmaceuticals. Novavax has agreed in
a Tax Matters Agreement to use its best efforts not to engage in certain actions
("Post-Distribution Acts") which could render the Distribution taxable. If the
Distribution is rendered taxable as a result of a Post-Distribution Act, then
(x) the corporate level taxable gain would be recognized by the consolidated
group of which IGI is the parent, (y) both IGI, as parent of that group, and
Novavax as a former member of that group, would be severally liable for the
corporate level tax on such gain and (z) each holder of IGI Common Stock who
received shares of Novavax Common Stock in the Distribution would be treated as
having received a taxable dividend. In addition, under a Transition Services
Agreement, IGI provided certain administrative services to Novavax prior to June
30, 1996 and was paid $230,000 for such services rendered.
Anti-takeover Provisions. Novavax's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation"), requires that any action
required or permitted to be taken by stockholders of Novavax must be effected at
a duly called annual or special meeting of stockholders and may not be effected
by any consent in writing, and will require reasonable advance notice by a
stockholder of a proposal or director nomination which such stockholder desires
to present at any annual or special meeting of stockholders. Special meetings of
stockholders may be called only by the Chief Executive Officer or, if none, the
President of Novavax or the Board of Directors. The Certificate of Incorporation
provides for a classified Board of Directors, and members of the Board of
Directors may be removed only for cause upon the affirmative vote of holders of
at least two-thirds of the shares of capital stock of Novavax entitled to vote.
Novavax's By-Laws provide that, during any time in which the directors of
Novavax who are affiliated with IGI shall constitute at least half of the
membership of the Novavax Board of Directors, any matter requiring approval of
the Novavax Board of Directors shall be subject to the approval of not less than
two-thirds of the directors.
The Board of Directors also has the authority, without further action by
the stockholders, to fix the rights and preferences of, and issue shares of,
Preferred Stock, as evidenced by the purchase and sale of the Series A
Preferred Stock. Furthermore, the Certificate of Designations of the Series A
Preferred Stock requires the affirmative vote of the holders of a majority (and
in some instances the unanimous vote) of outstanding shares of the Series A
Preferred Stock, voting separately as a class, for any amendments or
modifications to the Certificate of Incorporation which would materially and
adversely affect the powers, preferences and rights of the Series A Preferred
Stock or create and issue senior dividend or senior liquidation stock. These
provisions, and other provisions of Novavax's Certificate of Incorporation and
By-Laws, may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management of Novavax, including transactions
in which stockholders might otherwise receive a premium for their shares over
then current market prices. In addition, these provisions may limit the ability
of stockholders to approve transactions that they may deem to be in their best
interests.
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
Selling Stockholders, including (i) the name of the Selling Stockholders, (ii)
the number of shares of Common Stock owned by the Selling Stockholders prior to
the offering and (iii) the maximum number of shares of
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<PAGE> 20
such Common Stock to be offered hereby. Because the Selling Stockholders may
offer and sell all or a portion or none of the Common Stock offered pursuant to
this Prospectus, no estimate can be given as to the amount of Common Stock that
will be held by the Selling Stockholders upon termination of the offering. See
"Plan of Distribution."
The Shares being offered hereby by the Selling Stockholders may be
acquired, from time to time, upon the conversion of 6,500 shares of the Series A
Preferred Stock which were acquired by them from the Company in the Private
Placement. This Prospectus covers the resale by the Selling Stockholders of the
Shares consisting of up to approximately 2,206,350 shares, plus, in accordance
with Rule 416 under the Securities Act, such presently indeterminate number of
additional shares as may be issuable upon conversion of the Series A Preferred
Stock by reason of stock splits, stock dividends and other similar
transactions, including fluctuations in the conversion price of the Series A
Preferred Stock. The offer and sale by the Company of the Series A Preferred
Stock pursuant to the Subscription Agreements were made pursuant to an
exemption from registration under Section 4(2) of the Securities Act. See
"Recent Developments."
The Shares covered by this Prospectus may be offered from time to time by
the Selling Stockholders named below and the transferees, pledgees, donees and
other successors thereof described under "Plan of Distribution":
<TABLE>
<CAPTION>
Number of Shares Beneficially Maximum Number of
Name of Selling Stockholder Owned Prior to Offering (1)(2) Shares Being Offered (2)
- --------------------------- ------------------------------ ------------------------
<S> <C> <C>
Delta Opportunity Fund, Ltd. (3) 1,272,894 1,272,894
Olympus Securities, Ltd. (4) 373,382 373,382
Nelson Partners (4) 305,495 305,495
OTATO Limited Partnership (5) 254,579 254,579
--------- ---------
Total 2,206,350 2,206,350
</TABLE>
- ----------
(1) Pursuant to the Company's Certificate of Designation of the Series A
Preferred Stock, no Selling Stockholder can convert Series A Preferred Stock to
the extent such conversion would increase such Selling Stockholder's beneficial
ownership of the Common Stock (other than shares so owned through ownership of
the Series A Preferred Stock) to an amount in excess of 4.9%.
(2) Represents each Selling Shareholder's pro rata portion (based on their
ownership of Series A Preferred Stock) of the 2,206,350 shares of Common Stock
being registered hereby. The 2,206,350 shares of Common Stock represent
approximately 1,508,120 shares which would be issuable to the Selling
Stockholders upon conversion of all of the Series A Preferred Stock assuming a
conversion price of $4.31 (which represents 94% of the Two Day Average
Trading Price during the 25 trading days prior to February 17, 1998 and is
subject to fluctuations from time to time based on changes in the market price
of the Common Stock) plus an additional 698,230 shares to equal the amount
required to be registered by the Company pursuant to the Subscription
Agreements. Does not include an indeterminate number of additional shares of
Common Stock as may from time to time become issuable upon conversion of the
Series A Preferred Stock by reason of stock splits, stock dividends and other
similar transactions, which shares are registered hereunder pursuant to Rule
416 under the Securities Act.
(3) Diaz & Altschul Advisors, LLC, a New York limited liability company ("D&A
Advisors"), serves as investment advisor to Delta Opportunity Fund, Ltd.
("Delta") and may be deemed to share beneficial ownership of the Shares
beneficially owned by Delta by reason of shared power to dispose of the Shares
beneficially owned by Delta. D&A Advisors disclaims beneficial ownership of the
Shares beneficially owned by Delta.
(4) Citadel Limited Partnership is the managing general partner of Nelson
Partners ("Nelson"), and the trading manager of Olympus Securities, Ltd.
("Olympus") and consequently has voting control and investment discretion over
securities held by both Nelson and Olympus. The ownership information for Nelson
does not include the Shares owned by Olympus and the ownership information for
Olympus does not include the Shares owned by Nelson.
17
<PAGE> 21
(5) An affiliate of OTATO Limited Partnership serves as a trading consultant to
Delta and may be deemed to share beneficial ownership of the Shares beneficially
owned by such Selling Stockholder by reason of sharing power to dispose of the
Shares beneficially owned by such Selling Stockholder. Such affiliate disclaims
beneficial ownership of such Shares.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholders.
PLAN OF DISTRIBUTION
The Company has filed with the Commission the Registration Statement, of
which this Prospectus forms a part, with respect to the resale of the Shares
from time to time by the Selling Stockholders in open market or privately
negotiated transactions. Pursuant to the Subscription Agreements for the
purchase and sale of the Series A Preferred Stock, the Company has agreed to
keep the Registration Statement effective until the earlier of (i) the date on
which no Selling Stockholder holds, or has any right to acquire, any of the
shares of Common Stock offered hereby and (ii) the date which is three years
from the Issuance Date. The Company intends to deregister any of the Shares not
sold by the Selling Stockholders at the end of such period.
The Company has been advised that the Selling Stockholders may sell the
Shares from time to time in transactions on the AMEX, in the over-the-counter
market, in negotiated transactions, or a combination of such methods of sale, at
fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Stockholders may effect such transactions by selling the
Shares to or through broker-dealers, including block trades in which brokers or
dealers will attempt to sell the Shares as agent but may position and resell
the block as principal to facilitate the transaction, or in one or more
underwritten offerings on a firm commitment or best efforts basis. Sales of
Selling Stockholders' Shares may also be made pursuant to Rule 144 under the
Securities Act, where applicable.
To the extent required under the Securities Act, the aggregate amount of
Selling Stockholders' Shares being offered and the terms of the offering, the
names of any such agents, brokers, dealers or underwriters and any applicable
commission with respect to a particular offering will be set forth in an
accompanying Prospectus supplement. Any underwriters, dealers, brokers or agents
participating in the distribution of the Shares may receive compensation in the
form of underwriting discounts, concessions or commissions from the Selling
Stockholders or the purchasers of the Shares for whom such underwriters or
broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation to a particular underwriter or broker-dealer might be in
excess of customary commissions). The Selling Stockholders will be responsible
for all brokerage commissions and other amounts payable with respect to any sale
of Shares with respect to such Selling Stockholders and any legal, accounting or
other expenses incurred.
From time to time, one or more of the Selling Stockholders may pledge,
hypothecate or grant a security interest in some of all of the Shares owned by
them, and the pledgees, secured parties or person to whom such securities have
been hypothecated shall, upon foreclosure in the event of default, be deemed to
be Selling Stockholders hereunder. In addition, a Selling Stockholder may, from
time to time, sell short the Common Stock of the Company, and in such instances,
this Prospectus may be delivered in connection with such short sales and the
Shares offered hereby may be used to cover such short sales.
From time to time, one or more of the Selling Stockholders may transfer,
pledge, donate or assign such Selling Stockholders' Shares to lenders or others
and each of such persons will be deemed to be a "Selling Stockholder" for
purposes of this Prospectus. The number of Selling
18
<PAGE> 22
Stockholders' Shares beneficially owned by those Selling Stockholders who so
transfer, pledge, donate or assign Selling Stockholders' Shares will decrease as
and when they take such actions. The plan of distribution for Selling
Stockholders' Shares sold hereunder will otherwise remain unchanged, except that
the transferees, pledgees, donees or other successors will be Selling
Stockholders hereunder.
A Selling Stockholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the Common
Stock in the course of hedging the position they assume with such Selling
Stockholder, including, without limitation, in connection with distributions of
the Common Stock by such broker-dealers. A Selling Stockholder may also enter
into options or other transactions with broker-dealers that involve the delivery
of the Common Stock to the broker-dealers, who may then resell or otherwise
transfer such Common Stock. A Selling Stockholder may also loan or pledge the
Common Stock to a broker-dealer and the broker-dealer may sell the Common Stock
so loaned or, upon a default, may sell or otherwise transfer the pledged Common
Stock.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Selling Stockholders and any broker-dealers who act in connection with
the sale of Shares hereunder may be deemed to be "underwriters," as such term is
defined in the Securities Act, and any commissions received by them or profit on
any resale of the Shares might be deemed to be underwriting discounts and
commissions under the Securities Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not bid for or purchase shares of
Common Stock during a period which commences one business day (5 business days,
if the Company's public float is less than $25 million or its average daily
trading volume is less than $100,000) prior to such person's participation in
the distribution, subject to exceptions for certain passive market making
activities. In addition and without limiting the foregoing, each Selling
Stockholder will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder, including without limitation, Regulation M,
which provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by such Selling Stockholder.
Pursuant to the Subscription Agreements, the Company agreed to register
the Shares under the Securities Act and to indemnify and hold the Selling
Stockholders harmless against certain liabilities, including certain liabilities
under the Securities Act, that could arise in connection with the sale by the
Selling Stockholders of the Shares. The Company has agreed to bear certain
expenses (other than selling commissions) in connection with the registration
and sale of the Shares being offered by the Selling Stockholders, estimated to
be $34,000.
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock offered
hereby have been passed upon by White & McDermott, P.C., 65 William Street,
Suite 209, Wellesley, Massachusetts 02181. David A. White, a shareholder of such
firm, owns 10,000 shares of the Common Stock and is the Secretary of the
Company.
19
<PAGE> 23
EXPERTS
The consolidated balance sheets as at December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1996, incorporated by reference into this Prospectus, have been incorporated
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 given on the authority of that firm as experts in
accounting and auditing.
INDEMNIFICATION
Article NINTH of the Company's Restated Certificate of Incorporation
provides that a director or officer of the Company (a) shall be indemnified by
the Company against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement incurred in connection with any litigation or
other legal proceeding (other than an action by or in the right of the Company)
brought against him by virtue of his position as a director or officer of the
Company if he acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful and (b) shall be indemnified by the Company against all
expenses (including attorneys' fees) and amounts paid in settlement incurred in
connection with any action by or in the right of the Company brought against him
by virtue of his position as a director or officer of the Company if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Company, except that no indemnification shall be made
with respect to any matter as to which such person shall have been adjudged to
be liable to the Company, unless a court determines that, despite such
adjudication but in view of all of the circumstances, he is entitled to
indemnification of such expenses. Notwithstanding the foregoing, to the extent
that a director or officer has been successful, on the merits or otherwise,
including, without limitation, the dismissal of an action without prejudice, he
is required to be indemnified by the Company against all expenses (including
attorneys' fees) incurred in connection therewith. Expenses shall be advanced to
a director or officer at his request, provided that he undertakes to repay the
amount advanced if it is ultimately determined that he is not entitled to
indemnification for such expenses.
Indemnification is required to be made unless the Company determines that
the applicable standard of conduct required for indemnification has not been
met. In the event of a determination by the Company that the director or officer
did not meet the applicable standard of conduct required for indemnification, or
if the Company fails to make an indemnification payment within 60 days after
such payment is claimed by such person, such person is permitted to petition the
court to make an independent determination as to whether such person is entitled
to indemnification. As a condition precedent to the right of indemnification,
the director or officer must give the Company notice of the action for which
indemnity is sought and the Company has the right to participate in such action
or assume the defense thereof.
Article NINTH of the Company's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Company
must indemnify those persons to the fullest extent permitted by such law as so
amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a
20
<PAGE> 24
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, in any criminal proceeding, if such person had no
reasonable cause to believe his conduct was unlawful, provided that, in the case
of actions brought by or in the right of the corporation, no indemnification
shall be made with respect to any matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
adjudicating court determines that such indemnification is proper under the
circumstances.
The Company maintains insurance under which the insurers will reimburse
the Company for amounts that it has paid to its directors and officers as
indemnification for claims against such persons in their official capacities.
The insurance also covers such persons as to amounts paid by them as a result of
claims against them in their official capacities that are not reimbursed by the
Company. The insurance is subject to certain limitations and exclusions.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
21
<PAGE> 25
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------------------
TABLE OF CONTENTS
Page
----
Incorporation of Certain Documents by Reference .......................... 3
Available Information .................................................... 3
Special Note Regarding Forward-Looking Statements ........................ 4
The Company .............................................................. 4
Recent Developments ...................................................... 8
Risk Factors ............................................................. 9
Selling Stockholders ..................................................... 16
Use of Proceeds .......................................................... 18
Plan of Distribution ..................................................... 18
Legal Matters ............................................................ 19
Experts .................................................................. 20
Indemnification .......................................................... 20
------------------------------------
NOVAVAX, INC.
2,206,350 SHARES OF COMMON STOCK
PROSPECTUS
<PAGE> 26
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS - FORM S-3
Item 14. Other Expenses of Issuance and Distribution.
The expenses to be borne by the Company in connection with this offering
are as follows:
<TABLE>
<S> <C>
SEC Registration Fee...................................... $ 3,312.94
AMEX Listing Fee.......................................... 17,500.00
Legal Services and Expenses............................... 8,500.00*
Accounting Services and Expenses.......................... 3,500.00*
Miscellaneous expenses.................................... 1,187.06*
-----------
Total .............................................. $ 34,000.00*
</TABLE>
- ----------
*Estimated
Item 15. Indemnification of Directors and Officers.
Article NINTH of the Company's Restated Certificate of Incorporation
provides that a director or officer of the Company (a) shall be indemnified by
the Company against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement incurred in connection with any litigation or
other legal proceeding (other than an action by or in the right of the Company)
brought against him by virtue of his position as a director or officer of the
Company if he acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful and (b) shall be indemnified by the Company against all
expenses (including attorneys' fees) and amounts paid in settlement incurred in
connection with any action by or in the right of the Company brought against him
by virtue of his position as a director or officer of the Company if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Company, except that no indemnification shall be made
with respect to any matter as to which such person shall have been adjudged to
be liable to the Company, unless a court determines that, despite such
adjudication but in view of all of the circumstances, he is entitled to
indemnification of such expenses. Notwithstanding the foregoing, to the extent
that a director or officer has been successful, on the merits or otherwise,
including, without limitation, the dismissal of an action without prejudice, he
is required to be indemnified by the Company against all expenses (including
attorneys' fees) incurred in connection therewith. Expenses shall be advanced to
a director or officer at his request, provided that he undertakes to repay the
amount advanced if it is ultimately determined that he is not entitled to
indemnification for such expenses.
Indemnification is required to be made unless the Company determines that
the applicable standard of conduct required for indemnification has not been
met. In the event of a determination by the Company that the director or officer
did not meet the applicable standard of conduct required for indemnification, or
if the Company fails to make an indemnification payment within 60 days after
such payment is claimed by such person, such person is permitted to petition the
court to make an independent determination as to whether such person is entitled
to indemnification. As a condition precedent to the right of indemnification,
the director or officer must give the Company notice of the action for which
indemnity is sought and the Company has the right to participate in such action
or assume the defense thereof.
<PAGE> 27
Article NINTH of the Company's Restated Certificate of Incorporation
further provides that the indemnification prided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Company
must indemnify those persons to the fullest extent permitted by such law as so
amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful, provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
The Company maintains insurance under which the insurers will reimburse
the Company for amounts that it has paid to its directors and officers as
indemnification for claims against such persons in their official capacities.
The insurance also covers such persons as to amounts paid by them as a result of
claims against them in their official capacities that are not reimbursed by the
Company. The insurance is subject to certain limitations and exclusions.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Item 16. Exhibits.
See Exhibit Index, incorporated herein by reference.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement.
<PAGE> 28
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Company pursuant to Sections 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Columbia, Maryland, on February 17, 1998.
NOVAVAX, INC.
By: /s/ Richard F. Maradie
------------------------------
Richard F. Maradie
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Novavax, Inc., hereby
severally constitute and appoint Richard F. Maradie and David A. White, and each
of them singly, our true and lawful attorneys-in-fact, with full power to them
in any and all capacities, to sign any amendments to this Registration Statement
on Form S-3 (including Pre- and Post-Effective Amendments), and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Richard F. Maradie Director and Chief Executive February 17, 1998
Richard F. Maradie Officer
/s/ Brenda L. Fugagli Vice President, Finance and February 17, 1998
Brenda L. Fugagli Chief Financial Officer
/s/ Wayne A. Downing Director February 17, 1998
Wayne A. Downing
/s/ Edward B. Hager Director February 17, 1998
Edward B. Hager
/s/ Jane E. Hager Director February 17, 1998
Jane E. Hager
<PAGE> 30
/s/ Mitchell J. Kelly Director February 17, 1998
Mitchell J. Kelly
/s/ J. Michael Lazarus Director February 17, 1998
J. Michael Lazarus
/s/ John O. Marsh, Jr. Director February 17, 1998
John O. Marsh, Jr.
Director February 17, 1998
Ronald A. Schiavone
/s/ Ronald H. Walker Director February 17, 1998
Ronald H. Walker
<PAGE> 31
EXHIBIT INDEX
The exhibits marked with an asterisk are filed herewith. The remainder of
the exhibits have heretofore been filed with the Commission and are incorporated
herein by reference.
Page
----
4.1 Restated Certificate of Incorporation of the Registrant.
(Incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement File No. 0-26770 filed September 14, 1995
on Form 10 (the "Registration Statement").)
4.2* Certificate of Designations of Series A Custom Convertible
Preferred Stock of the Registrant filed with the Delaware Secretary
of State on January 28, 1998.
4.3 Restated By-laws of Registrant. (Incorporated by reference
to Exhibit 3.2 to the Registration Statement.)
4.4 Specimen stock certificate for shares of Common Stock, par
value $.01 per share. (Incorporated by reference to Exhibit 4.1
to the Registration Statement.)
4.5* Form of Subscription Agreement dated January 23, 1998
between Novavax, Inc. and each of four named Selling Stockholders.
5.1* Opinion and Consent of White & McDermott, P.C.
23.1* Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
23.2* Consent of White & McDermott, P.C. (Contained in its opinion
filed as Exhibit 5.1 to this Registration Statement.)
24.1* Power of Attorney. (Included in the signature pages hereto.)
<PAGE> 1
EXHIBIT 4.2
NOVAVAX, INC.
CERTIFICATE OF DESIGNATIONS
OF
SERIES A CUSTOM
CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
--------------
Novavax, Inc., a Delaware corporation (the "Corporation"), in
accordance with the provisions of Section 103 of the General Corporation Law of
the State of Delaware DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of the
Corporation (the "Board of Directors" or the "Board") by the Certificate of
Incorporation, as amended, of the Corporation, the Board of Directors, at a
meeting duly called and held on December 4, 1997, adopted a resolution providing
for the creation of a series of the Corporation's Preferred Stock, $.01 par
value, which series is designated "Series A Custom Convertible Preferred Stock",
which resolution is as follows:
RESOLVED, that pursuant to authority vested in the Board of
Directors by the Certificate of Incorporation, as amended, the Board of
Directors does hereby provide for the creation of a series of the Preferred
Stock, $.01 par value (hereafter called the "Preferred Stock"), of the
Corporation, and to the extent that the voting powers and the designations,
preferences and relative, participating, optional or other special rights
thereof and the qualifications, limitations or restrictions of such rights have
not been set forth in the Amended and Restated Certificate of Incorporation, as
amended, of the Corporation, does hereby fix the same as follows:
SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK
SECTION 1. CERTAIN DEFINED TERMS. (a) All the agreements or
instruments defined in this Certificate of Designations shall mean such
agreements or instruments as the same may from time to time be supplemented or
amended or the terms thereof waived or modified to the extent permitted by, and
in accordance with, the terms thereof and of this Certificate of Designations.
(b) The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Accrual Amount" means with respect to any share of Series A
Preferred Stock on any date an amount calculated at the rate of five percent per
annum of the Accrual Value of such share from the issuance date to the date of
determination.
<PAGE> 2
"Accrual Value" means $1,000.00 per share of Series A Preferred
Stock.
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or under common control with the subject Person. For purposes of
the term "Affiliate," the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or to cause the direction of the management and
policies of a Person, whether through the ownership of securities, by contract
or otherwise.
"Aggregated Person" means, with respect to any holder of shares of
Series A Preferred Stock, any Person whose beneficial ownership of shares of
Common Stock would be aggregated with such holder's beneficial ownership of
shares of Common Stock for purposes of Section 13(d) of the 1934 Act and
Regulation 13D-G thereunder.
"AMEX" means the American Stock Exchange, Inc.
"Board of Directors" or "Board" means the Board of Directors of the
Corporation.
"Business Combination Redemption Percentage" means with respect to a
redemption of shares of Series A Preferred Stock in accordance with Section
10(b)(6), the applicable percentage determined with respect to the date of
payment of the redemption price as follows:
Business Combination
Date of Payment Redemption Percentages
--------------- ----------------------
Issuance Date through 360th day thereafter 125%
On or after 361st day after the Issuance Date 130%
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.
"Cash and Cash Equivalent Balances" of any Person on any date shall
be determined from such Person's books maintained in accordance with Generally
Accepted Accounting Principles, and means, without duplication, the sum of (1)
the cash accrued by such Person and its subsidiaries on a consolidated basis on
such date and available for use by such Person and its subsidiaries on such date
and (2) all assets which would, on a consolidated balance sheet of such Person
and its subsidiaries prepared as of such date in accordance with Generally
Accepted Accounting Principles, be classified as cash or cash equivalents.
"Common Stock" means the Common Stock, $.01 par value, of the
Corporation.
"Conversion Agent" means Boston EquiServe, or its duly appointed
successor who shall be serving as transfer agent and registrar for the Common
Stock and who shall have been authorized by the Corporation to act as conversion
agent for the Series A Preferred Stock in accordance with the Conversion Agent
Agreement and the name, address and telephone number of which shall have been
given to the holder of the Series A Preferred Stock by notice from the
Corporation.
"Conversion Agent Agreement" means the Conversion Agent Agreement,
dated as of January 28, 1998, by and among the Corporation, the Conversion Agent
and the original holders of the shares of Series A Preferred Stock.
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"Conversion Date" means the date on which a Conversion Notice is
actually received by the Conversion Agent, whether by mail, courier, personal
service, telephone line facsimile transmission or other means, in case of a
conversion at the option of a holder of shares of Series A Preferred Stock
pursuant to Section 10(a).
"Conversion Floor Percentage" means, with respect to each Conversion
Date on or before the date which is 180 days after the Issuance Date, the
applicable percentage determined with respect to such Conversion Date as
follows:
Conversion Floor
Conversion Date Percentage
--------------- ----------
Issuance Date through 30th day thereafter 105%
31st through 60th day after Issuance Date 100%
61st through 90th day after Issuance Date 95%
91st through 120th day after Issuance Date 90%
121st through 150th day after Issuance Date 85%
151st through 180th day after Issuance Date 80%
"Conversion Notice" means a Notice of Conversion of Series A Custom
Convertible Preferred Stock substantially in the form set forth in Section
14(a).
"Conversion Price" for any Conversion Date
(1) during the period commencing on the Issuance Date and ending on the
date which is 90 days after the Issuance Date, means 100% of the lowest Two-Day
Average Trading Price during the applicable Measurement Period for such
Conversion Date; and
(2) on and after the date which is 91 days after the Issuance Date, shall
mean 94% of the lowest Two-Day Average Trading Price during the applicable
Measurement Period for such Conversion Date;
provided, however, that on any date on or before the 180th day after the
Issuance Date, the Conversion Price shall not be less than the product obtained
by multiplying (a) $5.403125 (subject to equitable adjustments from time to time
on terms reasonably acceptable to the Majority Holders for (1) stock splits, (2)
stock dividends, (3) combinations, (4) capital reorganizations (5) issuance to
all holders of Common Stock rights or warrants to purchase shares of Common
Stock, (6) the distribution by the Corporation to all holders of Common Stock of
evidences of indebtedness of the Corporation or cash (other than regular
quarterly cash dividends), and (7) similar events relating to the Common Stock,
in each such case which occur, or with respect to which "ex-" trading of the
Common Stock begins on or after the date of filing of this Certificate of
Designations with the Secretary of State of the State of Delaware and on or
before the applicable Conversion Date, in each case on a basis consistent with
the adjustments set forth in the definition of Trading Price) times (b) the
Conversion Floor Percentage applicable to the Conversion Date for which the
Conversion Price is being
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<PAGE> 4
determined; provided further, however, that the Conversion Price shall not be
greater than $6.33 (subject to equitable adjustments from time to time on terms
reasonably acceptable to the Majority Holders for (1) stock splits, (2) stock
dividends, (3) combinations, (4) capital reorganizations (5) issuance to all
holders of Common Stock rights or warrants to purchase shares of Common Stock,
(6) the distribution by the Corporation to all holders of Common Stock of
evidences of indebtedness of the Corporation or cash (other than regular
quarterly cash dividends), and (7) similar events relating to the Common Stock,
in each such case which occur, or with respect to which "ex-" trading of the
Common Stock begins on or after the date of filing of this Certificate of
Designations with the Secretary of State of the State of Delaware and on or
before the applicable Conversion Date, in each case on a basis consistent with
the adjustments set forth in the definition of Trading Price).
"Corporation Notice" means a Corporation Notice substantially in the
form set forth in Section 14(h).
"Generally Accepted Accounting Principles" for any Person means the
generally accepted accounting principles and practices applied by such Person
from time to time in the preparation of its audited financial statements.
"Holder Notice" means a Holder Notice substantially in the form set
forth in Section 14(i).
"Holder Registration Redemption Notice" means a Holder Registration
Redemption Notice substantially in the form set forth in Section 14(j).
"Inconvertibility Day" means any Trading Day on which the
Corporation would not have been required to convert in accordance with Section
10(a) any shares of Series A Preferred Stock of any holder of shares of Series A
Preferred Stock as a consequence of the limitations set forth in Section 7(a)(1)
had all outstanding shares of Series A Preferred Stock held by such holder on
such Trading Day, other than such holder's Stockholder Approval Portion in the
case of any Trading Day on or before June 30, 1998, been converted into Common
Stock on such Trading Day, determined at the Conversion Price applicable on such
Trading Day and without regard to the limitation, if any on such holder
contained in the second sentence of Section 10(a).
"Inconvertibility Notice" means a notice from the Corporation to a
holder of shares of Series A Preferred Stock in the form set forth in Section
14(b) or a notice from a holder of shares of Series A Preferred Stock to the
Corporation in the form set forth in Section 14(c).
"Indebtedness" as used in reference to any Person means all
indebtedness of such Person for borrowed money, the deferred purchase price of
property, goods and services and obligations under leases which are required to
be capitalized in accordance with Generally Accepted Accounting Principles and
shall include all such indebtedness guaranteed in any manner by such Person or
in effect guaranteed by such Person through a contingent agreement to purchase
and all indebtedness for the payment or purchase of which such Person has
contingently agreed to advance or supply funds and all indebtedness secured by
mortgage or other lien upon property owned by such Person, although such Person
has not assumed or become liable for the payment of such indebtedness, and, for
all purposes hereof, such indebtedness shall be treated as though it has been
assumed by such Person.
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<PAGE> 5
"Issuance Date" means the first date of original issuance of any
shares of Series A Preferred Stock.
"Junior Dividend Stock" means, collectively, the Common Stock and
any other class or series of capital stock of the Corporation ranking junior as
to dividends to the Series A Preferred Stock.
"Junior Liquidation Stock" means, collectively, the Common Stock and
any other class or series of capital stock of the Corporation ranking junior as
to liquidation rights to the Series A Preferred Stock.
"Liquidation Preference" means, for each share of Series A Preferred
Stock, the sum of (i) an amount equal to the Accrual Amount thereon to the date
of final distribution to the holders of shares of Series A Preferred Stock in
connection with the liquidation, dissolution or winding up of the Corporation
plus (ii) $1,000.
"Majority Holders" means at any time the holders of shares of Series
A Preferred Stock which shares constitute a majority of the outstanding shares
of Series A Preferred Stock.
"Mandatory Redemption Waiver" means an agreement of the Corporation
and a holder of shares of Series A Preferred Stock in the form set forth in
Section 14(e).
"Market Price" of any security on any date means the closing bid
price of such security on such date on the AMEX or such other securities
exchange or other market on which such security is listed for trading which
constitutes the principal securities market for such security, as reported by
Bloomberg, L.P.
"Maximum Share Amount" means 2,406,350 shares, or such greater
number of shares of Common Stock as shall be authorized and reserved for
issuance and as permitted by the rules of the AMEX or such other principal
securities exchange on which the Common Stock is listed at such time (such
amount to be subject to equitable adjustment from time to time on terms
reasonably acceptable to the Majority Holders for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock occurring after the date of filing this Certificate of Designations with
the Secretary of State of the State of Delaware), of Common Stock.
"Maximum Share Amount Inconvertibility" means the occurrence of five
or more Inconvertibility Days within any period of ten consecutive Trading Days
which occurs on or after the fifth Trading Day after the Issuance Date and prior
to the date the Stockholder Approval shall have been obtained from the
stockholders of the Corporation or waived by the AMEX (or such other principal
securities exchange on which the Common Stock is listed at such time).
"Measurement Period" means with respect to any Conversion Date, the
period of 25 consecutive Trading Days ending one Trading Day prior to such
Conversion Date.
"NASD" means the National Association of Securities Dealers, Inc.
"Nasdaq" means the Nasdaq National Market.
"Net Cash and Cash Equivalent Balances" of any Person on any date
means the consolidated Cash and Cash Equivalent Balances of such Person and its
subsidiaries less the sum of (1) the amount of any outstanding Indebtedness of
such Person or any of its subsidiaries which, directly or indirectly, is secured
in whole or in part by, or restricts the use of, the consolidated Cash and Cash
Equivalent Balances of such Person and its subsidiaries plus (2) the
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<PAGE> 6
maximum amount which is not outstanding and which may be borrowed pursuant to
any revolving credit facility or any commitment to lend of or to such Person or
any of its subsidiaries which at the time it becomes outstanding will be secured
in whole or in part by, or will so restrict, Cash and Cash Equivalent Balances.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"NYSE" means the New York Stock Exchange, Inc.
"Optional Redemption Date" means the date which is three Business
Days after a holder of shares of Series A Preferred Stock who is entitled to
redemption rights under Section 11(a) and 11(b) gives a Holder Notice.
"Optional Redemption Event" means any one of the following events:
(1) For any period of five consecutive Trading Days following the
Issuance Date there shall be no reported sale price of the Common Stock on
any of the AMEX, the Nasdaq or the NYSE;
(2) The Common Stock ceases to be listed for trading on the AMEX,
the Nasdaq or the NYSE;
(3) Any consolidation or merger of the Corporation or any subsidiary
of the Corporation with or into another entity (other than a merger or
consolidation of a subsidiary of the Corporation into the Corporation or a
wholly-owned subsidiary of the Corporation) where the stockholders of the
Corporation immediately prior to such transaction do not collectively own
at least 51% of the outstanding voting securities of the surviving
corporation of such consolidation or merger immediately following such
transaction or the common stock of such surviving corporation is not
listed for trading on the NYSE, the AMEX or the Nasdaq; or the sale of all
or substantially all of the assets of the Corporation and its
subsidiaries;
(4) The taking of any action, including any amendment to the
Certificate of Incorporation of the Corporation (other than any
certificate designating a series of preferred stock of the Corporation)
which materially and adversely affects the rights of the holders of shares
of Series A Preferred Stock;
(5) The inability for a period of 30 days (whether or not
consecutive) of any holder of shares of Series A Preferred Stock to sell
shares of Common Stock issued upon conversion of shares of Series A
Preferred Stock pursuant to the Registration Statement (1) by reason of
the requirements of the Act, the 1934 Act or any of the rules or
regulations under either thereof or (2) due to the Registration Statement
containing any untrue statement of material fact or omitting to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or any other failure of the Registration
Statement to comply with the rules and regulations of the SEC; or
(6) The Corporation shall fail or default in the timely performance
of any material obligation to a holder of shares of Series A Preferred
Stock under the terms of this Certificate of Designations or under the
Subscription Agreement with such holder or any other agreement or document
entered into in connection with the issuance of shares of Series A
Preferred Stock, as such agreements and instruments may be amended from
time to time.
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<PAGE> 7
"Optional Redemption Percentage" means, with respect to each
Optional Redemption Payment Date, the applicable percentage determined with
respect to such date as follows:
Optional Redemption
Optional Redemption Payment Date Percentage
-------------------------------- ----------
Issuance Date through 90th day thereafter 115.0%
91st through 270th day after Issuance Date 117.5%
271st Day after Issuance Date and thereafter 120.0%
"Optional Redemption Price" means an amount in cash equal to the
product obtained by multiplying (a) the sum of (i) $1,000 plus (ii) an amount
equal to the Accrual Amount on the share of Series A Preferred Stock to be
redeemed to the applicable Optional Redemption Date times (b) the Optional
Redemption Percentage for the applicable Optional Redemption Date.
"Option Share Surrender" means the surrender of shares of Common
Stock to the Corporation in payment of the exercise price or tax obligations
incurred in connection with the exercise of a stock option granted by the
Corporation to any of its employees, directors or consultants.
"Parity Dividend Stock" means any class or series or the
Corporation's capital stock ranking, as to dividends, on a parity with the
Series A Preferred Stock.
"Parity Liquidation Stock" means any class or series of the
Corporation's capital stock having parity as to liquidation rights with the
Series A Preferred Stock.
"Permitted Indebtedness" means
(1) Indebtedness not in excess of $250,000 aggregate principal
amount which would be reflected on a consolidated balance sheet of the
Corporation and its subsidiaries in accordance with Generally Accepted
Accounting Principles;
(2) Indebtedness other than for borrowed money, including, without
limitation, Indebtedness, whether or not required to be capitalized,
incurred in the ordinary course of business of the Corporation and its
subsidiaries, including, without limitation, trade payables, expense
accruals, taxes, wages, salaries and employee benefit programs,
acquisition of property, guaranties or other contingent liabilities, lease
or rental obligations and loss contingencies;
(3) Indebtedness other than Indebtedness permitted under clause (1)
of this definition, incurred after the Issuance Date and in an amount
outstanding at any time not in excess of the product of (A) $540,000 times
(B) the number of full calendar months following the Issuance Date to the
date of determination, but not in excess of $6,480,000 aggregate principal
amount outstanding at any time;
(4) guarantees by the Corporation of Indebtedness of subsidiaries of
the Corporation, so long as the Indebtedness of such subsidiaries so
guaranteed by the Corporation is permitted under this Certificate of
Designations;
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<PAGE> 8
(5) guarantees by the Corporation or any subsidiary of the
Corporation arising out of the sale of accounts receivable by the
Corporation or such subsidiary; and
(6) contingent liabilities of the Corporation or any subsidiary of
the Corporation represented by endorsements of negotiable instruments for
collection of deposit in the ordinary course of business of the
Corporation or such subsidiary.
"Person" means an individual, partnership, corporation, limited
liability company, trust, incorporated organization, unincorporated association
or joint stock company.
"Quarterly Cash Requirements" on any date means the consolidated net
cash used in operating activities of the Corporation and its subsidiaries for
the most recent fiscal quarter for which, at such date, the Corporation has
published a consolidated statement of cash flows, prepared in accordance with
Generally Accepted Accounting Principles, as shown on such statement.
"Redemption Date" means (1) January 28, 2000; provided, however,
that if on such date the Corporation is not permitted to redeem shares of Series
A Preferred Stock solely by reason of an Optional Redemption Event as provided
in clause (y) of Section 9(a), then the date provided in this clause (1) shall
be March 29, 2000, and (2) January 29, 2001.
"Redemption Election" means (1) a notice by a holder of Series A
Preferred Stock to the Corporation substantially in the form set forth in
Section 15(d) or (2) a notice by a holder of Series A Preferred Stock to the
Corporation included in paragraph 3 of the form of Inconvertibility Notice set
forth in Section 15(c).
"Redemption Election Period" means, with respect to a particular
Maximum Share Amount Inconvertibility or Registration Restriction
Inconvertibility, the period of ten Business Days after the later of (x) the
date an Inconvertibility Notice with respect to such Maximum Share Amount
Inconvertibility or Registration Restriction Inconvertibility is given or (y)
the date such Inconvertibility Notice was required to have been given by the
Corporation.
"Redemption Notice" means a Redemption Notice substantially in the
form set forth in Section 14(g).
"Redemption Price" means
(1) in the case of a Redemption Date on January 28, 2000 (or March
29, 2000, as the case may be), an amount in cash equal to the greater of (A) the
product obtained by multiplying (i) the sum of (a) $1,000 plus (b) an amount
equal to the Accrual Amount on the share of Series A Preferred Stock to be
redeemed to the date of payment of the Redemption Price times (ii) 110% and (B)
an amount equal to the product obtained by multiplying (x) the number of shares
of Common Stock which would, but for the redemption pursuant to Section 9(a), be
issuable on conversion in accordance with Section 10(a) of one share of Series A
Preferred Stock if a Conversion Notice were given by the holder of such share of
Series A Preferred Stock on the Redemption Date (determined without regard to
any limitation on beneficial ownership contained in the second sentence of
Section 10(a)) times (y) the greater of (aa) the Market Price of the Common
Stock on the Trading Day immediately preceding the Redemption Date and (bb)
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<PAGE> 9
the arithmetic average of the Market Price of the Common Stock for the five
Trading Days ending on the Trading Day immediately preceding the Redemption
Date; and
(2) in the case of a Redemption Date on January 29, 2001, an amount
in cash equal to the product obtained by multiplying (i) the sum of (x) $1,000
plus (y) an amount equal to the Accrual Amount on the shares of Series A
Preferred Stock to be redeemed to the date of payment of the Redemption Price
times (ii) 105%.
"Registration Redemption Event" means the occurrence of either of
the following events:
(a) the Corporation fails to file the Registration Statement within the
15-day period provided in Section 8(a)(1) of the Subscription Agreements; or
(b) the SEC Effective Date shall not have occurred on or before the date
which is 90 days after the Issuance Date.
"Registration Redemption Price" means an amount in cash equal to the
product obtained by multiplying (A) the sum of (i) $1,000 plus (ii) an amount
equal to the Accrual Amount on the share of Series A Preferred Stock to be
redeemed to the date of such redemption in accordance with Section 11(c) times
(B) 112.5%.
"Registration Restriction Inconvertibility" means that (1) if,
notwithstanding Rule 416 under the 1933 Act or the provisions of Section 8(b) of
the Subscription Agreements, the Registration Statement is not deemed to cover
such indeterminate number of additional shares of Common Stock as shall be
issuable upon conversion of the shares of Series A Preferred Stock held by any
holder of shares of Series A Preferred Stock based on changes from time to time
in the Conversion Price, and (2) on any five Trading Days ending on or after the
SEC Effective Date within any period of ten consecutive Trading Days the number
of shares of Common Stock issuable upon conversion of all shares of Series A
Preferred Stock held by any holder of shares of Series A Preferred Stock had all
shares of Series A Preferred Stock held by such holder been converted in full
into Common Stock on each such Trading Day, determined at the Conversion Price
applicable on each such Trading Day and without regard to the limitation, if
any, on such holder contained in the second sentence of Section 10(a), would
exceed the number of shares of Common Stock covered by the Registration
Statement and available for sale by such holder pursuant to the Registration
Statement.
"Registration Statement" means the Registration Statement required
to be filed by the Corporation with the SEC pursuant to Section 8 of the
Subscription Agreement.
"SEC" means the United States Securities and Exchange Commission.
"SEC Effective Date" means the date on which the Registration
Statement is first ordered effective by the SEC.
"Securities" shall have the meaning, for purposes of the definition
of the term Trading Price, set forth in clause (iv) of the first proviso to the
definition of the term Trading Price.
"Senior Dividend Stock" means any class or series of capital stock
of the Corporation ranking senior as to dividends to the Series A Preferred
Stock.
"Senior Liquidation Stock" means any class or series of capital
stock of the Corporation ranking senior as to liquidation rights to the Series A
Preferred Stock.
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"Series A Preferred Stock" means the Series A Custom Convertible
Preferred Stock of the Corporation.
"Share Limitation Redemption Date" means each date on which the
Corporation is required to redeem shares of Series A Preferred Stock as provided
in Section 7(a).
"Share Limitation Redemption Price" means an amount in cash equal to
the product obtained by multiplying (a) the sum of (i) $1,000 plus (ii) an
amount equal to the Accrual Amount on the share of Series A Preferred Stock to
be redeemed to the applicable Share Limitation Redemption Date times (b) 115%.
"Stockholder Approval" means the approval by a majority of the votes
cast by the holders of shares of Common Stock (in person or by proxy) at a
meeting of the stockholders of the Corporation (duly convened at which a quorum
was present), or a written consent of holders of shares of Common Stock entitled
to such number of votes given without a meeting, of the issuance by the
Corporation of 20% or more of the Common Stock of the Corporation outstanding on
the Issuance Date for less than the greater of the book or market value of the
Common Stock on conversion of the Series A Preferred Stock, as and to the extent
required under Rule 713 of the AMEX as in effect from time to time or any
successor or replacement provision or any other similar requirement of the
principal securities exchange on which the Common Stock is listed from time to
time.
"Stockholder Approval Portion" means two-thirteenths of the shares
of Series A Preferred Stock represented by each certificate for shares of Series
A Preferred Stock upon original issuance thereof, which amount shall be noted on
each certificate for shares of Series A Preferred Stock in accordance with
Section 7(a)(1).
"Stockholder Approval Redemption Date" means the date which is five
Business Days after a Stockholder Approval Redemption Notice is given.
"Stockholder Approval Redemption Notice" means a Stockholder
Approval Redemption Notice substantially in the form set forth in Section 14(f).
"Stockholder Approval Redemption Price" means an amount in cash
equal to the product obtained by multiplying (a) the sum of (i) $1,000 plus (ii)
an amount equal to the Accrual Amount on the share of Series A Preferred Stock
to be redeemed to the applicable Stockholder Approval Redemption Date times (b)
105%.
"Subscription Agreements" means the several Subscription Agreements,
dated as of January 23, 1998, by and between the Corporation and the holders of
shares of Series A Preferred Stock pursuant to which the shares of Series A
Preferred Stock were issued.
"Tender Offer" means a tender offer as defined for purposes of
Regulation 14D and Rule 13e-4 under the 1934 Act.
"Trading Day" means a day on whichever of (x) the national
securities exchange or (y) the Nasdaq which at the time constitutes the
principal securities market for the Common Stock is open for general trading.
"Trading Price" of the Common Stock on any date means the lowest
sale price (regular way) for one share of Common Stock on such date, in a trade
in which, in the case of the use of the term Trading Price to determine the
Conversion Price in connection with any conversion of shares of Series A
Preferred Stock by a holder of shares of Series A Preferred
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<PAGE> 11
Stock neither such holder nor any Affiliate of such holder is a buyer or seller,
on the first applicable among the following: (a) the national securities
exchange on which the shares of Common Stock are listed which constitutes the
principal securities market for the Common Stock or (b) the Nasdaq, in either
such case as reported by Bloomberg, L.P.; provided, however, that if during any
Measurement Period:
(i) The Corporation shall declare or pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of
Common Stock or fix any record date for any such action, then the Trading
Price of the Common Stock for each day in such Measurement Period prior to
the earlier of (1) the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution and (2) the date
on which ex-dividend trading in the Common Stock with respect to such
dividend or distribution begins shall be reduced by multiplying the
Trading Price (determined without regard to this proviso) for each such
day in such Measurement Period by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding at the close of
business on the earlier of (1) the record date fixed for such
determination and (2) the date on which ex-dividend trading in the Common
Stock with respect to such dividend or distribution begins and the
denominator shall be the sum of such number of shares and the total number
of shares constituting such dividend or other distribution;
(ii) The Corporation shall issue rights or warrants to all holders
of its outstanding shares of Common Stock, or fix a record date for such
issuance, which rights or warrants entitle such holders (for a period
expiring within forty-five (45) days after the date fixed for the
determination of stockholders entitled to receive such rights or warrants)
to subscribe for or purchase shares of Common Stock at a price per share
less than the Trading Price (determined without regard to this proviso)
for any day in such Measurement Period which is prior to the end of such
45-day period, then the Trading Price for such day shall be reduced so
that the same shall equal the price determined by multiplying the Trading
Price (determined without regard to this proviso) by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding at
the close of business on the record date fixed for the determination of
stockholders entitled to receive 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 Trading Price, and of which the
denominator shall be the number of shares of Common Stock outstanding on
the close of business on such record date plus the total number of
additional shares of Common Stock so offered for subscription or purchase.
In determining whether any rights or warrants entitle the holders to
subscribe for or purchase shares of Common Stock at less than the Trading
Price (determined without regard to this proviso), and in determining the
aggregate offering price of such shares of Common Stock, there shall be
taken into account any consideration received for such rights or warrants,
the value of such consideration, if other than cash, to be determined in
good faith by a resolution of the Board of Directors of the Corporation;
(iii) The outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock or a record date for any
such subdivision shall be fixed, then the Trading Price of the Common
Stock for each day in such Measurement Period prior to the earlier of (1)
the day upon which such subdivision becomes effective and (2) the date on
which ex-dividend trading in the Common Stock with respect to such
subdivision begins shall be proportionately reduced, and conversely, in
case the outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Trading Price for each day
in such Measurement Period prior to the earlier of (1) the date on which
such combination becomes effective and (2) the date on which trading in
the Common Stock on a basis which gives effect to such combination begins,
shall be proportionately increased;
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(iv) The Corporation shall, by dividend or otherwise, distribute to
all holders of its Common Stock shares of any class of capital stock of
the Corporation (other than any dividends or distributions to which clause
(i) of this proviso applies) or evidences of its indebtedness, cash or
other assets (including securities, but excluding any rights or warrants
referred to in clause (ii) of this proviso and dividends and distributions
paid exclusively in cash and excluding any capital stock, evidences of
indebtedness, cash or assets distributed upon a merger or consolidation)
(the foregoing hereinafter in this clause (iv) of this proviso called the
"Securities"), or fix a record date for any such distribution, then, in
each such case, the Trading Price for any day in such Measurement Period
prior to the earlier of (1) the record date for such distribution and (2)
the date on which ex-dividend trading in the Common Stock with respect to
such distribution begins shall be reduced so that the same shall be equal
to the price determined by multiplying the Trading Price (determined
without regard to this proviso) by a fraction of which the numerator shall
be the Trading Price (determined without regard to this proviso) on such
date less the fair market value (as determined in good faith by resolution
of the Board of Directors of the Corporation) on such date of the portion
of the Securities so distributed or to be distributed applicable to one
share of Common Stock and the denominator shall be the Trading Price
(determined without regard to this proviso); provided, however, that in
the event the then fair market value (as so determined) of the portion of
the Securities so distributed applicable to one share of Common Stock is
equal to or greater than the Trading Price (determined without regard to
this clause (iv) of this proviso) on any such day, in lieu of the
foregoing adjustment, adequate provision shall be made so that the holders
of shares of Series A Preferred Stock shall have the right to receive in
payment of dividends on the shares of Series A Preferred Stock or upon
conversion of the shares of Series A Preferred Stock, as the case may be,
the amount of Securities the holders of shares of Series A Preferred Stock
would have received had the number of shares of Common Stock to be issued
in payment of such dividends on the shares of Series A Preferred Stock, or
had the holders of shares of Series A Preferred Stock converted the shares
of Series A Preferred Stock, in either such case immediately prior to the
record date for such distribution. If the Board of Directors of the
Corporation determines the fair market value of any distribution for
purposes of this clause (iv) by reference to the actual or when issued
trading market for any securities comprising all or part of such
distribution, it must in doing so consider the prices in such market on
the same day for which an adjustment in the Trading Price is being
determined.
For purposes of this clause (iv) and clauses (i) and (ii) of this
proviso, any dividend or distribution to which this clause (iv) is
applicable that also includes shares of Common Stock, or rights or
warrants to subscribe for or purchase shares of Common Stock to which
clause (i) or (ii) of this proviso applies (or both), shall be deemed
instead to be (1) a dividend or distribution of the evidences of
indebtedness, assets, shares of capital stock, rights or warrants other
than such shares of Common Stock or rights or warrants to which clause
(ii) of this proviso applies (and any Trading Price reduction required by
this clause (iv) with respect to such dividend or distribution shall then
be made) immediately followed by (2) a dividend or distribution of such
shares of Common Stock or such rights or warrants (and any further Trading
Price reduction required by clauses (i) and (ii) of this proviso with
respect to such dividend or distribution shall then be made), except that
any shares of Common Stock included in such dividend or distribution shall
not be deemed "outstanding at the close of business on the date fixed for
such determination" within the meaning of clause (i) of this proviso; or
(v) The Corporation or any subsidiary of the Corporation shall (x)
by dividend or otherwise, distribute to all holders of its Common Stock
cash in (or fix any record date for any such distribution), or (y)
repurchase or reacquire shares of its Common Stock
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<PAGE> 13
(other than an Option Share Surrender) for, in either case, an aggregate
amount that, combined with (1) the aggregate amount of any other such
distributions to all holders of its Common Stock made exclusively in cash
after the Issuance Date and within the twelve (12) months preceding the
date of payment of such distribution, and in respect of which no
adjustment pursuant to this clause (v) has been made and (2) the aggregate
amount of any cash plus the fair market value (as determined in good faith
by a resolution of the Board of Directors of the Corporation) of
consideration paid in respect of any repurchase or other reacquisition by
the Corporation or any subsidiary of the Corporation of any shares of
Common Stock (other than an Option Share Surrender) made after the
Issuance Date and within the twelve (12) months preceding the date of
payment of such distribution or making of such repurchase or
reacquisition, as the case may be, and in respect of which no adjustment
pursuant to this clause (v) has been made, exceeds 10% of the product of
the Trading Price (determined without regard to this proviso) on any day
in such Measurement Period prior to the earlier of (1) the record date
with respect to such distribution and (2) the date on which ex-dividend
trading in the Common Stock with respect to such distribution begins or
the date of such repurchase or reacquisition, as the case may be, times
the number of shares of Common Stock outstanding on such date, then, and
in each such case, the Trading Price for such day shall be reduced so that
the same shall equal the price determined by multiplying the Trading Price
(determined without regard to this proviso) for such day by a fraction (i)
the numerator of which shall be equal to the Trading Price (determined
without regard to this proviso) for such day less an amount equal to the
quotient of (x) the excess of such combined amount over such 10% and (y)
the number of shares of Common Stock outstanding on such day and (ii) the
denominator of which shall be equal to the Trading Price (determined
without regard to this proviso) on such day; provided, however, that in
the event the portion of the cash so distributed or paid for the
repurchase or reacquisition of shares (determined per share based on the
number of shares of Common Stock outstanding) applicable to one share of
Common Stock is equal to or greater than the Trading Price (determined
without regard to this clause (v) of this proviso) of the Common Stock on
any such day, in lieu of the foregoing adjustment, adequate provision
shall be made so that the holders of shares of Series A Preferred Stock
shall have the right to receive in payment of dividends on shares of
Series A Preferred Stock or upon conversion of shares of Series A
Preferred Stock, as the case may be, the amount of cash the holders of
shares of Series A Preferred Stock would have received had the number of
shares of Common Stock to be issued in payment of such dividends on shares
of Series A Preferred Stock, or had the holders of shares of Series A
Preferred Stock converted shares of Series A Preferred Stock, in either
such case, immediately prior to the record date for such distribution or
the payment date of such repurchase, as applicable;
provided further, however, that if on any date there shall be no reported lowest
sale price (regular way) of such security, the "Trading Price" on such date
shall be the lowest sale price (regular way), in a trade in which, in the case
of the use of the term Trading Price to determine the Conversion Price in
connection with any conversion of shares of Series A Preferred Stock by a holder
of shares of Series A Preferred Stock, neither such holder nor any Affiliate of
such holder is a buyer or seller, of such security on the date next preceding
such date on which a lowest sale price (regular way) for such security has been
so reported.
"Two-Day Average Trading Price" means, during any period, the lowest
arithmetic average of the Trading Price on each of two consecutive Trading Days
during such period.
SECTION 2. DESIGNATION AND AMOUNT. The shares of such series shall
be designated as "Series A Custom Convertible Preferred Stock", and the number
of shares constituting the Series A Preferred Stock shall be 6,500, and shall
not be subject to increase.
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<PAGE> 14
SECTION 3. SERIES A PREFERRED STOCK CAPITAL. The amount to be
represented in the capital account for the Series A Preferred Stock at all times
for each outstanding share of Series A Preferred Stock shall be an amount equal
to the product obtained by multiplying (1) the sum of (A) $1,000 plus (B) an
amount equal to the Accrual Amount on such share of Series A Preferred Stock to
the date of determination times (2) the Optional Redemption Percentage which
would be applicable to a redemption of a share of Series A Preferred Stock
pursuant to Sections 11(a) and 11(b) on the date of determination if such share
were required to be redeemed by the Corporation pursuant to Sections 11(a) and
11(b) on such date.
SECTION 4. RANK. The shares of Series A Preferred Stock shall rank
senior to the Common Stock and any shares of any other series of Preferred Stock
or any shares of any other class of preferred stock of the Corporation, now or
hereafter issued, as to payment of dividends and distribution of assets upon
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary.
SECTION 5. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares of
Series A Preferred Stock shall be entitled to receive, when, as, and if declared
by the Board of Directors out of funds legally available for such purpose,
dividends in such amounts as determined from time to time by the Board of
Directors. Dividends on the shares of Series A Preferred Stock shall not be
cumulative.
If at any time any dividend on any Senior Dividend Stock shall be in
default, in whole or in part, no dividend shall be paid or declared and set
apart for payment on the Series A Preferred Stock unless and until all accrued
and unpaid dividends with respect to the Senior Dividend Stock, including the
full dividends for the then current dividend period, shall have been paid or
declared and set apart for payment, without interest. No dividends shall be paid
or declared and set apart for payment on any Parity Dividend Stock for any
period unless a dividend in the same amount per share shall have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Series A Preferred Stock. No dividends shall be paid or declared and set apart
for payment on the Series A Preferred Stock for any period unless all accrued
but unpaid dividends have been, or contemporaneously are, paid or declared and
set apart for payment on the Parity Dividend Stock for all dividend periods
terminating on or prior to the date of payment of such full dividends.
Any references to "distribution" contained in this Section 5 shall
not be deemed to include any stock dividend or distributions made in connection
with any liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary.
(b) Neither the Corporation nor any subsidiary of the Corporation
shall redeem, repurchase or otherwise acquire in any one transaction or series
of related transactions any shares of Common Stock, Junior Dividend Stock or
Junior Liquidation Stock if the number of shares so repurchased, redeemed or
otherwise acquired in such transaction or series of related transactions
(excluding any Option Share Surrender) is more than either (x) 5.0% of the
number of shares of Common Stock, Junior Dividend Stock or Junior Liquidation
Stock, as the case may be, outstanding immediately prior to such transaction or
series of related transactions or (y) 1% of the number of shares of Common
Stock, Junior Dividend Stock or Junior Liquidation Stock, as the case may be,
outstanding immediately prior to such transaction or series of related
transactions if such transaction or series of related transactions is with any
one Person or group of affiliated Persons, unless (x) at the time of such
redemption, repurchase or acquisition the Registration Statement is effective
and available for use by the holders of shares of Series A Preferred Stock named
as selling stockholders in the Registration Statement, (y) no Optional
Redemption Event or Registration Repurchase Event shall have occurred and (z)
the Corporation or such subsidiary offers to purchase for cash from each holder
of shares of Series A Preferred
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<PAGE> 15
Stock at the time of such redemption, repurchase or acquisition the same
percentage of such holder's shares of Series A Preferred Stock as the percentage
of the number of outstanding shares of Common Stock, Junior Dividend Stock or
Junior Liquidation Stock, as the case may be, to be so redeemed, repurchased or
acquired at a purchase price per share of Series A Preferred Stock equal to the
product obtained by multiplying (1) the sum of (A) $1,000 plus (B) an amount
equal to the Accrual Amount on such share of Series A Preferred Stock to the
date of repurchase pursuant to Section 5(b) times (2) the Optional Redemption
Percentage which would be applicable to a redemption of a share of Series A
Preferred Stock pursuant to Sections 11(a) and 11(b) on the date of repurchase
pursuant to this Section 5(b) if such share were required to be redeemed by the
Corporation pursuant to Sections 11(a) and 11(b) on the date of repurchase
pursuant to this Section 5(b).
(c) Neither the Corporation nor any subsidiary of the Corporation
shall (1) make any Tender Offer for outstanding shares of Common Stock, unless
the Corporation contemporaneously therewith makes an offer, or (2) enter into an
agreement regarding a Tender Offer for outstanding shares of Common Stock by any
Person other than the Corporation or any subsidiary of the Corporation, unless
such Person agrees with the Corporation to make an offer, in either such case to
each holder of outstanding shares of Series A Preferred Stock to purchase for
cash at the time of purchase in such Tender Offer the same percentage of shares
of Series A Preferred Stock held by such holder as the percentage of outstanding
shares of Common Stock offered to be purchased in such Tender Offer at a price
per share of Series A Preferred Stock equal to the greater of (i) the sum of (a)
the sum of (1) $1,000 plus (2) an amount equal to the Accrual Amount on such
share of Series A Preferred Stock to the date of purchase pursuant to this
Section 5(c) plus (b) an amount equal to the product obtained by multiplying (x)
the sum stated in the immediately preceding clauses (a)(1) and (a)(2) times (y)
the quotient (expressed as a percentage) obtained by dividing (A) the amount
determined by subtracting from 100 percent the applicable percentage which would
be used to determine the Conversion Price on the date of purchase pursuant to
such Tender Offer if a Conversion Notice were given by a holder of shares of
Series A Preferred Stock on such date by (B) the Conversion Price on the date of
purchase pursuant to such Tender Offer if a Conversion Notice were given by a
holder of shares of Series A Preferred Stock on such date and (ii) an amount
equal to the product obtained by multiplying (x) the number of shares of Common
Stock which would, but for the purchase pursuant to such Tender Offer, be
issuable on conversion in accordance with Section 10(a) of one share of Series A
Preferred Stock if a Conversion Notice were given by the holder of such share of
Series A Preferred Stock on the date of purchase pursuant to such Tender Offer
(determined without regard to any limitation on beneficial ownership contained
in the second sentence of Section 10(a)) times (y) the price per share of Common
Stock offered in such Tender Offer.
SECTION 6. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series A Preferred Stock shall be entitled to receive out of the
assets of the Corporation, whether such assets constitute stated capital or
surplus of any nature, an amount per share of Series A Preferred Stock equal to
the Liquidation Preference, and no more, before any payment shall be made or any
assets distributed to the holders of Junior Liquidation Stock; provided,
however, that such rights shall accrue to the holders of Series A Preferred
Stock only in the event that the Corporation's payments with respect to the
liquidation preference of the holders of Senior Liquidation Stock are fully met.
After the liquidation preferences of the Senior Liquidation Stock are fully met,
the entire assets of the Corporation available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock and any
Parity Liquidation Stock in proportion to the respective preferential amounts to
which each is entitled (but only to the extent of such preferential amounts).
After payment in full of the liquidation price of the shares of the Series A
Preferred Stock and the Parity Liquidation Stock, the holders of such shares
shall not be entitled to any further participation in any distribution of assets
by the Corporation. Neither a consolidation or merger of the Corporation with
another corporation nor
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<PAGE> 16
a sale or transfer of all or part of the Corporation's assets for cash,
securities, or other property in and of itself will be considered a liquidation,
dissolution, or winding up of the Corporation.
SECTION 7. MANDATORY REDEMPTION.
(a) MANDATORY REDEMPTION BASED ON MAXIMUM SHARE AMOUNT. (1) (A)
Notwithstanding any other provision herein, unless the Stockholder Approval
shall have been obtained from the stockholders of the Corporation or waived by
the AMEX, the Corporation shall not be required to issue upon conversion of
shares of Series A Preferred Stock pursuant to Section 10 more than the Maximum
Share Amount. The Maximum Share Amount shall be allocated among the shares of
Series A Preferred Stock at the time of initial issuance thereof pro rata based
on the total number of authorized shares of Series A Preferred Stock provided in
Section 2. Each certificate for shares of Series A Preferred Stock initially
issued shall bear a notation as to the number of shares constituting the portion
of the Maximum Share Amount allocated to the shares of Series A Preferred Stock
represented by such certificate for purposes of conversion thereof. Upon
original issuance of any shares of Series A Preferred Stock, the certificate
therefor shall bear a notation as to the Stockholder Approval Portion of the
shares evidenced by such certificate.
(B) Upon surrender of any certificate for shares of Series A
Preferred Stock for transfer or re-registration thereof (or, at the option of
the holder of such certificate, for conversion pursuant to Section 10(a) of less
than all of the shares of Series A Preferred Stock represented thereby), the
Corporation shall make a notation on the new certificate issued upon such
transfer or re-registration or evidencing such unconverted shares, as the case
may be, as to the number of shares of Common Stock from the Maximum Share Amount
remaining available for conversion of the shares of Series A Preferred Stock
evidenced by such new certificate. If any certificate for shares of Series A
Preferred Stock is surrendered for split-up into two or more certificates
representing an aggregate number of shares of Series A Preferred Stock equal to
the number of shares of Series A Preferred Stock represented by the certificate
so surrendered (as reduced by any contemporaneous conversion of shares of Series
A Preferred Stock represented by the certificate so surrendered), each
certificate issued on such split-up shall bear a notation of the portion of the
Maximum Share Amount and the Stockholder Approval Portion allocated thereto
determined by pro rata allocation of the remaining portion of the Maximum Share
Amount allocated to the certificate so surrendered and pro rata allocation of
the Stockholder Approval Portion of the certificate so surrendered. If any
shares of Series A Preferred Stock represented by a single certificate are
converted in full pursuant to Section 10, all of the portion of the Maximum
Share Amount allocated to such shares of Series A Preferred Stock which remains
unissued after such conversion shall be re-allocated pro rata to the outstanding
shares of Series A Preferred Stock held of record by the holder of record at the
close of business on the date of such conversion of the shares of Series A
Preferred Stock so converted, and if there shall be no other shares of Series A
Preferred Stock held of record by such holder at the close of business on such
date, then such portion of the Maximum Share Amount shall be allocated pro rata
among the shares of Series A Preferred Stock outstanding at the close of
business on such date.
(2) (A) If (x) a Maximum Share Amount Inconvertibility occurs then,
unless the Stockholder Approval shall have been obtained from the stockholders
of the Corporation or waived by the AMEX, the Corporation shall and (y) if a
Registration Restriction Inconvertibility occurs, then the Corporation shall, in
each such case promptly, but in no event later than five Business Days after
each such occurrence, give an Inconvertibility Notice to each holder of shares
of Series A Preferred Stock (by telephone line facsimile transmission at such
number as such holder of shares of Series A Preferred Stock has specified in
writing to the Corporation for such purposes or, if such holder of shares of
Series A Preferred Stock shall not have specified any such number, by overnight
courier or first class mail, postage prepaid, at such holder's
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<PAGE> 17
address as the same appears on the stock books of the Corporation) and any
holder of shares of Series A Preferred Stock may at any time after such
occurrence give an Inconvertibility Notice to the Corporation. If the
Corporation shall have given or been required to give any Inconvertibility
Notice, or if a holder of Series A Preferred Stock shall have given any
Inconvertibility Notice, then within the applicable Redemption Election Period
the holder receiving or giving or entitled to receive, as the case may be, such
Inconvertibility Notice shall have the right by a Redemption Election given to
the Corporation (which may be contained in the Inconvertibility Notice given by
such holder) to direct the Corporation to redeem the portion of such holder's
outstanding shares of Series A Preferred Stock (which, if applicable, shall be
all of such holder's outstanding shares of Series A Preferred Stock) as shall
not, on the Business Day prior to the date of such redemption, (x) be
convertible into shares of Common Stock by reason of a Maximum Share Amount
Inconvertibility or (y) be convertible into shares of Common Stock which are
covered by the Registration Statement and available for sale by such holder
pursuant to the Registration Statement by reason of a Registration Restriction
Inconvertibility, in each such case, within five Business Days after such holder
gives a Redemption Election to the Corporation, at a price per share equal to
the Share Limitation Redemption Price; provided, however, that (1) no such
redemption shall be made with respect to a Registration Restriction
Inconvertibility if, prior to the expiration of the applicable Redemption
Election Period, the Corporation and such holder shall, by a Mandatory
Redemption Waiver, waive the Corporation's obligation to make such redemption
and (2) if (i) the Registration Statement is and remains effective and available
for use by holders of shares of Series A Preferred Stock for resale of the
shares of Common Stock which are covered by the Registration Statement, (ii) the
Corporation files with the SEC an additional Registration Statement as and when
required by Section 8(b)(1) of the Subscription Agreements and (iii) the
Corporation maintains Net Cash and Cash Equivalent Balances at least equal to
three times the Corporation's Quarterly Cash Requirements, then the Corporation
shall not be required to redeem any shares of Series A Preferred Stock by reason
of a particular Registration Restriction Inconvertibility prior to the date
which is 45 days after such Registration Restriction Inconvertibility first
occurs. If a holder of shares of Series A Preferred Stock gives a Redemption
Election to the Corporation by reason of a Maximum Share Amount Inconvertibility
and, prior to the date the Corporation is required to redeem such holder's
shares of Series A Preferred Stock, the Corporation would have been able, within
the limitations set forth in Section 7(a)(1), to convert all of such holder's
outstanding shares of Series A Preferred Stock (determined without regard to the
limitation, if any, on such holder contained in the second sentence of Section
10(a)) on any two Trading Days within any period of three consecutive Trading
Days commencing after the period of ten consecutive Trading Days which gave rise
to the applicable Inconvertibility Notice from the Corporation or such holder of
shares of Series A Preferred Stock, as the case may be, had such holder given a
Conversion Notice for all of such holder's outstanding shares of Series A
Preferred Stock on each of such two Trading Days within such three-Trading Day
period, then the Corporation shall not be required to redeem any shares of
Series A Preferred Stock held by such holder by reason of such Inconvertibility
Notice.
(B) An Inconvertibility Notice or a Redemption Election given by a
holder of shares of Series A Preferred Stock shall be deemed for all purposes to
be in proper form unless the Corporation notifies such holder in writing within
three Business Days after an Inconvertibility Notice or a Redemption Election
has been given (which notice shall specify all defects in the Inconvertibility
Notice or Redemption Election), and any Inconvertibility Notice or Redemption
Election containing any such defect shall nonetheless be effective on the date
given if such holder promptly undertakes in writing to correct all such defects.
In the absence of any such undertaking from such holder, no such claim of error
shall limit or delay performance of the Corporation's obligation to redeem all
inconvertible shares of Series A Preferred Stock as to which a Redemption
Election has been given and which shares are not in dispute.
(3) Notwithstanding the giving of any Inconvertibility Notice by the
Corporation to one or more holders of Series A Preferred Stock or the giving or
the absence of
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<PAGE> 18
any Inconvertibility Notice or Redemption Election by one or more holders of the
Series A Preferred Stock or any redemption of shares of Series A Preferred Stock
pursuant to Section 7(a)(2), thereafter the provisions of Section 7(a)(2) shall
continue to be applicable on any occasion unless, in the case of a Maximum Share
Amount Inconvertibility, the Stockholder Approval shall have been obtained or
waived by the AMEX.
(4) On each Share Limitation Redemption Date (or such later date as
a holder surrenders such holder's certificate(s) for shares of Series A
Preferred Stock redeemed), the Corporation shall make payment in immediately
available funds of the applicable Share Limitation Redemption Price to the
holder of shares of Series A Preferred Stock to be redeemed to such account as
specified by such holder in writing to the Corporation at least one Business Day
prior to such Share Limitation Redemption Date. A holder of shares of Series A
Preferred Stock which are redeemed pursuant to this Section 7(a) shall not be
entitled to payment of the Share Limitation Redemption Price of such shares of
Series A Preferred Stock until such holder shall have surrendered the
certificate(s) for such shares of Series A Preferred Stock to the Corporation
or, in the case of the loss, theft or destruction of any such certificate, given
indemnity in accordance with Section 15(b). In connection with a redemption of
less than all of the shares of Series A Preferred Stock evidenced by a
particular certificate, promptly, but in no event later than three Trading Days
after surrender of such certificate to the Corporation, the Corporation shall
issue a replacement certificate for the shares of Series A Preferred Stock
evidenced by such certificate which have not been redeemed. Only whole shares of
Series A Preferred Stock may be redeemed. If the Corporation shall fail to pay
the Share Limitation Redemption Price of any shares of Series A Preferred Stock
in full when due, then the amount thereof shall bear interest to the extent not
prohibited by applicable law at the rate of 12% per annum from the due date
thereof until paid in full.
(5) If the Corporation shall have failed to pay in full the Share
Limitation Redemption Price (other than by reason of a Maximum Share Amount
Inconvertibility), the Optional Redemption Price or the Registration Redemption
Price for any share of Series A Preferred Stock when the same is due and
payable, without in any way relieving the Corporation of its obligation to pay
such amount in accordance herewith (except to the extent expressly provided in
Section 7(a)(7)), the holder of such share of Series A Preferred Stock shall
have the right to convert such share of Series A Preferred Stock into Common
Stock in accordance with Section 10(a) (subject to the numerical limit contained
in the second sentence of Section (10(a)); provided, however, that the shares of
Common Stock received by the holder upon any such conversion in certain
circumstances may be subject to restrictions on resale by such holder arising
under applicable securities laws to the extent not registered for resale by the
holder pursuant to the Registration Statement.
(6) If the Corporation shall have failed to pay in full the Share
Limitation Redemption Price for any portion (which, if applicable, may be all)
of any holder's shares of Series A Preferred Stock when the same is due and
payable by reason of a Maximum Share Amount Inconvertibility and the Stockholder
Approval shall not have been obtained, without in any way relieving the
Corporation of its obligation to pay such amount in accordance herewith (except
to the extent expressly provided in Section 7(a)(7)), upon the written request
of the Majority Holders, the Corporation shall use its best efforts to obtain a
waiver from AMEX (or such other principal securities exchange on which the
Common Stock is listed at such time) of the requirement for Stockholder Approval
for issuance of all shares of Common Stock issuable upon conversion of the
Series A Preferred Stock. If such waiver, in form reasonably satisfactory to the
Majority Holders, is not obtained within 15 days after the Corporation's receipt
of such request from the Majority Holders, and such Maximum Share Amount
Inconvertibility occurs on or after June 20, 1998, then the Corporation promptly
shall call a special meeting of its stockholders, to be held not later than 60
days after the expiration of the foregoing 15-day period, to seek the
Stockholder Approval for issuance of all shares of Common Stock issuable upon
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<PAGE> 19
conversion of the Series A Preferred Stock in accordance with Section 10.
(7) If a holder of shares of Series A Preferred Stock converts all
or any portion of such holder's shares of Series A Preferred Stock pursuant to
Section 7(a)(5), the amount of the Share Limitation Redemption Price or the
Registration Redemption Price, as the case may be, due to such holder with
respect to the number of shares of Series A Preferred Stock so converted shall
be reduced by $1,000 for each share of Series A Preferred Stock so converted.
(b) REDEMPTION BY REASON OF ABSENCE OF STOCKHOLDER APPROVAL. (1) If
on or before June 30, 1998, the Corporation shall not have obtained the
Stockholder Approval or a waiver by the AMEX of the requirement for the
Stockholder Approval, then each holder of shares of Series A Preferred Stock
shall have the right, at such holder's option, to require the Corporation to
redeem from such holder all or any portion of a number of shares of Series A
Preferred Stock equal to the lesser of (x) such holder's Stockholder Approval
Portion and (y) the number of outstanding shares of Series A Preferred Stock
held by such holder on the Stockholder Approval Redemption Date, in either such
case at a price per share of Series A Preferred Stock equal to the Stockholder
Approval Redemption Price. A holder may exercise such right by giving to the
Corporation a Stockholder Approval Redemption Notice at any time after June 30,
1998 and any such redemption shall be made by payment by the Corporation to such
holder by wire transfer of immediately available funds to such account as shall
be specified for such purpose by such holder of an amount equal to the aggregate
Stockholder Approval Redemption Price of all shares of Series A Preferred Stock
to be redeemed from such holder on the applicable Stockholder Approval
Redemption Date (or such later date as such holder surrenders such holder's
certificate(s) for shares of Series A Preferred stock redeemed). A Stockholder
Approved Redemption Notice may be revoked by the holder giving such Stockholder
Approval Redemption Notice by giving notice of such revocation to the
Corporation at any time prior to the time the Corporation pays the Stockholder
Approval Redemption Price to such holder.
(2) A holder of shares of Series A Preferred Stock which are
redeemed pursuant to this Section 7(b) shall not be entitled to payment of the
Stockholder Approval Redemption Price of such shares of Series A Preferred Stock
until such holder shall have surrendered the certificate(s) for such shares of
Series A Preferred Stock to the Corporation or, in the case of the loss, theft
or destruction of any such certificate, given indemnity in accordance with
Section 15(b). In connection with a redemption pursuant to this Section 9(b) of
less than all of the shares of Series A Preferred Stock evidenced by a
particular certificate, promptly, but in no event later than three Business Days
after surrender of such certificate to the Corporation, the Corporation shall
issue and deliver to such holder a replacement certificate for the shares of
Series A Preferred Stock evidenced by such certificate which have not been
redeemed. If the Corporation shall fail to pay the Stockholder Approval
Redemption Price of any shares of Series A Preferred Stock in full when due,
then the amount thereof shall bear interest to the extent not prohibited by
applicable law at the rate of 12% per annum from the due date thereof until paid
in full.
(3) A Stockholder Approval Redemption Notice given by a holder of
shares of Series A Preferred Stock shall be deemed for all purposes to be in
proper form unless the Corporation notifies such holder in writing within three
Business Days after such Stockholder Approval Redemption Notice has been given
(which notice shall specify all defects in the Stockholder Approval Redemption
Notice), and any Stockholder Approval Redemption Notice containing any such
defect shall nonetheless be effective on the date given if such holder promptly
undertakes in writing to correct all such defects. In the absence of any such
undertaking from such holders, no such claim of error shall limit or delay
performance of the Corporation's obligation to redeem all shares of Series A
Preferred Stock not in dispute. If the Corporation shall fail to pay the
Stockholder Approval Redemption Price in full to any holder of shares of Series
A Preferred Stock when due, then the amount thereof shall bear interest to the
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extent not prohibited by applicable law at the rate of 12% per annum from the
due date thereof until paid in full.
(c) NO OTHER MANDATORY REDEMPTION. The shares of Series A
Preferred Stock shall not be subject to mandatory redemption by the Corporation
except as provided in this Section 7 and in Section 11.
SECTION 8. NO SINKING FUND. The shares of Series A Preferred Stock
shall not be entitled to the benefits of any sinking fund for the redemption or
repurchase of shares of Series A Preferred Stock.
SECTION 9. REDEMPTION AT OPTION OF CORPORATION.
(a) OPTIONAL REDEMPTION. (1) So long as (w) the Corporation shall be
in compliance in all material respects with its obligations to the holders of
the Series A Preferred Stock (including its obligations under the Subscription
Agreements and the provisions of this Certificate of Designations), (x) the
Registration Statement shall be effective on the date the Corporation gives the
Redemption Notice and on the Redemption Date, (y) no Registration Redemption
Event shall have occurred with respect to which any holder of shares of Series A
Preferred Stock shall have exercised redemption rights under Section 11(c) and
the Registration Redemption Price shall not have been paid and no Optional
Redemption Event shall have occurred with respect to which on the Redemption
Date any holder of shares of Series A Preferred Stock shall be entitled to
exercise redemption rights under Sections 11(a) and 11(b) or with respect to
which any holder of shares of Series A Preferred Stock shall have exercised such
rights and the Optional Redemption Price shall not have been paid and (z) on the
date the Corporation gives the Redemption Notice and on the Redemption Date, the
Corporation has Cash and Cash Equivalent Balances which are sufficient, after
taking into account the Corporation's cash requirements during the period from
the date the Redemption Notice is given to the Redemption Date, to pay the
Redemption Price of the shares of Series A Preferred Stock to be redeemed, the
Corporation shall have the right to redeem all or any part of the outstanding
shares of Series A Preferred Stock pursuant to this Section 9(a) at the
Redemption Price. In order to exercise it right of redemption under this Section
9(a), the Corporation shall give a Redemption Notice to the holders of shares of
Series A Preferred Stock not less than 30 or more than 60 days prior to the
Redemption Date. On the Redemption Date (or such later date as a holder of
shares of Series A Preferred Stock shall surrender to the Corporation the
certificate(s) for the shares of Series A Preferred Stock redeemed), the
Corporation shall pay to or upon the order of each holder of shares of Series A
Preferred Stock by wire transfer of immediately available funds to such account
as shall be specified for such purpose by such holder in an amount equal to the
Redemption Price of all of such holder's shares of Series A Preferred Stock to
be redeemed. A holder of shares of Series A Preferred Stock which are redeemed
pursuant to this Section 9(a) shall not be entitled to payment of the Redemption
Price of such shares of Series A Preferred Stock until such holder shall have
surrendered the certificate(s) for such shares of Series A Preferred Stock to
the Corporation or, in the case of the loss, theft or destruction of any such
certificate, given indemnity in accordance with Section 15(b). If the
Corporation shall fail to pay the Redemption Price of any shares of Series A
Preferred Stock in full when due, then the amount thereof shall bear interest to
the extent not prohibited by applicable law at the rate of 18% per annum from
the due date thereof until paid in full.
(2) Notwithstanding the giving of a Redemption Notice, each holder
of shares of Series A Preferred Stock shall be entitled to convert in accordance
with Section 10 any shares of Series A Preferred Stock which are to be redeemed
at any time prior to (1) the Redemption Date or (2) if the Corporation fails to
pay the Redemption Price in full to such holder on the Redemption Date, the date
on which the Corporation pays the Redemption Price in full to such holder for
all shares of Series A Preferred Stock to be redeemed from such holder.
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<PAGE> 21
(3) Any redemption of shares of Series A Preferred Stock pursuant to
this Section 9(a) shall be made as nearly as practical pro rata from all holders
of shares of Series A Preferred Stock outstanding.
(4) Upon receipt by the Corporation from a holder of shares of
Series A Preferred Stock of certificates for shares of Series A Preferred Stock
evidencing a greater number of shares of Series A Preferred Stock than the
number of shares of Series A Preferred Stock to be redeemed in accordance with
this Section 9(a), the Corporation shall, within three Trading Days after such
surrender, issue and deliver to or upon the order of such holder a new
certificate for the balance of shares of Series A Preferred Stock, if any.
(b) NO OTHER REDEMPTION AT THE OPTION OF THE CORPORATION. Except as
otherwise specifically provided in Section 9(a), the Corporation shall not have
any right to redeem any shares of Series A Preferred Stock at the option of the
Corporation.
SECTION 10. CONVERSION.
(a) CONVERSION AT OPTION OF HOLDER. The holders of the Series A
Preferred Stock may convert at any time all or from time to time any part of
their outstanding shares of Series A Preferred Stock consisting of at least 15
shares of Series A Preferred Stock (or such smaller number of shares held by a
holder) into fully paid and nonassessable shares of Common Stock and such other
securities and property as hereinafter provided. Commencing on the Issuance
Date, and at any time thereafter, each share of Series A Preferred Stock may be
converted at the office of the Conversion Agent or at such other additional
office or offices, if any, as the Board of Directors may designate, into such
number of fully paid and nonassessable shares of Common Stock (calculated as to
each conversion to the nearest 1/100th of a share) determined by dividing (x)
the sum of (i) $1,000 plus (ii) an amount equal to the Accrual Amount on the
share of Series A Preferred Stock being converted to the applicable Conversion
Date by (y) the Conversion Price on the applicable Conversion Date; provided,
however, that in no event shall any holder of shares of Series A Preferred Stock
be entitled to convert any shares of Series A Preferred Stock in excess of that
number of shares of Series A Preferred Stock upon conversion of which the sum of
(1) the number of shares of Common Stock beneficially owned by such holder
(including shares of Common Stock beneficially owned by all Aggregated Persons
of such holder) (other than shares of Common Stock deemed beneficially owned by
such holder or any Aggregated Person of such holder through the ownership of (x)
unconverted shares of Series A Preferred Stock and (y) the unconverted or
unexercised portion of any instrument which contains limitations similar to
those set forth in this sentence) and (2) the number of shares of Common Stock
issuable upon the conversion of the number of shares of Series A Preferred Stock
with respect to which the determination in this proviso is being made, would
result in beneficial ownership by such holder and all Aggregated Persons of such
holder of more than 4.9% of the outstanding shares of Common Stock. For purposes
of the proviso to the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the 1934 Act and Regulation
13D-G thereunder, except as otherwise provided in clause (1) of the proviso to
the immediately preceding sentence. For purposes of the proviso to the second
preceding sentence, the Corporation shall be entitled to rely, and shall be
fully protected in relying, on any statement or representation made by a holder
of shares of Series A Preferred Stock to the Corporation in connection with a
particular conversion, without any obligation on the part of the Corporation to
make any inquiry or investigation or to examine its records or the records of
any transfer agent for the Common Stock and without any liability of the
Corporation with respect thereto.
(b) OTHER PROVISIONS. (1) The holders of shares of Series A
Preferred Stock at the close of business on the record date for any dividend
payment to holders of Series A
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Preferred Stock shall be entitled to receive the dividend payable on such shares
on the corresponding dividend payment date notwithstanding the conversion
thereof after the record date for such dividend payment or the Corporation's
default in payment of the dividend due on such dividend payment date; provided,
however, that the holder of shares of Series A Preferred Stock converted during
the period between the close of business on any record date for a dividend
payment and the opening of business on the corresponding dividend payment date
must pay to the Corporation, within five days after receipt by such holder, an
amount equal to the dividend payable on such shares on such dividend payment
date if such dividend is paid by the Corporation to such holder. A holder of
shares of Series A Preferred Stock on a record date for a dividend payment who
(or whose transferee) converts any of such shares into shares of Common Stock on
or after such dividend payment date will receive the dividend payable by the
Corporation on such shares of Series A Preferred Stock on such dividend payment
date, and the converting holder need not make any payment of the amount of such
dividend in connection with such conversion of shares of Series A Preferred
Stock. Except as provided above, no adjustment shall be made in respect of cash
dividends on Common Stock or Series A Preferred Stock that may be accrued and
unpaid at the date of conversion of shares of Series A Preferred Stock.
(2) The right of the holders of Series A Preferred Stock to convert
their shares shall be exercised by delivering (which may be made by telephone
line facsimile transmission) a Conversion Notice to the Conversion Agent at the
address or telephone line facsimile transmission number provided in or pursuant
to the Conversion Agent Agreement. The number of shares of Common Stock to be
issued upon each conversion of shares of Series A Preferred Stock shall be the
number set forth in the applicable Conversion Notice, which number shall be
conclusive absent manifest error. The Corporation shall notify a holder who has
given a Conversion Notice of any claim of manifest error within one Trading Day
after such holder gives such Conversion Notice, and no such claim of error shall
limit or delay performance of the Corporation's obligation to issue upon such
conversion the number of shares of Common Stock which are not in dispute. A
Conversion Notice shall be deemed for all purposes to be in proper form unless
the Corporation notifies a holder of shares of Series A Preferred Stock being
converted within one Trading Day after a Conversion Notice has been given (which
notice shall specify all defects in such Conversion Notice), and any Conversion
Notice containing any such defect shall nonetheless be effective on the date
given if the converting holder agrees to correct all such defects promptly.
(3) If a holder of Series A Preferred Stock elects to convert any
shares of Series A Preferred Stock in accordance with Section 10(a), such holder
shall not be required to surrender the certificate(s) representing such shares
of Series A Preferred Stock physically to the Corporation unless all of the
shares of Series A Preferred Stock represented thereby are so converted. Each
holder of shares of Series A Preferred Stock and the Corporation shall maintain
records showing the number of shares so converted and the dates of such
conversions or shall use such other method, satisfactory to such holder and the
Corporation, so as to not require physical surrender of such certificates upon
each such conversion. In the event of any dispute or discrepancy, such records
of the Corporation shall be controlling and determinative in the absence of
manifest error. Notwithstanding the foregoing, if any shares of Series A
Preferred Stock evidenced by a particular certificate therefor are converted as
aforesaid, the holder of Series A Preferred Stock may not transfer the
certificate(s) representing such shares of Series A Preferred Stock unless such
holder first physically surrenders such certificate(s) to the Corporation,
whereupon the Corporation will forthwith issue and deliver upon the order of
such holder of shares of Series A Preferred Stock new certificate(s) of like
tenor, registered as such holder of shares of Series A Preferred Stock (upon
payment by such holder of shares of Series A Preferred Stock of any applicable
transfer taxes) may request, representing in the aggregate the remaining number
of shares of Series A Preferred Stock represented by such certificate(s);
provided, however, that as a condition precedent to issuing any such
certificate(s) in any name other than that of the holder of record of the
certificate(s) so surrendered, the Corporation may
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<PAGE> 23
require such proposed new holder of record to acknowledge in writing the number
of shares of Series A Preferred Stock to be represented by such new
certificate(s). Each holder of shares of Series A Preferred Stock, by acceptance
of a certificate for such shares, acknowledges and agrees that (1) by reason of
the provisions of this paragraph, following conversion of any shares of Series A
Preferred Stock represented by such certificate, the number of shares of Series
A Preferred Stock represented by such certificate may be less than the number of
shares stated on such certificate and by reason of Section 7(a), the number of
shares of Common Stock from the Maximum Share Amount allocated to the shares of
Series A Preferred Stock represented by such certificate for purposes of
conversion of such shares may be less than the number thereof stated on such
certificate and (2) the Corporation may place one or more legends on the
certificates for shares of Series A Preferred Stock which refers to or describes
the provisions of this paragraph and Section 7(a).
(4) The Corporation shall pay any transfer tax arising in connection
with any conversion of shares of Series A Preferred Stock except that the
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery upon conversion of
shares of Common Stock or other securities or property in a name other than that
of the holder of the shares of the Series A Preferred Stock being converted as
shown on the stock books of the Corporation, and the Corporation shall not be
required to issue or deliver any such shares or other securities or property
unless and until the Person or Persons requesting the issuance thereof shall
have paid to the Corporation the amount of any such tax or shall have
established to the satisfaction of the Corporation that such tax has been paid.
(5) The Corporation (and any successor corporation) shall take all
action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series A Preferred Stock
outstanding upon the basis hereinbefore provided are at all times reserved by
the Corporation (or any successor corporation), free from preemptive rights, for
such conversion, subject to the provisions of the next succeeding paragraph. If
the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series A Preferred Stock shall be convertible as herein
provided, the Corporation shall at the same time also make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Series A Preferred Stock on the new basis. If at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all of the outstanding shares of Series A Preferred
Stock, the Corporation promptly shall seek such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
(6) (A) In case of any consolidation or merger of the Corporation
with any other corporation (other than a wholly-owned subsidiary of the
Corporation) in which the Corporation is not the surviving corporation, or in
case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in the case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the Corporation shall make appropriate provision or cause appropriate
provision to be made so that each holder of shares of Series A Preferred Stock
then outstanding shall have the right thereafter to convert such shares of
Series A Preferred Stock into the kind of shares of stock and other securities
and property receivable upon such consolidation, merger, sale, transfer, or
share exchange by a holder of shares of Common Stock into which such shares of
Series A Preferred Stock could have been converted immediately prior to the
effective date of such consolidation, merger, sale, transfer, or share exchange
and on a basis which preserves the economic benefits of the conversion rights of
the holders of shares of Series A Preferred Stock
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<PAGE> 24
on a basis as nearly as practical as such rights exist hereunder prior thereto.
If, in connection with any such consolidation, merger, sale, transfer, or share
exchange, each holder of shares of Common Stock is entitled to elect to receive
securities, cash, or other assets upon completion of such transaction, the
Corporation shall provide or cause to be provided to each holder of Series A
Preferred Stock the right to elect the securities, cash, or other assets into
which the Series A Preferred Stock held by such holder shall be convertible
after completion of any such transaction on the same terms and subject to the
same conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to exercise the
election). Notwithstanding the forgoing, in connection with any such merger,
consolidation, sale, transfer or exchange, the Corporation shall have the right,
in lieu of making provision for preservation of economic benefits of the
conversion rights of the holders of shares of Series A Preferred Stock, to
redeem all outstanding shares of Series A Preferred Stock immediately after
completion of such transaction at a redemption price per share of Series A
Preferred Stock in cash equal to the product obtained by multiplying (A) the sum
of (i) $1,000 plus (ii) an amount equal to the Accrual Amount on the share of
Series A Preferred Stock to be redeemed to the date of payment of the redemption
price times (B) the applicable Business Combination Redemption Percentage. Such
right of redemption shall be exercised by notice from the Corporation to the
holders of shares of Series A Preferred Stock stating that the Corporation is
exercising its redemption right under this Section 10(b)(6), which notice shall
be given at least 20 Trading Days and not more than 30 Trading Days prior to
completion of such transaction and shall specify that such redemption shall
occur on the Business Day immediately following the date of completion of such
transaction. On the date specified in such notice (or such later date as a
holder of shares of Series A Preferred Stock surrenders such holder's
certificates for shares of Series A Preferred Stock redeemed) the Corporation
shall make payment in immediately available funds of the applicable Business
Combination Redemption Price to each holder of shares of Series A Preferred
Stock to be redeemed to such account as specified by such holder in writing to
the Corporation at least one Business Day prior to such payment of the Business
Combination Redemption Price. A holder of shares of Series A Preferred Stock
which are redeemed pursuant to this Section 10(b)(6) shall not be entitled to
payment of the Business Combination Redemption Price of such shares of Series A
Preferred Stock until such holder shall have surrendered the certificate(s) for
such shares of Series A Preferred Stock to the Corporation or, in the case of
the loss, theft or destruction of any such certificate, given indemnity in
accordance with Section 15(b). If the Corporation shall fail to pay the Business
Combination Redemption Price of any shares of Series A Preferred Stock in full
when due, then the amount thereof shall bear interest to the extent not
prohibited by applicable law at the rate of 12% per annum from the due date
thereof until paid in full. Notwithstanding the giving of a notice of redemption
pursuant to this Section 10(b)(6), each holder of shares of Series A Preferred
Stock shall be entitled to convert in accordance with this Section 10 any shares
of Series A Preferred Stock which are to be redeemed at any time prior to (1)
the redemption date specified in the notice of redemption or (2) if the
Corporation fails to pay the Business Combination Redemption Price in full to
such holder when due, the date on which the Corporation pays the Business
Combination Redemption Price in full to such holder for all shares of Series A
Preferred Stock to be redeemed from such holder. The Corporation shall not
effect any such transaction unless it shall have complied with the provisions of
this paragraph. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, or share exchanges.
(B) Whenever the Corporation shall propose to take any of the
actions specified in this Section 10(b)(6), the Corporation shall cause a notice
to be mailed at least 20 days prior to the date on which the books of the
Corporation will close or on which the security holders entitled to participate
in such transaction will be determined, to the holders of record of the
outstanding Series A Preferred Stock on the date of such notice. Such notice
shall specify the action proposed to be taken by the Corporation and the date as
of which holders of record of the Common Stock shall participate in any such
actions or be entitled to exchange their Common
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<PAGE> 25
Stock for securities or other property, as the case may be.
(7) Upon receipt by the Conversion Agent from a holder of shares of
Series A Preferred Stock of a Conversion Notice, the Corporation shall issue and
deliver or cause to be issued and delivered to or upon the order of such holder
certificates for the Common Stock issuable upon such conversion by the close of
business on the third Trading Day after such Conversion Notice is received, and
as of the close of business on the date of such receipt such holder (or such
holder's assignee) shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, and all rights with respect to the shares
of Series A Preferred Stock so converted shall forthwith terminate except the
right to receive the Common Stock or other securities, cash, or other assets, as
herein provided, on such conversion. If a holder of Series A Preferred Stock
shall have given a Conversion Notice as provided herein, the Corporation's
obligation to issue and deliver the shares of Common Stock which are issuable
upon such conversion in accordance with the terms of this Certificate of
Designations shall be absolute and unconditional, irrespective of any action or
inaction by the converting holder to enforce the same, any waiver or consent
with respect to any provision thereof, the recovery of any judgment against any
Person or any action to enforce the same, any failure or delay in the
enforcement of any other obligation of the Corporation to the holder of record,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the holder or any other Person of any obligation to
the Corporation, or any violation or alleged violation of law by such holder or
any other Person, and irrespective of any other circumstance which might
otherwise limit such obligation of the Corporation to such holder in connection
with such conversion. If the Corporation fails to issue and deliver the
certificates for the Common Stock to the holder converting shares of Series A
Preferred Stock as and when required to do so, in addition to any other
liabilities the Corporation may have hereunder and under applicable law (1) the
Corporation shall pay or reimburse such holder on demand for all out-of-pocket
expenses, including, without limitation, reasonable fees and expenses of legal
counsel incurred by such holder as a result of such failure, (2) the percentage
used to calculate the Conversion Price applicable to such conversion shall be
reduced by one-tenth of a percentage point from the percentage otherwise used to
calculate the Conversion Price applicable to such conversion and (3) such holder
may by written notice (which may be given by mail, courier, personal service or
telephone line facsimile transmission) or oral notice (promptly confirmed in
writing) given at any time prior to delivery to such holder of the certificates
for the shares of Common Stock issuable upon such conversion of shares of Series
A Preferred Stock, rescind such conversion, whereupon such holder shall have the
right to convert such shares of Series A Preferred Stock thereafter in
accordance herewith; provided, however, that the Corporation shall not be liable
to a holder of shares of Series A Preferred Stock under the preceding clause (1)
or clause (2) to the extent the failure of the Corporation to deliver or cause
to be delivered such shares of Common Stock results from fire, flood, storm,
earthquake, shipwreck, strike, war, acts of terrorism, crash involving
facilities of a common carrier, act of God or any similar event outside the
control of the Corporation (it being understood that the actions or failure to
act of the Conversion Agent shall not be deemed an event outside the control of
the Corporation except to the extent resulting from fire, flood, storm,
earthquake, shipwreck, strike, war, acts of terrorism, crash involving
facilities of a common carrier, acts of God, the bankruptcy, liquidation or
reorganization of the Conversion Agent under any bankruptcy, insolvency or other
similar law or any similar event outside the control of the Conversion Agent). A
holder of shares of Series A Preferred Stock who has given a Conversion Notice
shall notify the Corporation in writing (or by telephone conversation, confirmed
in writing) as promptly as practicable after becoming aware that shares of
Common Stock issued on conversion of such holder's shares of Series A Preferred
Stock have not been received as provided in this Section 10(b)(7); provided,
however, that any failure by such holder so to notify the Corporation shall not
relieve the Corporation of its obligation to issue and deliver shares of Common
Stock upon conversion of shares of Series A Preferred Stock as and when required
by this Section 10.
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<PAGE> 26
(8) No fractional shares of Common Stock shall be issued upon
conversion of Series A Preferred Stock but, in lieu of any fraction of a share
of Common Stock which would otherwise be issuable in respect of the aggregate
number of shares of Series A Preferred Stock surrendered for conversion at one
time by the same holder, the Corporation shall pay in cash to such holder at the
time of issuance of shares of Common Stock in connection with such conversion an
amount equal to the product of (i) the arithmetic average of the Market Price of
a share of Common Stock on the three consecutive Trading Days ending on the
Trading Day immediately preceding the Conversion Date times (ii) such fraction
of a share of Common Stock.
SECTION 11. REDEMPTION UPON AN OPTIONAL REDEMPTION EVENT; ABSENCE OF
SEC REGISTRATION.
(a) REDEMPTION RIGHT UPON OPTIONAL REDEMPTION EVENT. If an Optional
Redemption Event occurs, then each holder of shares of Series A Preferred Stock
shall have the right, at such holder's option, to require the Corporation to
redeem all of such holder's shares of Series A Preferred Stock, or any portion
thereof, on the date that is three Business Days after the date of the Holder
Notice given with respect to such Optional Redemption Event. Each holder of
shares of Series A Preferred Stock shall have the right to require the
Corporation to redeem all or any such portion of such holder's shares of Series
A Preferred Stock if an Optional Redemption Event occurs at any time while any
of such holder's shares of Series A Preferred Stock are outstanding at a price
equal to the Optional Redemption Price.
(b) NOTICES; METHOD OF EXERCISING OPTIONAL REDEMPTION RIGHTS, ETC.
(1) On or before the fifth Business Day after the occurrence of an Optional
Redemption Event, the Corporation shall give to each holder of outstanding
shares of Series A Preferred Stock a Corporation Notice of the occurrence of
such Optional Redemption Event and of the redemption right set forth herein
arising as a result thereof. The Corporation Notice shall set forth:
(i) the date by which the optional redemption right must be exercised, and
(ii) a description of the procedure (set forth below) which each such
holder must follow to exercise such holder's optional redemption right.
No failure of the Corporation to give a Corporation Notice or defect therein
shall limit the right of any holder of shares of Series A Preferred Stock to
exercise the optional redemption right or affect the validity of the proceedings
for the redemption of such holder's shares of Series A Preferred Stock.
(2) To exercise its optional redemption right, each holder of
outstanding shares of Series A Preferred Stock shall deliver to the Corporation
on or before the thirtieth day after a Corporation Notice is given to such
holder (or if no Corporation Notice has been given to such holder, within forty
days after such holder first learns of the Optional Redemption Event) a Holder
Notice to the Corporation setting forth the name of such holder, and number of
such holder's shares of Series A Preferred Stock to be redeemed. A Holder Notice
may be revoked by such holder giving such Holder Notice by giving notice of such
revocation to the Corporation at any time prior to the time the Corporation pays
the Optional Redemption Price to such holder.
(3) If a holder of shares of Series A Preferred Stock shall have
given a Holder Notice, on the date which is three Business Days after the date
such Holder Notice is given (or such later date as such holder surrenders such
holder's certificates for the shares of Series A Preferred Stock redeemed) the
Corporation shall make payment in immediately available funds of the applicable
Optional Redemption Price to such account as specified by such holder in writing
to the Corporation at least one Business Day prior to the applicable redemption
date. A holder of shares of Series A Preferred Stock which are redeemed pursuant
to Sections 11(a) and
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11(b) shall not be entitled to payment of the Optional Redemption Price of such
shares of Series A Preferred Stock until such holder shall have surrendered the
certificate(s) for such shares of Series A Preferred Stock to the Corporation
or, in the case of the loss, theft or destruction of any such certificate, given
indemnity in accordance with Section 15(b).
(c) REDEMPTION RIGHT FOR ABSENCE OF SEC REGISTRATION. If a
Registration Redemption Event occurs, then each holder of shares of Series A
Preferred Stock shall have the right by complying with the requirements of this
Section 11(c), at such holder's option, to require the Corporation to redeem all
of such holder's shares of Series A Preferred Stock, or from time to time any
portion thereof, by making payment of the Registration Redemption Price to such
holder in immediately available funds to such account as specified by such
holder by notice to the Corporation, on the date that is three Business Days
after the date a Holder Registration Redemption Notice is given by such holder
(or such later date as such holder surrenders to the Corporation the
certificate(s) for the shares of Series A Preferred Stock redeemed). A holder of
shares of Series A Preferred Stock shall exercise its right to require
redemption pursuant to this Section 11(c) by giving a Holder Registration
Redemption Notice at any time prior to the SEC Effective Date. If a holder of
shares of Series A Preferred Stock shall have given a Holder Registration
Redemption Notice, the Corporation shall redeem such holder's shares of Series A
Preferred Stock or the portion of such holder's shares of Series A Preferred
Stock as stated in such Holder Registration Redemption Notice at a price per
share equal to the Registration Redemption Price. A holder of shares of Series A
Preferred Stock which are redeemed pursuant to this Section 11(c) shall not be
entitled to payment of the Registration Redemption Price of such shares of
Series A Preferred Stock until such holder shall have surrendered the
certificate(s) for such shares of Series A Preferred Stock to the Corporation
or, in the case of the loss, theft or destruction of any such certificate, given
indemnity in accordance with Section 15(b). A Holder Registration Redemption
Notice may be revoked by the holder giving such Holder Registration Redemption
Notice by giving notice of such revocation to the Corporation at any time prior
to the time the Corporation pays the Registration Redemption Price to such
holder.
(d) OTHER. (1) If the Corporation fails to pay in full when due the
Optional Redemption Price or the Registration Redemption Price, as the case may
be, for the number of shares of Series A Preferred Stock specified in a Holder
Notice or a Registration Redemption Notice, as the case may be, then the amount
thereof shall bear interest to the extent not prohibited by applicable law at
the rate of 12% per annum from the due date thereof until paid in full.
(2) In connection with a redemption pursuant to this Section 11 of
less than all of the shares of Series A Preferred Stock evidenced by a
particular certificate, promptly, but in no event later than three Business Days
after surrender of such certificate to the Corporation, the Corporation shall
issue and deliver to such holder a replacement certificate for the shares of
Series A Preferred Stock evidenced by such certificate which have not been
redeemed.
(3) A Holder Notice or a Holder Registration Redemption Notice given
by a holder of shares of Series A Preferred Stock shall be deemed for all
purposes to be in proper form unless the Corporation notifies such holder in
writing within three Business Days after such Holder Notice or Holder
Registration Redemption Notice has been given (which notice shall specify all
defects in the Holder Notice or Holder Registration Redemption Notice), and any
Holder Notice or Holder Registration Redemption Notice containing any such
defect shall nonetheless be effective on the date given if such holder promptly
undertakes in writing to correct all such defects. In the absence of any such
undertaking from such holder, no such claim of error shall limit or delay
performance of the Corporation's obligation to redeem all shares of Series A
Preferred Stock not in dispute.
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SECTION 12. VOTING RIGHTS; CERTAIN RESTRICTIONS.
(a) VOTING RIGHTS. Except as otherwise required by law or expressly
provided herein, shares of Series A Preferred Stock shall not be entitled to
vote on any matter.
(b) CERTIFICATE OF INCORPORATION; CERTAIN STOCK. The affirmative
vote or consent of the holders of a majority of the outstanding shares of the
Series A Preferred Stock, voting separately as a class, will be required for (1)
any amendment, alteration, or repeal, whether by merger or consolidation or
otherwise, of the Corporation's Restated Certificate of Incorporation if the
amendment, alteration, or repeal materially and adversely affects the powers,
preferences, or special rights of the Series A Preferred Stock, or (2) the
creation and issuance of any Senior Dividend Stock or Senior Liquidation Stock;
provided, however, that any increase in the authorized Preferred Stock of the
Corporation or the creation and issuance of any stock which is both Junior
Dividend Stock and Junior Liquidation Stock shall not be deemed to affect
materially and adversely such powers, preferences, or special rights and any
such increase or creation and issuance may be made without any such vote by the
holders of Series A Preferred Stock except as otherwise required by law; and
provided further, however, that no such amendment, alteration or repeal shall
(i) reduce the Optional Redemption Price, Redemption Price, Registration
Redemption Price, Share Limitation Redemption Price, Stockholder Approval
Redemption Price or the amount payable to a holder of shares of Series A
Preferred Stock pursuant to Section 5(b), 5(c) or 10(b)(6)(A), (ii) reduce the
percentage in, or otherwise change the definition of Majority Holders, (iii)
change the method of calculating the Conversion Price in a manner adverse to the
holders of shares of Series A Preferred Stock or reduce the number of shares of
Common Stock issuable upon any conversion of shares of Series A Preferred Stock
or (iv) amend, modify or repeal any provision of this Section 12(b), unless in
each such case referred to in the preceding clauses (i) through (iv) such
amendment, modification or repeal has been approved by the affirmative vote or
consent of the holders of all outstanding shares of Series A Preferred Stock,
voting separately or as a class.
(c) REPURCHASES OF SERIES A PREFERRED STOCK. The Corporation shall
not repurchase or otherwise acquire any shares of Series A Preferred Stock
(other than pursuant to Section 7(a), Section 9(a) or Section 11) unless the
Corporation offers to repurchase or otherwise acquire simultaneously a pro rata
portion of each holder's shares of Series A Preferred Stock for cash at the same
price per share.
(d) OTHER. So long as any shares of Series A Preferred Stock are
outstanding:
(1) LIMITATION ON INDEBTEDNESS. During the period from the Issuance
Date through the date which is 360 days after the Issuance Date, the Corporation
will not itself, and will not permit any subsidiary of the Corporation to,
create, assume, incur, in any manner become liable in respect of, including,
without limitation, by reason of any business combination transaction, or suffer
to exist (all of which are referred to herein as "incurring"), any Indebtedness
other than Permitted Indebtedness.
(2) PAYMENT OF OBLIGATIONS. The Corporation will pay and discharge,
and will cause each subsidiary of the Corporation to pay and discharge, when due
all their respective obligations and liabilities which are material to the
Corporation and its subsidiaries taken as a whole, including, without
limitation, tax liabilities, except where the same may be contested in good
faith by appropriate proceedings.
(3) MAINTENANCE OF PROPERTY; INSURANCE. (A) The Corporation will
keep, and will cause each subsidiary of the Corporation to keep, all material
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.
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(B) The Corporation will maintain, and will cause each subsidiary of
the Corporation to maintain, with financially sound and responsible insurance
companies, insurance against loss or damage by fire or other casualty and such
other insurance, including but not limited to, product liability insurance, in
such amounts and covering such risks as is reasonably adequate for the conduct
of their businesses and the value of their properties.
(4) CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The
Corporation will continue, and will cause each subsidiary of the Corporation to
continue, to engage in business of the same general type as conducted by the
Corporation and its operating subsidiaries at the time this Certificate of
Designations is filed with the Secretary of State of the State of Delaware, and
will preserve, renew and keep in full force and effect, and will cause each
subsidiary of the Corporation to preserve, renew and keep in full force and
effect, their respective corporate existence and their respective material
rights, privileges and franchises necessary or desirable in the normal conduct
of business.
(5) COMPLIANCE WITH LAWS. The Corporation will comply, and will
cause each subsidiary of the Corporation to comply, in all material respects
with all applicable laws, ordinances, rules, regulations, decisions, orders and
requirements of governmental authorities and courts (including, without
limitation, environmental laws) except (i) where compliance therewith is
contested in good faith by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Corporation and its subsidiaries taken as a
whole.
(6) INVESTMENT COMPANY ACT. The Corporation will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended, or any successor provision.
(7) TRANSACTIONS WITH AFFILIATES. The Corporation will not, and will
not permit any subsidiary of the Corporation, directly or indirectly, to pay any
funds to or for the account of, make any investment (whether by acquisition of
stock or Indebtedness, by loan, advance, transfer of property, guarantee or
other agreement to pay, purchase or service, directly or indirectly, any
Indebtedness, or otherwise) in, lease, sell, transfer or otherwise dispose of
any assets, tangible or intangible, to, or participate in, or effect any
transaction in connection with, any joint enterprise or other joint arrangement
with, any Affiliate of the Corporation, except, on terms to the Corporation or
such subsidiary no less favorable than terms that could be obtained by the
Corporation or such subsidiary from a Person that is not an Affiliate of the
Corporation, as determined in good faith by the Board of Directors; provided,
however, that nothing in this Section 12(d)(7) shall prohibit any transaction
described in clause (5), (6) or (7) of the definition of the term "Permitted
Investments" in the Subscription Agreements which transaction would, if engaged
in with the proceeds of the sale of the Series A Preferred Stock, be permissible
under clause (1) of Section 5(f) of the Subscription Agreements.
SECTION 13. 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 a Conversion Notice is given by a holder 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 or Affiliate
(as defined herein) of the Corporation (other than any original holder of shares
of Series A Preferred Stock) and (iii) from the applicable Share Limitation
Redemption Date, Redemption Date, Optional Redemption Date, date of redemption
pursuant to Section 11(c) or Stockholder Approval Redemption Date all shares of
Series A Preferred Stock which are redeemed, so long as in each case the Share
Limitation Redemption Price, Redemption Price, the Optional
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Redemption Price, Registration Redemption Price or Stockholder Approval
Redemption Price, as the case may be, of such shares of Series A Preferred Stock
shall have been paid by the Corporation as and when due hereunder.
SECTION 14. FORMS OF NOTICES.
(a) NOTICE OF CONVERSION OF SERIES A CUSTOM CONVERTIBLE PREFERRED
STOCK.
NOTICE OF CONVERSION
OF
SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK
OF
NOVAVAX, INC.
TO: Boston EquiServe,
as Conversion Agent
150 Royall Street
Canton Massachusetts 02021
Attention:
Facsimile No.: (781) 575-2549
(1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock"), of Novavax, Inc., a Delaware
corporation (the "Corporation"), the undersigned (the "Holder") hereby elects to
convert _____________________ shares of the Preferred Stock (each having a
conversion amount per share equal to the sum of (i) $1,000.00 plus (ii) an
amount equal to the Accrual Amount on such share to the Conversion Date) into
shares of Common Stock, $.01 par value (the "Common Stock"), of the Corporation,
at a Conversion Price per share of Common Stock equal to $_____________________,
or such other securities into which the Preferred Stock is currently
convertible. Capitalized terms used in this Notice and not otherwise defined
herein have the respective meanings provided in the Certificate of Designations
of the Preferred Stock.
(2) The number of shares of Common Stock issuable upon the
conversion of the shares of Preferred Stock to which this Notice relates is
____________.
(3) If the conversion of shares of Preferred Stock by this Notice is
based on the Trading Prices during a Measurement Period, set forth below or on a
schedule which accompanies this Notice are the Trading Prices during the
Measurement Period applicable to this Notice and an indication of the two
Trading Prices used to determine the Conversion Price set forth above.
Date Trading Price
1. ____________,____ $____________
2. ____________,____ $____________
3. ____________,____ $____________
4. ____________,____ $____________
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5. ____________,____ $____________
6. ____________,____ $____________
7. ____________,____ $____________
8. ____________,____ $____________
9. ____________,____ $____________
10. ____________,____ $____________
11. ____________,____ $____________
12. ____________,____ $____________
13. ____________,____ $____________
14. ____________,____ $____________
15. ____________,____ $____________
16. ____________,____ $____________
17. ____________,____ $____________
18. ____________,____ $____________
19. ____________,____ $____________
20. ____________,____ $____________
21. ____________,____ $____________
22. ____________,____ $____________
23. ____________,____ $____________
24. ____________,____ $____________
25. ____________,____ $____________
(4) Please issue certificates for the number of shares of Common
Stock or other securities into which such number of shares of Preferred Stock is
convertible in the name(s) specified immediately below or, if additional space
is necessary, on an attachment hereto:
____________________________ ____________________________
Name Name
____________________________ ____________________________
Address Address
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____________________________ ____________________________
SS or Tax ID Number SS or Tax ID Number
(5) The Holder hereby represents to the Corporation that (a) the
exercise of conversion rights contained in this Notice does not violate the
provisions of Section 10(a) of the Certificate of Designations relating to
beneficial ownership in excess of 4.9% of the Common Stock and (b) the
Conversion Price set forth in this Notice is not based on a trade of shares of
Common Stock in which the Holder or any Affiliate of the Holder was the buyer or
seller.
(6) If the shares of Common Stock issuable upon conversion of the
Preferred Stock have not been registered for resale under the 1933 Act, as
amended (the "Act"), the Holder represents and warrants that (i) the shares of
Common Stock not so registered are being acquired for the account of the Holder
for investment only, and not with a view to, or for resale in connection with,
the public distribution thereof other than pursuant to registration under the
1933 Act or an exemption from registration under the 1933 Act, and that the
Holder has no present intention of distributing or reselling the shares of
Common Stock not so registered other than pursuant to registration under the
1933 Act or an exemption from registration under the 1933 Act and (ii) the
Holder is an "accredited investor" as defined in Regulation D under the 1933
Act. The Holder further agrees that (A) the shares of Common Stock not so
registered shall not be sold or transferred unless either (i) they first shall
have been registered under the 1933 Act or (ii) the Corporation first shall have
been furnished with an opinion of legal counsel reasonably satisfactory to the
Corporation to the effect that such sale or transfer is exempt from the
registration requirements of the 1933 Act and (B) the Corporation may place a
legend on the certificate(s) for the shares of Common Stock not so registered to
that effect and place a stop-transfer restriction in its records relating to the
shares of Common Stock not so registered, all in accordance with the
Subscription Agreement, dated as of January 23, 1998.
NAME:
Date _________________________ ____________________________________________
(print or type)
____________________________________________
Signature of Holder
(Must be signed exactly as name
appears on the Preferred Stock Certificate.)
(b) FORM OF CORPORATION INCONVERTIBILITY NOTICE.
CORPORATION INCONVERTIBILITY NOTICE
(SECTION 7(a)(2) OF CERTIFICATE OF DESIGNATIONS OF
SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)
TO:___________________________
(Name of Holder)
(1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock"), Novavax, Inc., a Delaware corporation
(the "Corporation"), hereby notifies the above-named Holder:
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(a) On (fill in date) five Inconvertibility Days had
occurred in a period of ten Trading Days and on such date (fill in
number) shares of Preferred Stock and the related Accrual Amounts became
inconvertible by reason of the occurrence of five Inconvertibility Days within a
period of ten consecutive Trading Days.
(b) The five Inconvertibility Days covered by this Notice and the
applicable Conversion Price on each such day are as follows:
_______________________________ $_______________
_______________________________ $_______________
_______________________________ $_______________
_______________________________ $_______________
_______________________________ $_______________
(2) The Inconvertibility Days referred to in this Notice relate to
(check (a) or (b)):
[ ] (a) Maximum Share Amount Inconvertibility
[ ] (b) Registration Restriction Inconvertibility
(3) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Certificate of Designations for the
Preferred Stock.
Date _________________________ NOVAVAX, INC.
By ______________________________
Title:
(c) FORM OF HOLDER INCONVERTIBILITY NOTICE.
HOLDER INCONVERTIBILITY NOTICE
(SECTION 7(a)(2) OF CERTIFICATE OF DESIGNATIONS OF
SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)
TO: NOVAVAX, INC.
(1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock"), the undersigned (the "Holder"), hereby
notifies Novavax, Inc., a Delaware corporation (the "Corporation"):
(a) On (fill in date) five Inconvertibility Days had
occurred in a period of ten Trading Days and on such date (fill in
number) shares of Preferred
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Stock and the related Accrual Amounts became inconvertible by reason of the
occurrence of five Inconvertibility Days within a period of ten consecutive
Trading Days.
(b) The five Inconvertibility Days covered by this Notice and the
applicable Conversion Price on each such day are as follows:
_______________________________ $_______________
_______________________________ $_______________
_______________________________ $_______________
_______________________________ $_______________
_______________________________ $_______________
(2) The Inconvertibility Days referred to in this Notice relate to
(check (a) or (b)):
[ ] (a) Maximum Share Amount Inconvertibility
[ ] (b) Registration Restriction Inconvertibility
(3) If the following date and amounts are completed in this Notice,
the Holder hereby directs the Corporation to redeem the number of shares of
Preferred Stock set forth below in accordance with Section 7(a) of the
Certificate of Designations as set forth below:
(a) Number of shares of Preferred Stock to be redeemed:
(fill in)
(b) On (fill in Share Limitation Redemption Date) or
such later date as the Holder shall surrender to the Corporation the
certificates for the shares of Preferred Stock redeemed, the Corporation shall
pay the Holder the Share Limitation Redemption Price per share of Preferred
Stock to be redeemed of $ . The Share Limitation Redemption Price is
equal to the product obtained by multiplying (A) the sum of (i) $1,000.00 plus
(ii) the Accrual Amount on such share to such Share Limitation Redemption Date
equal to $ times (B) 115%.
(4) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Certificate of Designations for the
Preferred Stock.
Date _________________________ NAME OF HOLDER:
________________________________
(print or type)
By _____________________________
Title:
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<PAGE> 35
(d) FORM OF REDEMPTION ELECTION.
HOLDER REDEMPTION NOTICE
(SECTION 7(a)(2) OF CERTIFICATE OF DESIGNATIONS OF
SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)
TO: NOVAVAX, INC.
(1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock"), the undersigned (the "Holder") hereby
notifies Novavax, Inc., a Delaware corporation (the "Corporation"), that the
Holder is exercising its right to require the Corporation to redeem shares
of Preferred Stock in accordance with Section 7(a) of the Certificate of
Designations of the Preferred Stock. On (fill in Share Limitation
Redemption Date) or such later date as the Holder shall surrender to the
Corporation the certificates for the shares of Preferred Stock redeemed, the
Corporation shall pay the Holder the Share Limitation Redemption Price per share
of Preferred Stock to be redeemed of $ . The Share Limitation Redemption
Price is equal to the product obtained by multiplying (A) the sum of (i)
$1,000.00 plus (ii) the Accrual Amount on such share to such Share Limitation
Redemption Date equal to $ times (B) 115%.
(2) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Certificate of Designations.
Date _________________________ NAME OF HOLDER:
_________________________________
By ______________________________
(e) FORM OF MANDATORY REDEMPTION WAIVER.
MANDATORY REDEMPTION WAIVER
(SECTION 7(a)(2) OF CERTIFICATE OF DESIGNATIONS OF
SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)
Novavax, Inc., a Delaware corporation (the "Corporation"), and the
undersigned holder (the "Holder") of shares of the Corporation's Series A Custom
Convertible Preferred Stock (the "Preferred Stock") hereby agree as follows:
1. The Corporation's or the Holder's Inconvertibility Notice given
on (the "Waiver Commencement Date"), if any, is hereby rescinded
and the Holder's shares of Preferred Stock shall not be redeemed pursuant to
Section 7(a) of the Certificate of Designations of the Preferred Stock by reason
of such Inconvertibility Notice or any inconvertibility of any of the Holders'
shares of Preferred Stock which may arise pursuant to Section 7(a) of the
Certificate of Designations of the Preferred Stock during the period ending on
the date set forth below in this Section 1 (the "Waiver Period").
Date for end of Waiver Period:_______________, 199__
2. If this Mandatory Redemption Waiver is given in connection with a
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Registration Restriction Inconvertibility, promptly, but in no event later than
the date which is 15 days after the date of this Mandatory Redemption Waiver,
the Corporation shall file a Registration Statement with the SEC relating to the
resale by the Holder of the number of Registrable Securities (as defined in the
Holder's Subscription Agreement) set forth below in this Section 2, which
Registration Statement may be constituted in any manner which does not have the
effect of suspending or terminating the effectiveness of any and all
Registration Statements filed by the Corporation pursuant to Section 8(b)(1) of
the Subscription Agreement or otherwise with respect to the Registrable
Securities which names the Holder as a selling stockholder, and shall thereafter
use its best efforts to obtain effectiveness of such Registration Statement.
Such Registration Statement shall in all respects be deemed a Registration
Statement (as defined in the Certificate of Designations of the Preferred
Stock).
Number of Registrable Securities:________________
3. If the Corporation shall default in the performance of its
obligations set forth herein, this Mandatory Redemption Waiver shall cease to be
of further force and effect and the rights, liabilities and obligations of the
parties shall be restored to those which would have existed in the absence of
this Mandatory Redemption Waiver.
4. This Agreement shall be governed by the laws of the State of New
York. Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings provided in the Certificate of Designations.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers or other representatives thereunto
duly authorized as of the respective dates set forth below.
NOVAVAX, INC.
By __________________________________
Title:
Date:________________________________
NAME OF HOLDER:
_____________________________________
By __________________________________
Title:
Date:________________________________
(f) FORM OF STOCKHOLDER APPROVAL REDEMPTION NOTICE.
STOCKHOLDER APPROVAL REDEMPTION NOTICE
(SECTION 7(b) OF CERTIFICATE OF DESIGNATIONS OF
SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)
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TO: NOVAVAX, INC.
(1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock"), the undersigned (the "Holder") hereby
notifies Novavax, Inc., a Delaware corporation (the "Corporation"), that the
Holder is exercising its right to require the Corporation to redeem
(fill in lesser of number outstanding and Stockholder Approval Portion)
shares of Preferred Stock in accordance with Section 7(b) of the Certificate of
Designations of the Preferred Stock. On (fill in Stockholder
Approval Redemption Date) or such later date as the Holder shall surrender to
the Corporation the certificates for the shares of Preferred Stock redeemed, the
Corporation shall pay the Holder the Stockholder Approval Redemption Price per
share of Preferred Stock to be redeemed of $ . The Stockholder
Approval Redemption Price is equal to the product obtained by multiplying (A)
the sum of (i) $1,000.00 plus (ii) the Accrual Amount on such share to the
Stockholder Approval Redemption Date equal to $ times (B) 105%.
(2) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided in the Certificate of Designations.
Date:_________________________ NAME OF HOLDER:
_________________________________
By_______________________________
(g FORM OF REDEMPTION NOTICE.
REDEMPTION NOTICE
(SECTION 9(a) OF CERTIFICATE OF DESIGNATIONS OF
SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)
TO:___________________________
(Name of Holder)
(1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock"), Novavax, Inc., a Delaware corporation
(the "Corporation"), hereby notifies the above-named holder (the "Holder") that
the Corporation is exercising its right to redeem shares of Preferred
Stock held by the Holder in accordance with Section 9(a) of the Certificate of
Designations of the Preferred Stock. On (fill in Redemption Date),
the Corporation shall pay the Holder the Redemption Price per share of Preferred
Stock to be redeemed. Check (a) or (b):
[ ] (a) Based on clause (1) of the definition of the term Redemption
Price in the Certificate of Designations; or
[ ] (b) Based on clause (2) of the definition of the term Redemption
Price in the Certificate of Designations.
(2) Upon surrender to the Corporation of the certificate(s) for the
shares of Preferred Stock to be redeemed (but in no event earlier than the
Redemption Date), the Corporation will make payment of the applicable Redemption
Price in accordance with the
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Certificate of Designations.
(3) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Certificate of Designations.
NOVAVAX, INC.
By _____________________________
Title:
(h) FORM OF CORPORATION NOTICE.
CORPORATION NOTICE
(SECTION 11(b)(1) OF CERTIFICATE OF DESIGNATIONS OF
SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)
TO:__________________________
(Name of Holder)
(1) An Optional Redemption Event described in the Certificate of
Designations of the Series A Custom Convertible Preferred Stock (the "Preferred
Stock") of Novavax, Inc., a Delaware corporation (the "Corporation"), occurred
on _____________,____. As a result of such Optional Redemption Event, the
above-named holder (the "Holder") is entitled to exercise its optional
redemption rights pursuant to Section 11(b)(2) of the Certificate of
Designations.
(2) The Holder's optional redemption right must be exercised on or
before _____________,____.
(3) At or before the date set forth in the preceding paragraph (2),
the Holder must deliver to the Corporation:
(a) a Holder Notice, in the form set forth in Section 14(h) of the
Certificate of Designations; and
(b) the certificates for the shares of Preferred Stock to be redeemed,
duly endorsed for transfer to the Corporation the shares to be redeemed.
(4) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Certificate of Designations.
Date _________________________ NOVAVAX, INC.
By ______________________________
Title:
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(i) FORM OF HOLDER NOTICE.
HOLDER NOTICE
(SECTION 11(b)(2) OF CERTIFICATE OF DESIGNATIONS OF
SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)
TO: NOVAVAX, INC.
(1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock") of Novavax, Inc., a Delaware corporation
(the "Corporation"), the undersigned hereby elects to exercise its right to
require redemption by the Corporation pursuant to Sections 11(a) and 11(b) of
______ shares of Preferred Stock at an Optional Redemption Price per share equal
to an amount in cash equal to the product obtained by multiplying (a) the sum of
(i) $1,000 plus (ii) the Accrual Amount on each share of Series A Preferred
Stock to be redeemed to the date of redemption equal to $______ times (b) the
______% (fill in applicable Optional Redemption Percentage).
(2) The aggregate Optional Redemption Price of all shares of
Preferred Stock to be redeemed is $______.
(3) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Certificate of Designations.
Date:________________________ NAME OF HOLDER:
By ______________________________
Signature of Registered Holder
(Must be signed exactly as name
appears on the stock certificate.)
(j) FORM OF HOLDER REGISTRATION REDEMPTION NOTICE.
HOLDER REGISTRATION REDEMPTION NOTICE
(SECTION 11(c) OF CERTIFICATE OF DESIGNATIONS
OF SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)
TO: NOVAVAX, INC.
(1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock") of Novavax, Inc., a Delaware corporation
(the "Corporation"), the undersigned (the "Holder") hereby elects to exercise
its right to require redemption by the Corporation pursuant to Section 11(c) of
the Certificate of Designations of the Preferred Stock of ______ shares of
Preferred Stock at a Registration Redemption Price per share in cash equal to
the product obtained by multiplying (A) the sum of (i) $1,000 plus (ii) the
Accrual Amount on each share of Series A Preferred Stock to be redeemed to the
date of such redemption in accordance with Section 11(c) equal to $______times
(B) 112.5%.
(2) The aggregate Registration Redemption Price of all shares of
Preferred
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Stock to be redeemed is $______
(3) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Certificate of Designations.
Date:_________________________ NAME OF HOLDER:___________________________
By__________________________________
Signature of Registered Holder
(Must be signed exactly as name
appears on the stock certificate.)
SECTION 15. MISCELLANEOUS.
(a) NOTICES. Any notices required or permitted to be given under the
terms of this Certificate of Designations shall be in writing and shall be sent
by mail or delivered personally (which shall include telephone line facsimile
transmission) or by courier and shall be deemed given five days after being
placed in the mail, if mailed, or upon receipt, if delivered personally or by
courier (a) in the case of the Corporation, addressed to the Corporation at 8320
Guilford Road, Suite C, Columbia, Maryland, Attention: Chief Financial Officer
(telephone line facsimile transmission number (301) 854-3901), with a copy to
White & McDermott, P.C., 65 William Street, Suite 209, Wellesley, Massachusetts
02181 (telephone line facsimile transmission number (781) 237-8120, or, in the
case of any holder of shares of Series A Preferred Stock, at such holder's
address or telephone line facsimile transmission number shown on the stock books
maintained by the Corporation with respect to the Series A Preferred Stock or
such other address as the Corporation shall have provided by notice to the
holders of shares of Series A Preferred Stock in accordance with this Section or
any holder of shares of Series A Preferred Stock shall have provided to the
Corporation in accordance with this Section.
(b) REPLACEMENT OF CERTIFICATES. Upon receipt by the Corporation of
evidence reasonably satisfactory to the Corporation of the ownership of and the
loss, theft, destruction or mutilation of any certificate for shares of Series A
Preferred Stock and (1) in the case of loss, theft or destruction, of indemnity
from the record holder of the certificate for such shares of Series A Preferred
Stock reasonably satisfactory in form to the Corporation (and without the
requirement to post any bond or other security) or (2) in the case of
mutilation, upon surrender and cancellation of the certificate for such shares
of Series A Preferred Stock, the Corporation will execute and deliver to such
holder a new certificate for such shares of Series A Preferred Stock without
charge to such holder.
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IN WITNESS WHEREOF, Novavax, Inc. has caused this certificate to be
signed by Brenda L. Fugagli, its Chief Financial Officer, as of the 28th day of
January, 1998.
NOVAVAX, INC.
By: /s/ Brenda L. Fugagli
-------------------------------
Brenda L. Fugagli
Chief Financial Officer
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EXHIBIT 4.5
[EXECUTION COPY]
SUBSCRIPTION AGREEMENT
DATED AS OF JANUARY 23, 1998
BY AND BETWEEN
NOVAVAX, INC.
AND
DELTA OPPORTUNITY FUND, LTD.
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SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK
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Placement Agent:
DIAZ & ALTSCHUL CAPITAL, LLC
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SUBSCRIPTION AGREEMENT
SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK
NOVAVAX, INC.
PAGE
1. DEFINITIONS...................................................... 1
2. AGREEMENT TO SUBSCRIBE........................................... 7
(a) Subscription............................................ 7
(b) Form of Payment......................................... 7
(c) Closing................................................. 8
3. BUYER'S REPRESENTATIONS, WARRANTIES, ETC......................... 8
(a) Purchase for Investment................................. 8
(b) Accredited Investor..................................... 8
(c) Reoffers and Resales.................................... 8
(d) Company Reliance........................................ 8
(e) Information Provided.................................... 8
(f) Absence of Approvals.................................... 9
(g) Subscription Agreement.................................. 9
(h) Buyer Status............................................ 9
4. COMPANY'S REPRESENTATIONS, WARRANTIES, ETC....................... 9
(a) Organization and Authority.............................. 9
(b) Qualifications.......................................... 10
(c) Capitalization.......................................... 10
(d) Concerning the Shares and the Common Stock.............. 11
(e) Corporate Authorization................................. 11
(f) Non-contravention....................................... 11
(g) Approvals............................................... 11
(h) Information Provided.................................... 12
(i) SEC Filings............................................. 12
(j) Conduct of Business..................................... 12
(k) Absence of Certain Proceedings.......................... 13
(l) Liabilities............................................. 13
(m) Absence of Certain Changes.............................. 13
(n) Material Losses......................................... 13
(o) Properties.............................................. 13
(p) Intellectual Property................................... 14
(q) Internal Accounting Controls............................ 14
(r) Compliance with Law..................................... 14
(s) Labor Relations......................................... 14
(t) Insurance............................................... 14
(u) Absence of Brokers, Finders, Etc........................ 14
(v) No Solicitation......................................... 15
(w) Certain Issuances of Securities......................... 15
(x) ERISA Compliance........................................ 15
(y) Tax Matters............................................. 15
(z) Investment Company...................................... 15
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5. CERTAIN COVENANTS AND ACKNOWLEDGMENTS............................ 15
(a) Transfer Restrictions................................... 15
(b) Restrictive Legends..................................... 16
(c) Conversion Agent Agreement.............................. 17
(d) Form D.................................................. 18
(e) Stock Exchange Listing.................................. 18
(f) Use of Proceeds......................................... 18
(g) State Securities Laws................................... 19
(h) Certain Issuances of Securities......................... 19
(i) Limitation on Certain Actions........................... 20
(j) Stockholder Approval.................................... 20
(k) Best Efforts............................................ 20
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE......... 20
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE................. 21
8. REGISTRATION RIGHTS.............................................. 22
(a) Mandatory Registration.................................. 22
(b) Obligations of the Company.............................. 23
(c) Obligations of the Buyer and other Investors............ 26
(d) Reports under 1934 Act.................................. 27
9. INDEMNIFICATION AND CONTRIBUTION................................. 27
(a) Indemnification......................................... 27
(b) Contribution............................................ 28
(c) Other Rights............................................ 29
10. MISCELLANEOUS.................................................... 29
(a) Governing Law........................................... 29
(b) Headings................................................ 29
(c) Severability............................................ 29
(d) Notices................................................. 29
(e) Counterparts............................................ 30
(f) Entire Agreement........................................ 30
(g) Waiver.................................................. 30
(h) Amendment............................................... 30
(i) Further Assurances...................................... 30
(j) Assignment of Certain Rights and Obligations............ 30
(k) Certain Expenses........................................ 31
(l) Termination............................................. 31
(m) Survival................................................ 32
(n) Public Statements, Press Releases, Etc.................. 32
(o) Construction............................................ 32
SCHEDULES
Schedule 4(c) Antidilution Adjustments
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ANNEXES
Annex I Form of Certificate of Designations
Annex II Joint Escrow Instructions
Annex III Form of Conversion Agent Agreement
Annex IV Form of Opinion of Counsel to Be Delivered on Closing Date
Annex V Form of Irrevocable Instruction to Be Given by the Company
to the Conversion Agent Upon Effectiveness of SEC
Registration
Annex VI Form of Opinion of Counsel to Be Delivered to the
Conversion Agent Upon Effectiveness of SEC Registration
Annex VII Form of Inspector Confidentiality Agreement
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SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, dated as of January 23, 1998, by and
between NOVAVAX, INC., a Delaware corporation, with headquarters located at 8320
Guilford Road, Suite C, Columbia, Maryland 21046 (the "Company"), and DELTA
OPPORTUNITY FUND, LTD., a British Virgin Islands corporation (the "Buyer").
WITNESSETH:
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, shares of non-voting Series A Custom
Convertible Preferred Stock of the Company which will be convertible into shares
of Common Stock (such capitalized term and all other capitalized terms used in
this Agreement having the respective meanings provided in Section 1); and
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. DEFINITIONS
(a) As used in this Agreement, the terms "Agreement", "Buyer" and
"Company" shall have the respective meanings assigned to such terms in the
introductory paragraph of this Agreement.
(b) All the agreements or instruments herein defined shall mean such
agreements or instruments as the same may from time to time be supplemented or
amended or the terms thereof waived or modified to the extent permitted by, and
in accordance with, the terms thereof and of this Agreement.
(c) The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or under common control with the subject Person. For purposes of
the term "Affiliate," the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or to cause the direction of the management and
policies of a Person, whether through the ownership of securities, by contract
or otherwise.
"AMEX" means the American Stock Exchange, Inc.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
"Certificate of Designations" means the Certificate of Designations of
the Series A Custom Convertible Preferred Stock in the form attached hereto as
ANNEX I, as the same is filed with the Secretary of State of the State of
Delaware.
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"Claims" means any losses, claims, damages, liabilities or expenses
(joint or several), incurred by a Person.
"Closing Date" means 12:00 noon, New York City time, on January 28,
1998 or such other time as is mutually agreed between the Company and the Buyer.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder and published interpretations thereof.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
"Conversion Agent" means Boston EquiServe, L.P., or any successor
thereof, serving as transfer agent and registrar for the Common Stock and
conversion agent for the Preferred Stock.
"Conversion Agent Agreement" means the agreement among the Company, the
Conversion Agent, the Buyer and the Other Buyers, in substantially the form
attached hereto as ANNEX III.
"Conversion Notice" means the Notice of Conversion substantially in the
form of Section 15(a) of the Certificate of Designations.
"Conversion Price" shall have the meaning provided in the Certificate
of Designations.
"Conversion Shares" means the shares of Common Stock issued or issuable
upon conversion of the Preferred Shares.
"Engagement Agreement" means the Engagement Agreement, dated as of
November 14, 1997, between the Company and Diaz & Altschul Capital, LLC, as
amended on January 15, 1998.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder and published interpretations thereof.
"Escrow Agent" means the escrow agent identified in the Joint Escrow
Instructions.
"Equity Securities" means Common Stock or securities convertible into,
exchangeable for, or otherwise entitling the holder to acquire, any Common
Stock.
"Indemnified Party" means the Company, each of its directors, each of
its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any Person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act.
"Indemnified Person" means each Investor who holds Registrable
Securities and each Investor who sells such Registrable Securities in the manner
permitted under this Agreement, the directors, if any, of such Investor, the
officers, if any, of such Investor, each Person, if any, who controls any
Investor within the meaning of the 1933 Act or the 1934 Act, any underwriter (as
defined in the 1933 Act) acting on behalf of an Investor who participates in
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the offering of Registrable Securities of such Investor in accordance with the
plan of distribution contained in the Prospectus, the directors, if any, of such
underwriter and the officers, if any, of such underwriter, and each Person, if
any, who controls any such underwriter within the meaning of the 1933 Act or the
1934 Act.
"Inspector" means any attorney, accountant, investment adviser or
portfolio manager retained by an Investor for the purposes provided in Section
8(b)(9).
"Investor" means the Buyer and any Permitted Transferee who agrees to
become bound by the provisions of Sections 5(a), 5(b), 8, 9 and 10 (other than
Section 10(n)) of this Agreement.
"Joint Escrow Instructions" means the Joint Escrow Instructions
attached hereto as ANNEX II.
"Majority Holders" means at any time the holders of shares of Series A
Preferred Stock which, based on the number of shares of Preferred Stock
originally held by such holders, represent a majority of the shares of Preferred
Stock originally issued; provided, however, that if none of the Buyer or any
Other Buyer holds any shares of Preferred Stock at the time of determination,
then "Majority Holders" means the holders of outstanding shares of Preferred
Stock which shares constitute a majority of the outstanding shares of Preferred
Stock.
"Margin Stock" shall have the meaning provided in Regulation G of the
Board of Governors of the Federal Reserve System (12 C.F.R. Part 207).
"NASD" means the National Association of Securities Dealers, Inc.
"Nasdaq" means the Nasdaq National Market.
"1996 10-K" means the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Non-Responsive Investor" means an Investor who does not provide the
Required Information to the Company at least three Business Days prior to the
filing of the Registration Statement with the SEC.
"Optional Redemption Event" shall have the meaning provided in Section
1 of the Certificate of Designations.
"Other Buyers" means each of the several holders of the Preferred Stock
of the Company who purchase shares of the Preferred Stock pursuant to the Other
Subscription Agreements.
"Other Subscription Agreements" means the several Subscription
Agreements, dated as of the date hereof, between the Company and the several
buyers named therein relating to shares of Preferred Stock.
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"Permitted Investments" means
(1) trade or customer accounts or notes receivable for inventory
sold or leased or services rendered by the Company or any Subsidiary in
the ordinary course of business;
(2) certificates of deposit issued by any bank organized under the
laws of the United States of America or any state thereof;
(3) commercial paper or finance company paper which is rated not
less than prime-two or A-2 or their equivalents by Moody Investor
Service, Inc. or Standard & Poor's Corporation or their successors;
(4) shares of any so-called "money market fund" provided that such
fund is registered under the Investment Company Act of 1940, as
amended;
(5) loans to employees or directors of the Company or any
Subsidiary, approved by the Board of Directors, not to exceed $500,000
in the aggregate outstanding at any time;
(6) advances to employees of the Company or any Subsidiary for
moving and travel expenses, drawing accounts and similar expenditures
in the ordinary course of employment;
(7) additional investments made by loan or advance to
Subsidiaries;
(8) investments representing Indebtedness of any Person having a
maturity not in excess of 24 months owing as a result of the sale by
the Company or a Subsidiary of any assets no longer required in its
business so long as such sale is made in compliance with Section 12 of
the Certificate of Designations;
(9) stock or obligations issued to the Company or a Subsidiary by
any Person (or the representative of such Person) in respect of the
Indebtedness of such Person in reorganization of such Person or a
composition or reorganization of such Person or a composition or
readjustment of the debts of such Person;
(10) investments in or commitments to purchase or sell foreign
currency; provided that the aggregate amount involved in all such
investments in and commitments to purchase or sell any particular
foreign currency shall at no time exceed the aggregate of all payments
which the Company and its Subsidiaries reasonably expect to make to or
receive from, as applicable, others in such foreign currency;
(11) investments in stock of publicly-traded companies in the
bio-technology and/or pharmaceutical industry, so long as the aggregate
book value thereof does not exceed $50,000 at any time;
(12) investments consisting of the purchase of instruments
evidencing interest rate protection for all or a portion of the
interest-bearing obligations of the Company;
(13) advances or deposits made to secure obligations of the
Company or a Subsidiary incurred in the ordinary course of business
(excluding Indebtedness for borrowed money covered by Section 12(d)(1)
of the Certificate of Designations);
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(14) any Indebtedness permitted by Section 12(d)(1) of the
Certificate of Designations which Indebtedness would also constitute a
loan to or investment in any other Person with the proceeds of the sale
of the Preferred Stock; and
(15) any loan to or investment in any other Person with the
proceeds of the sale of the Preferred Stock not listed in clauses (1)
through (14) of this definition in an outstanding amount not to exceed
in the aggregate at any time $1,000,000.
"Permitted Transferee" means any Person (1) who is an "accredited
investor" as defined in Regulation D under the 1933 Act, (2) who is (A) an
Affiliate of the Buyer, (B) any Person who, immediately prior to such transfer,
is a permitted holder of shares of Preferred Stock or (C) any other Person who
has the same principal investment adviser as the principal investment adviser to
the Buyer or the principal investment adviser to any such permitted holder and
(3) who, immediately following the assignment of rights under this Agreement
holds (x) at least 500 shares of Preferred Stock or (y) shares of Preferred
Stock which at the time of such transfer are convertible into, or shares of
Common Stock issued upon conversion of shares of Preferred Stock which are equal
to, at least 100,000 (subject to equitable adjustment from time to time on terms
reasonably acceptable to the Buyer or any other Investor for (i) stock splits,
(ii) stock dividends, (iii) combinations, (iv) capital reorganizations, (v)
issuance to all holders of Common Stock of rights or warrants to purchase shares
of Common Stock and (vi) similar events relating to the Common Stock, in each
such case which occur on or after the Closing Date) shares of Common Stock, or
any combination thereof.
"Person" means an individual, partnership, corporation, limited
liability company, trust, incorporated organization, unincorporated association
or joint stock company.
"Preferred Shares" means the shares of Preferred Stock to be
purchased by the Buyer pursuant to this Agreement, as set forth on the signature
page of this Agreement.
"Preferred Stock" means the Series A Custom Convertible Preferred
Stock, $.01 par value, of the Company.
"Prospectus" means the prospectus, including any preliminary
prospectus, used in connection with the Registration Statement and any amendment
or supplement thereto.
"Purchase Price" means the aggregate purchase price for the
Preferred Shares set forth on the signature page of this Agreement.
"Questionnaire" means the Prospective Purchaser Questionnaire
completed by the Buyer and delivered to the Company.
"Record" means all pertinent financial and other records,
pertinent corporate documents and properties of the Company and the Subsidiaries
subject to inspection for the purposes provided in Section 8(b)(9).
"register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415, and the
declaration or ordering of effectiveness of such Registration Statement by the
SEC.
"Registrable Securities" means (1) the Conversion Shares (2) if
the Common Stock is changed, converted or exchanged by the Company or its
successor, as the case may be, into any other stock or other securities on or
after the date the Certificate of Designations is filed with the Secretary of
State of the State of Delaware, such other stock or other securities which
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are issued or issuable in respect of or in lieu of the Conversion Shares and (3)
if any other securities are issued to holders of the Common Stock (or such other
shares or other securities into which or for which the Common Stock is so
changed, converted or exchanged as described in the immediately preceding clause
(2)) upon any reclassification, share combination, share subdivision, share
dividend, merger, consolidation or similar transaction or event, such other
securities which are issued or issuable in respect of or in lieu of the
Conversion Shares.
"Registration Period" means the period from the Closing Date to
the earlier of (i) the date which is three years after the Closing Date and (ii)
the date on which the Investors no longer own, or have any right to acquire, any
Registrable Securities.
"Registration Statement" means a registration statement on Form
S-3 of the Company under the 1933 Act, including any amendment thereto, which
names the Investors as selling stockholders.
"Regulation D" means Regulation D promulgated by the SEC under the
1933 Act.
"Required Information" means the information regarding an
Investor, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required in connection with the preparation of the Registration Statement.
"Rule 415" means Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a delayed or continuous basis.
"Rule 144" means Rule 144 promulgated by the SEC under the 1933
Act or any other similar rule or regulation of the SEC that may at any time
permit a holder of any securities to sell such securities to the public without
registration under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"SEC Effective Date" means the date the Registration Statement is
declared effective by the SEC.
"SEC Reports" means (1) the 1996 10-K, (2) the Company's Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 1997, June 30, 1997
and September 30, 1997 and (3) the Company's definitive proxy statement for its
1997 Annual Meeting of Stockholders.
"Shares" means the Preferred Shares and the Conversion Shares.
"Stockholder Approval" means the approval by a majority of the
votes cast by the holders of shares of Common Stock (in person or by proxy) at a
meeting of the stockholders of the Corporation (duly convened at which a quorum
was present), or a written consent of holders of shares of Common Stock entitled
to such number of votes given without a meeting, of the issuance by the
Corporation of 20% or more of the Common Stock of the Corporation outstanding on
the Issuance Date for less than the greater of the book or market value of the
Common Stock on conversion of the Series A Preferred Stock, as and to the extent
required under Rule 713 of the AMEX as in effect from time to time or any
successor or replacement provision.
"Subsidiary" means any corporation or other entity of which a
majority of the capital stock or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are at the time directly or indirectly owned by the
Company.
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"Transaction Documents" means, individually or collectively, this
Agreement, the Certificate of Designations, the Conversion Agent Agreement and
the other agreements, instruments and documents contemplated hereby and thereby.
"Violation" means
(i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or any post-effective amendment
thereof or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading,
(ii) any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (as amended or supplemented, if the
Company files any amendment thereof or supplement thereto with the SEC) or the
omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading,
(iii) any violation or alleged violation by the Company of the
1933 Act, the 1934 Act, any state securities law or any rule or regulation under
the 1933 Act, the 1934 Act or any state securities law, or
(iv) any breach or alleged breach by the Company or the Conversion
Agent of any representation, warranty, covenant, agreement or other term of any
of the Transaction Documents.
2. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(a) SUBSCRIPTION. The Buyer hereby agrees to purchase from the
Company, and the Company hereby agrees to sell to the Buyer, on the Closing
Date, the number of Preferred Shares set forth on the signature page of this
Agreement, having the terms and conditions as set forth in the form of
Certificate of Designations attached hereto as ANNEX I, at the price per share
set forth on the signature page of this Agreement and for the Purchase Price.
The Purchase Price shall be payable in United States Dollars.
(b) FORM OF PAYMENT; DELIVERIES TO ESCROW AGENT. Within three
Business Days after the date the Company and the Buyer execute and deliver this
Agreement, one to the other, the Buyer shall deposit an amount equal to the
Purchase Price in escrow by delivering funds in United States Dollars in the
amount of the Purchase Price to the Escrow Agent identified in the Joint Escrow
Instructions against delivery by the Company of the certificates for the
Preferred Shares registered in the name of the Buyer on the Closing Date at the
closing. Payment of the Purchase Price shall be made by wire transfer of funds
to:
Citibank, N.A.
153 East 53rd Street
New York, New York 10043
ABA#021000089
For credit to Account #3717 9446
For credit to the account of Brian W. Pusch Attorney Escrow Account
Reference: Delta/Novavax
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Promptly following payment by the Buyer to the Escrow Agent of the Purchase
Price, but in no event later than two Business Days after such payment and in
any event prior to the Closing Date, the Company shall deliver certificates for
the Preferred Shares, registered in the name of the Buyer, to the Escrow Agent
against payment therefor on the Closing Date at the closing. By signing this
Agreement, each of the Buyer and the Company agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full. Until released by the Escrow Agent to or upon the order of the Buyer at
the closing against payment of the Purchase Price in accordance with the Joint
Escrow Instructions, the Buyer shall not have any rights in the Preferred Shares
and the Preferred Shares shall not be deemed issued or outstanding. Until
released by the Escrow Agent to or upon the order of the Company at the closing
against delivery of the Preferred Shares in accordance with the Joint Escrow
Instructions, the Company shall not have any rights in the funds deposited by
the Buyer with the Escrow Agent.
(c) CLOSING. The issuance and sale of the Preferred Shares shall
occur on the Closing Date at the Law Offices of Brian W Pusch, Penthouse Suite,
29 West 57th Street, New York, New York.
3. BUYER'S REPRESENTATIONS, WARRANTIES, ETC.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
(a) PURCHASE FOR INVESTMENT. The Buyer is purchasing the Preferred
Shares for its own account as principal, for investment only and not with a
present view to or for the sale or distribution thereof in whole or in part
within the meaning of the 1933 Act;
(b) ACCREDITED INVESTOR. The Buyer is an "accredited investor" as
that term is defined in Rule 501 of the General Rules and Regulations under the
1933 Act by reason of Rule 501(a)(3) thereof;
(c) REOFFERS AND RESALES. The Buyer will not, directly or
indirectly, offer, sell, transfer or otherwise dispose of (or solicit any offers
to buy or otherwise acquire) any of the Shares except pursuant to registration
of the Shares being offered and sold under the 1933 Act or pursuant to an
exemption from registration;
(d) COMPANY RELIANCE. The Buyer understands that the Preferred
Shares are being offered and sold, and the Conversion Shares are being offered,
to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein, in the Questionnaire, a true and accurate copy of
which has been delivered by the Buyer to the Company, and the other documents
executed by the Buyer and delivered to the Company in connection with this
Agreement in order to determine the availability of such exemptions and the
eligibility of the Buyer to acquire the Preferred Shares and to receive an offer
of the Conversion Shares; and the information with respect to the Buyer set
forth in the Questionnaire is accurate and complete in all material respects;
(e) INFORMATION PROVIDED. The Buyer and its advisors, if any, have
requested, received and considered all information relating to the business,
properties, operations, condition (financial or other), results of operations
and prospects of the Company and the Subsidiaries and information relating to
the offer and sale of the Preferred Shares and the offer and, upon conversion of
the Preferred Shares, sale of the Conversion Shares deemed relevant by them; the
Buyer and its advisors, if any, have been afforded the opportunity to ask
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questions of the Company concerning the terms of the Shares and the business,
properties, operations, condition (financial or other), results of operations
and prospects of the Company and the Subsidiaries and have received satisfactory
answers to any such inquiries; without limiting the generality of the foregoing,
the Buyer has had the opportunity to obtain and to review the SEC Reports; the
Buyer has, in connection with its decision to purchase the Preferred Shares,
relied solely upon the SEC Reports, the representations, warranties, covenants
and agreements of the Company set forth in this Agreement and to be contained in
the Certificate of Designations and the Conversion Agent Agreement and in the
documents to be delivered to the Buyer as provided in Section 7, as well as any
investigation of the Company completed by the Buyer or its advisors; the Buyer
understands that its investment in the Shares involves a high degree of risk;
and the Buyer understands that the offering of the Preferred Shares is being
made to the Buyer as part of an offering without any minimum or maximum amount
of the offering (subject, however, to the right of the Company at any time prior
to execution and delivery of this Agreement by the Company, in its sole
discretion, to accept or reject an offer by the Buyer to purchase the Preferred
Shares);
(f) ABSENCE OF APPROVALS. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Shares;
(g) SUBSCRIPTION AGREEMENT. The Buyer has all requisite power and
authority, corporate or otherwise, to execute, deliver and perform its
obligations under this Agreement and the other agreements executed or to be
executed by the Buyer in connection herewith and to consummate the transactions
contemplated hereby and thereby; and this Agreement has been and the other
agreements, documents and instruments to be executed and delivered by the Buyer
in connection herewith, when so executed and delivered will be, duly and validly
authorized, executed and delivered on behalf of the Buyer and, assuming due
execution and delivery of this Agreement by the Company, this Agreement is and,
assuming due execution and delivery by the other signatories thereto, such other
agreements, when executed and delivered by the Buyer, will be, valid and binding
agreements of the Buyer enforceable in accordance with its terms, except as the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally and general principles of equity,
regardless of whether enforcement is considered in a proceeding in equity or at
law; and
(h) BUYER STATUS. The Buyer is not a "broker" or "dealer" (as such
terms are defined in the 1934 Act) who is registered or required to be
registered with the SEC pursuant to Section 15(a) of the 1934 Act.
4. COMPANY'S REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to the Buyer that the
following matters are true and correct as of the date of this Agreement and will
be true and correct on the Closing Date, and the Company covenants and agrees
with the Buyer that:
(a) ORGANIZATION AND AUTHORITY. The Company and each Subsidiary is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, and has all requisite corporate
power and authority to (i) own, lease and operate its properties and to carry on
its business as described in the SEC Reports and as currently conducted, and
(ii) to execute, deliver and perform its obligations under this Agreement, the
Certificate of Designations, the Conversion Agent Agreement, and the other
agreements to be executed and delivered by the Company in connection herewith,
and to consummate the transactions contemplated hereby and thereby; and the
Company does not have
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any equity investment in any Subsidiary other than those listed in the Exhibit
21 to the 1996 10-K.
(b) QUALIFICATIONS. The Company and any Subsidiaries are duly
qualified to do business as foreign corporations and are in good standing in all
jurisdictions wherein such qualification is necessary and where failure so to
qualify would have a material adverse effect on the business, properties,
operations, condition (financial or other), results of operations or prospects
of the Company and the Subsidiaries taken as a whole.
(c) CAPITALIZATION. The authorized capital stock of the Company
currently consists of (a) 30,000,000 shares of Common Stock of which 12,031,757
shares were outstanding as of the close of business on January 8, 1998, all of
which are fully paid and nonassessable; and (b) 2,000,000 shares of preferred
stock, $.01 par value, none of which is outstanding, and of which 6,500 shares
will be designated as Preferred Stock and issued pursuant to this Agreement, the
Other Subscription Agreements and the Engagement Agreement; from January 8, 1998
to the Closing Date there will be (x) no material increase in the number of
shares of Common Stock outstanding (except for shares issued upon exercise of
options and warrants outstanding on the date hereof or options or similar rights
granted subsequent to the date of this Agreement pursuant to the Company's stock
option plans in effect on the date of this Agreement) and (y) no issuance of
shares of preferred stock of the Company other than pursuant to this Agreement
and the Other Subscription Agreements. The 1996 10-K discloses as of December
31, 1996 all outstanding options or warrants for the purchase of, or other
rights to purchase or subscribe for, or securities convertible into or
exchangeable for, Common Stock or other capital stock of the Company, or any
contracts or commitments to issue or sell Common Stock or other capital stock of
the Company or any such options, warrants, rights or other securities; and from
such date to the date hereof there has been, and to the Closing Date there will
be, no material change in the amount or terms of any of the foregoing except for
the grant of options to purchase shares of Common Stock pursuant to the
Company's stock option plans in effect on the date of this Agreement. The
Company has duly reserved from its authorized and unissued shares of Common
Stock the full number of shares required for (a) all options, warrants,
convertible securities and other rights to acquire shares of Common Stock which
are outstanding and (b) all shares of Common Stock and options and other rights
to acquire shares of Common Stock which may be issued or granted under the stock
option and similar plans which have been adopted by the Company or any
Subsidiary; and, immediately following the Closing, after giving effect to any
antidilution or similar adjustment arising by reason of issuance of the
Preferred Shares and the shares of Preferred Stock to be issued pursuant to the
Other Subscription Agreements, the total number of shares of Common Stock
reserved and required to be reserved from the authorized and unissued shares of
Common Stock for purposes of all such options, warrants, convertible securities,
other rights and stock option and similar plans (excluding the Preferred Shares
and the shares of Preferred Stock to be issued pursuant to the Other
Subscription Agreements) will be not more than 6,000,000. Each outstanding class
or series of securities for which any such antidilution adjustment will occur is
identified on SCHEDULE 4(C) attached hereto, together with (x) the amount of
such antidilution adjustment, if such amount is determinable at the time of
issuance of the Preferred Stock, or (y) a description of such antidilution
adjustment, if the amount of such antidilution adjustment is not determinable at
the time of issuance of the Preferred Stock, in each such case for each such
class or series. The outstanding shares of Common Stock and outstanding options,
warrants and other securities to purchase Common Stock have been duly authorized
and validly issued. None of such outstanding shares of Common Stock, options,
warrants and other securities has been issued in violation of the preemptive
rights of any securityholder of the Company. The offers and sales of the
outstanding shares of Common Stock and options, warrants and other rights to
acquire Common Stock were at all relevant times either registered under the 1933
Act and applicable state securities laws or exempt from such requirements. No
holder of any of the Company's securities has any rights,
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<PAGE> 15
"demand," "piggy-back" or otherwise, to have such securities registered by
reason of the intention to file, filing or effectiveness of the Registration
Statement.
(d) CONCERNING THE SHARES AND THE COMMON STOCK. The Shares have
been duly authorized and the Preferred Shares, when issued and paid for in
accordance with this Agreement, and the Conversion Shares, when issued upon
conversion of the Preferred Shares, will be duly and validly issued, fully paid
and non-assessable and will not subject the holder thereof to personal liability
by reason of being such holder. There are no preemptive or similar rights of any
stockholder of the Company or any other Person to acquire any of the Shares. The
Company has duly reserved 2,406,350 shares of Common Stock for conversion of the
shares of Preferred Stock, and such shares shall remain so reserved (subject to
reduction from time to time for shares of Common Stock issued upon conversion of
shares of Preferred Stock), and the Company shall from time to time reserve such
additional shares of Common Stock as shall be required to be reserved pursuant
to the Certificate of Designations, as long as the Preferred Stock is
convertible (which the Company will allocate pro rata among the holders of the
Preferred Stock based on the shares of Preferred Stock outstanding at the time
such shares of Common Stock are so reserved). The Common Stock is listed for
trading on the AMEX and (1) the Company and the Common Stock meet the criteria
for continued listing and trading on the AMEX; (2) the Company has not been
notified since December 15, 1995 by the AMEX of any failure or potential failure
to meet the criteria for continued listing and trading on the AMEX and (3) no
suspension of trading in the Common Stock is in effect. The Company knows of no
reason that the Conversion Shares will not be eligible for listing on the AMEX.
(e) CORPORATE AUTHORIZATION. The Transaction Documents have been
duly and validly authorized by the Company, this Agreement has been duly
executed and delivered by the Company and, assuming due execution and delivery
by the Buyer, this Agreement is, the Certificate of Designations, when executed
by the Company and filed with the Secretary of State of the State of Delaware,
will be, and the Conversion Agent Agreement, when executed and delivered by the
Company (and assuming due execution and delivery by the parties thereto other
than the Company), will be, valid and binding obligations of the Company
enforceable in accordance with their respective terms, except as the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally and general principles of equity,
regardless of whether enforcement is considered in a proceeding in equity or at
law.
(f) NON-CONTRAVENTION. The execution and delivery of the
Transaction Documents by the Company and the consummation by the Company of the
issuance of the Preferred Shares as contemplated by this Agreement and the other
transactions contemplated by the Transaction Documents do not and will not, with
or without the giving of notice or the lapse of time, or both, (i) result in any
violation of any term of the certificate of incorporation or by-laws of the
Company or any Subsidiary, (ii) conflict with or result in a breach by the
Company or any Subsidiary of any of the terms or provisions of, or constitute a
default under, or result in the modification of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any Subsidiary pursuant to, any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or any of their respective properties or assets are bound or affected, (iii)
violate or contravene any applicable law, rule or regulation or any applicable
decree, judgment or order of any court, United States federal or state
regulatory body, administrative agency or other governmental body having
jurisdiction over the Company or any Subsidiary or any of their respective
properties or assets or (iv) have any material adverse effect on any permit,
certification, registration, approval, consent, license or franchise necessary
for the Company or any Subsidiary to own or lease and operate any of their
respective properties and to conduct any of their respective businesses or the
ability of the Company or any Subsidiary to make use thereof.
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<PAGE> 16
(g) APPROVALS. No authorization, approval or consent of, or filing
with, any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or the stockholders of the Company is required
to be obtained or made by the Company or any Subsidiary for (1) the execution,
delivery and performance by the Company of the Transaction Documents, (2) the
issuance and sale of Conversion Shares upon conversion of the Preferred Shares
as contemplated by this Agreement and the Certificate of Designations and (3)
the performance by the Company of its other obligations under the Transaction
Documents, other than (1) listing of the Conversion Shares on the AMEX, (2)
registration of the resale of the Conversion Shares under the 1933 Act as
contemplated by Section 8, (3) as may be required under applicable state
securities or "blue sky" laws, (4) filing of one or more Forms D with respect to
the Shares as required under Regulation D, and (5) the Stockholder Approval
contemplated by Section 5(j).
(h) INFORMATION PROVIDED. The information provided by the Company
to the Buyer in writing in connection with the transactions contemplated by this
Agreement, other than any forecasts and forward-looking statements included in
such information (except any forward looking statements set forth in the SEC
Reports which forward-looking statements shall be subject to Exhibit 99 to the
1996 10-K to the extent so stated in the SEC Reports), including, without
limitation, the written information referred to in Section 3(e) of this
Agreement, other than any such forecasts and forward-looking information (except
as aforesaid), does not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading, it
being understood that for purposes of this Section 4(h), any statement contained
in such information shall be deemed to be modified or superseded for purposes of
this Section 4(h) to the extent that a statement in any document included in
such information which was prepared or filed with the SEC on a later date
modifies or replaces such statement, whether or not such later prepared or filed
statement so states.
(i) SEC FILINGS. The Company has timely filed all reports required
to be filed under the 1934 Act and any other material reports or documents
required to be filed with the SEC since December 15, 1995. All of such reports
and documents complied, when filed, in all material respects, with all
applicable requirements of the 1933 Act and the 1934 Act. The Company meets the
requirements for the use of Form S-3 for the registration of the resale of the
Conversion Shares by the Buyer and any other Investor. The Company has not filed
any reports with the SEC under the 1934 Act since December 31, 1996 other than
the SEC Reports.
(j) CONDUCT OF BUSINESS. Except as set forth in the SEC Reports,
since December 31, 1996, neither the Company nor any Subsidiary has (i) incurred
any material obligation or liability (absolute or contingent) other than in the
ordinary course of business; (ii) canceled, without payment in full, any
material notes, loans or other obligations receivable or other debts or claims
held by it other than in the ordinary course of business; (iii) sold, assigned,
transferred, abandoned, mortgaged, pledged or subjected to lien any of its
material properties, tangible or intangible, or rights under any material
contract, permit, license, franchise or other agreement other than in the
ordinary course of business; (iv) conducted its business in a manner materially
different from its business as conducted on such date; (v) declared, made or
paid or set aside for payment any cash or non-cash distribution on any shares of
its capital stock other than regular quarterly cash dividends; or (vi)
consummated, or entered into any agreement with respect to, any transaction or
event which would constitute an Optional Redemption Event. Except as disclosed
in the SEC Reports, the Company and the Subsidiaries own, possess or have
obtained all governmental, administrative and third party licenses, permits,
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<PAGE> 17
certificates, registrations, approvals, consents and other authorizations
necessary to own or lease (as the case may be) and operate their respective
properties, whether tangible or intangible, and to conduct their respective
businesses or operations as currently conducted, except such licenses, permits,
certificates, registrations, approvals, consents and authorizations the failure
of which to obtain would not have a material adverse effect on the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company and the Subsidiaries taken as a whole.
(k) ABSENCE OF CERTAIN PROCEEDINGS. There is no action, suit or
proceeding, before or by any court, public board or body or governmental agency
pending or, to the knowledge of the Company and the Subsidiaries, threatened
against the Company or any Subsidiary and, to the knowledge of the Company and
the Subsidiaries, there is no inquiry or investigation before or by any court,
public board or body or governmental agency pending or threatened against the
Company or any Subsidiary, in any such case wherein an unfavorable decision,
ruling or finding would have a material adverse effect on the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company and the Subsidiaries taken as a whole or the
transactions contemplated by the Transaction Documents or which would, in the
case of an unfavorable decision, ruling or finding, adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, the Transaction Documents; the Company does not
have pending before the SEC any request for confidential treatment of
information and to the best of the Company's knowledge no such request will be
made by the Company prior to the SEC Effective Date; and to the best of the
Company's knowledge there is not pending or contemplated, and since January 1,
1993 there has been no, investigation by the SEC involving the Company or any
current director or officer of the Company.
(l) LIABILITIES. Except as and to the extent disclosed, reflected
or reserved against in the financial statements of the Company and the notes
thereto included in the 1996 10-K or disclosed in the SEC Reports, neither the
Company nor any Subsidiary has any material (individually or in the aggregate)
liabilities, debts or obligations whether accrued, absolute, contingent or
otherwise, and whether due or to become due. Subsequent to December 31, 1996,
neither the Company nor any Subsidiary has incurred any liabilities, debts or
obligations of any nature whatsoever which are individually or in the aggregate
material to the Company and the Subsidiaries taken as a whole, other than those
incurred in the ordinary course of their respective businesses or disclosed in
the SEC Reports.
(m) ABSENCE OF CERTAIN CHANGES. Since December 31, 1996, there has
been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and the Subsidiaries taken as a whole,
except as disclosed in the SEC Reports.
(n) MATERIAL LOSSES. Since December 31, 1996, neither the Company
nor any Subsidiary has sustained any loss or interference with its business or
properties from fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or court or governmental
action, order or decree, which loss or interference is or is likely to be
material to the business, properties, operations, condition (financial or
other), results of operations or prospects of the Company and the Subsidiaries
taken as a whole.
(o) PROPERTIES. The Company and each Subsidiary has good title to
all property real and personal (tangible and intangible) and other assets owned
by it which is necessary to the operations of the Company or such Subsidiary,
free and clear of all security interests, charges, mortgages, liens or other
encumbrances, except such as are described in the SEC Reports or such as do not
materially interfere with the use of such property made, or proposed to be made,
by the Company or such Subsidiary. The leases, licenses or other contracts or
instruments under which the Company and each Subsidiary leases, holds or is
entitled to use any property, real or personal which is material to the Company
and the Subsidiaries taken as a whole, are valid, subsisting and enforceable
with only such exceptions as do not materially
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<PAGE> 18
interfere with the use of such property made, or proposed to be made, by the
Company or such Subsidiary. Neither the Company nor any Subsidiary has received
notice of any material violation of any applicable law, ordinance, regulation,
order or requirement relating to its owned or leased properties.
(p) INTELLECTUAL PROPERTY. Except as disclosed in the SEC Reports,
the Company and each Subsidiary owns, or possesses adequate rights to use, all
patents, patent rights, inventions, trade secrets, know-how, proprietary
techniques, including processes and substances, trademarks, service marks, trade
names and copyrights described or referred to in the SEC Reports or owned or
used by it which are necessary for the conduct of its business as it is
presently conducted or proposed to be conducted, except where the failure to own
or possess adequate rights to use such patents, patent rights, inventions, trade
secrets, service marks, trade names and copyrights would not have a material
adverse effect on the business, properties, operations, condition (financial or
other), results of operations or prospects of the Company and the Subsidiaries
taken as a whole. Except as disclosed in the SEC Reports, neither the Company
nor any Subsidiary has received any notice of infringement of or conflict with
asserted rights of others with respect to, any patents, patent rights,
inventions, trade secrets, know-how, proprietary techniques, including processes
and substances, trademarks, service marks, trade names or copyrights which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, is likely to have a material adverse effect on the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company and the Subsidiaries taken as a whole.
(q) INTERNAL ACCOUNTING CONTROLS. The Company and the Subsidiaries
maintain a system of internal accounting controls meeting the requirements of
Section 13(b)(2) of the 1934 Act in all material respects.
(r) COMPLIANCE WITH LAW. Neither the Company nor any Subsidiary is
in violation of any statute, law, rule, regulation, ordinance, decision or order
of any governmental agency or body or any court, domestic or foreign, including,
without limitation, those relating to the use, operation, handling,
transportation, disposal or release of hazardous or toxic substances or wastes
or relating to the protection or restoration of the environment or human
exposure to hazardous or toxic substances or wastes, except where such violation
would not individually or in the aggregate have a material adverse effect on the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and the Subsidiaries taken as a whole;
and neither the Company nor any Subsidiary is aware of any pending investigation
which would reasonably be expected to lead to such a claim.
(s) LABOR RELATIONS. No material labor problem exists or, to the
knowledge of the Company or any Subsidiary, is imminent with respect to any of
the employees of the Company or any Subsidiary which if resolved unfavorably to
the Company or a Subsidiary would have a material adverse effect on the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and the Subsidiaries, taken as a whole.
(t) INSURANCE. The Company and the Subsidiaries maintain insurance
against loss or damage by fire or other casualty and such other insurance,
including but not limited to, product liability insurance, in such amounts and
covering such risks as is reasonably adequate for the conduct of their
businesses and the value of their properties.
(u) ABSENCE OF BROKERS, FINDERS, ETC. No broker, finder or similar
Person other than Diaz & Altschul Capital, LLC is entitled to any commission,
fee or other compensation by reason of the transactions contemplated by this
Agreement based on the Company's actions, and the Company shall pay, and
indemnify and hold harmless the Buyer
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<PAGE> 19
from, any claim made against the Buyer by any Person for any such commission,
fee or other compensation.
(v) NO SOLICITATION. No form of general solicitation or general
advertising was used by the Company or, to the best of its knowledge, any other
Person acting on behalf of the Company, in respect of the Shares or in
connection with the offer and sale of the Shares. Neither the Company nor, to
its knowledge, any Person acting on behalf of the Company has, either directly
or indirectly, sold or offered for sale to any Person any of the Shares or,
within the six months prior to the date hereof, any other similar security of
the Company except as contemplated by this Agreement and the Other Subscription
Agreements; and neither the Company nor any Person authorized to act on its
behalf will sell or offer for sale any shares of Preferred Stock or shares of
Common Stock, or solicit any offers to buy any shares of Preferred Stock or
shares of Common Stock so as thereby to cause the issuance or sale of any of the
Shares to be in violation of Section 5 of the 1933 Act.
(w) CERTAIN ISSUANCES OF SECURITIES. The Company has not issued
any shares of Common Stock or shares of any series of preferred stock (other
than the Preferred Shares and the shares of Preferred Stock being issued
pursuant to the Other Subscription Agreements) or other securities convertible
into, exchangeable for or otherwise entitling the holder to acquire shares of
Common Stock which are subject to Rule 713 of the AMEX (or any successor or
replacement provision thereof) and which would be integrated with the sale of
the Preferred Shares to the Buyer or the issuance of Conversion Shares upon
conversion thereof for purposes of such Rule 713 (or any successor or
replacement provision thereof).
(x) ERISA COMPLIANCE. The Company and each Subsidiary is in
compliance in all material respects with all presently applicable provisions of
ERISA; no "reportable event" (as defined in ERISA) has occurred with respect to
any "pension plan" (as defined in ERISA) for which the Company or any Subsidiary
would have any liability; neither the Company nor any Subsidiary has incurred or
expects to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Code; and each "pension plan" for which the Company or any
Subsidiary would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects and nothing
has occurred, whether by action or by failure to act, which would cause the loss
of such qualification.
(y) TAX MATTERS. The Company and each Subsidiary has filed all
federal, state and local income and franchise tax returns required to be filed
and has paid all taxes shown by such returns to be due, and no tax deficiency
has been determined adversely to the Company or any Subsidiary which has had
(nor does the Company or any Subsidiary have any knowledge of any tax deficiency
which, if determined adversely to the Company or any Subsidiary might have) a
material adverse effect on the business, properties, operations, conditions
(financial or other), results of operations or prospects of the Company and the
Subsidiaries taken as a whole.
(z) INVESTMENT COMPANY. Neither the Company nor any Subsidiary is
an "investment company" within the meaning of such term under the Investment
Company Act of 1940, as amended and the rules and regulations of the SEC
thereunder.
5. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(a) TRANSFER RESTRICTIONS. The Buyer acknowledges and agrees that
(1) the Preferred Shares have not been and are not being registered under the
provisions of the 1933 Act or any state securities laws and, except as provided
in Section 8, the Conversion Shares have not been and are not being registered
under the 1933 Act or any state securities laws, and that the
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<PAGE> 20
Preferred Shares may be transferred only to a Permitted Transferee and may not
be transferred unless the Buyer shall have delivered to the Company an opinion
of counsel, reasonably satisfactory in form, scope and substance to the Company,
to the effect that the Preferred Shares to be transferred may be transferred
without such registration in the manner contemplated by the Buyer; (2) no offer,
sale, assignment or other transfer of the Preferred Shares or any interest
therein may be made, directly or indirectly, except in accordance with the terms
of this Section 5(a) and Section 10(j); (3) the Conversion Shares may not be
resold by the Buyer unless the resale has been registered under the 1933 Act or
is made pursuant to an exemption from such registration; (4) any sale of the
Shares made in reliance on Rule 144 may be made only in accordance with the
terms of said Rule and further, if the exemption provided by Rule 144 is not
available, any resale of the Shares under circumstances in which the seller, or
the Person through whom the sale is made, may be deemed to be an underwriter, as
that term is used in the 1933 Act, may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (5) the Company is under no obligation to register the Shares (other than
registration of the resale of the Conversion Shares in accordance with Section
8) under the 1933 Act or, except as provided in Section 8, to comply with the
terms and conditions of any exemption thereunder. The Buyer may not transfer the
Conversion Shares in a transaction which does not constitute a transfer thereof
pursuant to the Registration Statement in accordance with the plan of
distribution set forth therein or in any supplement to the Prospectus forming
part of the Registration Statement unless the Buyer shall have delivered to the
Company an opinion of counsel, reasonably satisfactory in form, scope and
substance to the Company, that such Conversion Shares may be transferred without
registration under the 1933 Act.
(b) RESTRICTIVE LEGENDS. (1) The Buyer acknowledges and agrees
that the certificates for the Preferred Shares shall bear restrictive legends in
substantially the following form (and a stop-transfer order may be placed
against transfer of the Preferred Shares):
These securities have not been registered under the Securities Act of
1933, as amended (the "Act"). The sale to the holder of these
securities of the shares of common stock issuable upon conversion of
these securities are not covered by a registration statement under the
Act. These securities have been acquired, and such shares of common
stock must be acquired, for investment and may not be resold,
transferred or assigned in the absence of an effective registration
statement under the Act or an opinion of counsel reasonably
satisfactory in form, scope and substance to the Company that
registration is not required under the Act.
These securities are subject to restrictions on the sale or other
transfer of these securities pursuant to a Subscription Agreement,
dated as of January 23, 1998, by and between the Company and the
original holder of these securities. A copy of such agreement is
available for inspection during normal business hours at the principal
executive office of the Company, upon prior written request to the
Secretary of the Company.
The number of shares constituting the portion of the Maximum Share
Amount, as defined in the Certificate of Designations of Rights and
Preferences (the "Certificate of Designations") of the Series A Custom
Convertible Preferred Stock (the "Series A Shares"), allocated to the
Series A Shares represented by this certificate for purposes of
conversion thereof is 1,388,279. The number of Series A Shares
evidenced by this certificate which constitute the Stockholder Approval
Portion (as defined in the Certificate of Designations) is 576.
Section 10(b)(3)(A) of the Certificate of Designations permits a holder
of the securities represented by this certificate to convert such
securities in accordance with the Certificate of Designations without
being required to physically surrender this certificate to the Company
unless all of the securities represented hereby are so converted.
Consequently,
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<PAGE> 21
following conversion of any of the securities represented by this
certificate, the number of shares represented by this certificate may
be less than the number of shares stated hereon. Upon request of any
proposed transferee of this certificate, the Company will provide
confirmation of the number of shares evidenced by this certificate.
(2) The Buyer further acknowledges and agrees that until such time
as the Conversion Shares have been registered for resale under the 1933 Act as
contemplated by Section 8, the certificates for the Conversion Shares shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for the Conversion
Shares):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"). The
securities have been acquired for investment and may not be resold,
transferred or assigned in the absence of an effective registration
statement for the securities under the Act, or an opinion of counsel
reasonably satisfactory in form, scope and substance to the Company
that registration is not required under the Act.
(3) Once the Registration Statement required to be filed by the
Company pursuant to Section 8 has been declared effective, thereafter (1) upon
request of the Buyer the Company will substitute certificates without
restrictive legend for certificates for any Conversion Shares issued prior to
the SEC Effective Date which bear such restrictive legend and remove any
stop-transfer restriction relating thereto promptly, but in no event later than
three Business Days after surrender of such certificates by the Buyer and (2)
the Company shall not place any restrictive legend on certificates for
Conversion Shares issued on conversion of the Preferred Shares or Dividend
Shares issued in respect of the Preferred Shares or impose any stop-transfer
restriction thereon unless such legend or stop-transfer instruction is required
by a change in applicable law subsequent to the date of this Agreement (it being
understood and agreed by the Company and the Buyer that applicable law in effect
on the date of this Agreement would not require any such legend or stop-transfer
instruction in the absence of an offer, sale, transfer or other disposition of
Conversion Shares in violation of Section 5 of the 1933 Act or a sale by the
Buyer of Conversion Shares pursuant to the Registration Statement but not in
accordance with the plan of distribution contained in the Prospectus); provided,
however, that if the Buyer shall have offered, sold, transferred or otherwise
disposed of any Conversion Shares in violation of Section 5 of the 1933 Act,
nothing in this sentence shall prohibit the Company from taking any action
permitted by applicable law with respect to the Conversion Shares so offered,
sold, transferred or otherwise disposed of.
(c) CONVERSION AGENT AGREEMENT. Promptly following the delivery
by the Buyer of the Purchase Price for the Preferred Shares in accordance with
Section 2(c) hereof, and in any event prior to the Closing, the Company will (1)
enter into the Conversion Agent Agreement substantially in the form attached
hereto as ANNEX III and pursuant thereto irrevocably instruct the Conversion
Agent, to issue certificates for the Conversion Shares from time to time upon
conversion of the Preferred Shares in such amounts as specified from time to
time to the Conversion Agent in the Conversion Notices surrendered in connection
with such conversions in accordance with the Certificate of Designations,
subject to the terms and provisions of the Conversion Agent Agreement, and (2)
appoint the Conversion Agent the conversion agent for the Preferred Stock. The
certificates for the Conversion Shares may bear the restrictive legend specified
in Section 5(b) of this Agreement prior to registration of the resale of the
Conversion Shares under the 1933 Act. The certificates for the Conversion Shares
shall be registered in the name of the Buyer or its nominee and in such
denominations to be specified by the Buyer in connection with each conversion of
Preferred Shares, and otherwise in accordance with the Certificate of
Designations. The Company warrants that, except as otherwise expressly permitted
by the Conversion Agent Agreement, no instruction, other than (x)
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such instructions referred to in this Section 5(c), (y) stop transfer
instructions to give effect to Section 5(a) hereof prior to registration of the
resale of the Conversion Shares under the 1933 Act and (z) the instructions
required by Section 8(b)(12) hereof, will be given by the Company to the
Conversion Agent and that the Conversion Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement; provided, however, that if the Buyer shall have
offered, sold, transferred or otherwise disposed of any Conversion Shares in
violation of Section 5 of the 1933 Act, nothing in this sentence shall prohibit
the Company from taking any action permitted by applicable law with respect to
the Conversion Shares so offered, sold, transferred or otherwise disposed of.
Nothing in this Section 5(c) shall limit in any way the Buyer's obligations and
agreement to comply with Sections 5(a) and 8(c) of this Agreement upon resale of
the Shares. In connection with any resale of Shares, if the Buyer (x) provides
the Company with an opinion of counsel reasonably satisfactory in form, scope
and substance to the Company that registration of a resale by the Buyer of any
of the Shares in accordance with Section 5(a) of this Agreement is not required
under the 1933 Act and (y) otherwise complies with Section 5(a) with respect to
such resale, the Company shall permit the transfer of such Shares and, in the
case of the Conversion Shares, timely instruct the Conversion Agent to issue
upon transfer one or more share certificates in such name and in such
denominations as specified by the Buyer within three Trading Days after the
Buyer satisfies the requirements of the preceding clauses (x) and (y). Nothing
in this Section 5(c) shall limit the obligations of the Company under Section 8
of this Agreement.
(d) FORM D. The Company agrees to file a Form D with respect to
the Shares as required under Regulation D and to provide a copy thereof to the
Buyer promptly after such filing.
(e) STOCK EXCHANGE LISTING; REPORTING STATUS. Prior to the Closing
Date, the Company shall file an application for listing of additional shares
with the AMEX and shall provide evidence of such filing to the Buyer. The
Company shall use its best efforts to obtain the listing, subject to official
notice of issuance, of the Conversion Shares on the AMEX on or prior to the
Closing Date. So long as the Buyer beneficially owns any Preferred Shares or
Conversion Shares, the Company will use its best efforts to maintain the listing
of the Common Stock on the AMEX or another national securities exchange or
Nasdaq. So long as the Company is required to maintain effectiveness of the
Registration Statement in accordance with Section 8, the Company shall timely
file all reports required to be filed with the SEC pursuant to Section 13 or
15(d) of the 1934 Act, and the Company shall not, during the period the Company
is required to keep the Registration Statement effective pursuant to Section
8(b), terminate its status as an issuer required to file reports under the 1934
Act even if the 1934 Act or the rules and regulations thereunder would permit
such termination. So long as the Buyer owns any Shares, the Company shall
furnish to the Buyer copies of all reports and other information filed by the
Company with the SEC pursuant to Sections 13, 14(a), 14(c) and 15(d) of the 1934
Act promptly, but in no event later than five days after the same are filed with
the SEC.
(f) USE OF PROCEEDS. The Company does not own or have any present
intention of acquiring any Margin Stock. The proceeds of sale of the Preferred
Stock will be used for general working capital purposes and in the operation of
the Company's business. None of such proceeds will be used, directly or
indirectly (1) to make any loan to or investment in any other Person, other than
Permitted Investments and other than such other loans and investments as shall
have been approved or deemed approved by the Majority Holders as provided
herein, or (2) for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any Margin Stock or for the purpose of maintaining,
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any stock that is a Margin Stock or for any other purpose which would
constitute the transactions contemplated by this Agreement a "purpose credit"
within the meaning of Regulation G of the Board of Governors of the Federal
Reserve System. Neither the Company nor any agent acting on its behalf has taken
or will take any action which
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<PAGE> 23
might cause this Agreement or the transactions contemplated hereby to violate
Regulation G, Regulation T or any other regulation of the Board of Governors of
the Federal Reserve System or to violate the 1934 Act, in each case as in effect
now or as the same may hereafter be in effect. If the Company determines to seek
the approval of the Majority Holders as contemplated by clause (1) of the second
sentence of this Section 5(f), the Company shall, by notice to the holders of
shares of Preferred Stock who are entitled to participate in such approval, make
a request for such approval, which shall include in reasonable detail
(including, without limitation, the amount) a description of the proposed use of
proceeds of the sale of the Preferred Stock. If any holder of shares of
Preferred Stock who is entitled to participate in such approval shall have
failed to notify the Company of such holder's decision within ten days after the
Company has so notified such holder, such holder shall be deemed to have
approved the use of proceeds of the sale of the Preferred Stock as described in
such notice by the Company. Any such approval by such holders of the Preferred
Stock shall not be unreasonably withheld, delayed or conditioned.
(g) STATE SECURITIES LAWS. On or before the Closing Date, the
Company shall take such action as shall be necessary to qualify, or to obtain an
exemption for, the Preferred Shares for sale to the Buyer pursuant to this
Agreement and the Conversion Shares for issuance to the Buyer on conversion of
the Preferred Shares under such of the securities or "blue sky" laws of
jurisdictions as shall be applicable to the sale of the Preferred Shares
pursuant to this Agreement and the issuance to the Buyer of Conversion Shares on
conversion of the Preferred Shares based on information provided by the Buyer.
In connection with the foregoing obligations of the Company in this Section
5(g), the Company shall not be required (1) to qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 5(g), (2) to subject itself to general taxation in any such
jurisdiction, (3) to file a general consent to service of process in any such
jurisdiction, (4) to provide any undertakings that cause more than nominal
expense or burden to the Company or (5) to make any change in its charter or
by-laws which any officer of the Company determines to be contrary to the best
interests of the Company and its stockholders. On or prior to the Closing Date
the Company shall furnish copies of all filings, applications, orders and grants
or confirmations of exemptions relating to such securities or "blue sky" laws
required by applicable law to be obtained on or prior to the Closing Date and
thereafter, promptly after the same is filed or obtained, shall furnish copies
of all filings, applications, orders and grants or confirmations permitted by
applicable law to be obtained on or after the Closing Date.
(h) CERTAIN ISSUANCES OF SECURITIES. (1) Unless the Company
obtains the Stockholder Approval (as defined in the Certificate of Designations)
or a waiver thereof from AMEX, the Company will not issue any shares of Common
Stock or shares of any other series of preferred stock or other securities
convertible into, exchangeable for or otherwise entitling the holder to acquire
shares of Common Stock which would be subject to the requirements of Rule 713 of
the AMEX (or any successor or replacement provision thereof) and which would be
integrated with the sale of the Preferred Shares to the Buyer or the issuance of
Conversion Shares upon conversion thereof for purposes of Rule 713 of the AMEX
(or any successor or replacement provision thereof).
(2) The Company shall not offer, sell, contract to sell or issue
(or engage any Person to assist the Company in taking any such action) any
Equity Securities at a price below the market price of the Common Stock during
the period from the date of this Agreement to the date on which the Registration
Statement shall have been effective with the SEC for 90 consecutive days;
provided, however, that nothing in this Section 5(h)(2) shall prohibit the
Company from issuing securities (x) pursuant to compensation plans for
employees, directors, officers, advisers or consultants of the Company and in
accordance with the terms of such plans as in effect as of the date of this
Agreement or (y) upon exercise of conversion, exchange, purchase or similar
rights issued, granted or given by the Company and outstanding as of the date of
this Agreement.
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<PAGE> 24
(i) LIMITATION ON CERTAIN ACTIONS. From the date of execution and
delivery of this Agreement by the parties hereto to the date of issuance of the
Preferred Shares, the Company (1) shall comply with Sections 5(c), 5(d) and 12
of the Certificate of Designations as if the Preferred Shares were outstanding,
(2) shall not take any action which, if the Preferred Shares were outstanding,
would constitute an Optional Redemption Event or, with the giving of notice or
the passage of time or both, would constitute an Optional Redemption Event.
(j) STOCKHOLDER APPROVAL. The Company shall seek and use its best
efforts to obtain at the Company's next regularly scheduled Annual Meeting of
Stockholders, Stockholder Approval of the issuance of the Preferred Shares and
the Conversion Shares. The Company shall prepare and file with the SEC within 30
days prior to the scheduled mailing of notice of such Annual Meeting preliminary
proxy materials which set forth a proposal to seek such Stockholder Approval.
The Company shall provide the Buyer an opportunity to consult with the Company
regarding the content of such proxy materials insofar as it relates to the
Stockholder Approval by providing copies of such preliminary proxy materials and
any revised preliminary proxy materials to the Buyer a reasonable period of time
prior to their filing with the SEC. The Company shall furnish to the Buyer and
its counsel a copy of its definitive proxy materials for such Annual Meeting and
any amendments or supplements thereto promptly after the same are mailed to
stockholders or filed with the SEC. If for any reason the Company fails to
obtain such Stockholder Approval, the Company shall be required to redeem
Preferred Shares in accordance with Section 7(b) of the Certificate of
Designations. As used herein, "Stockholder Approval" shall mean the approval by
a majority of the votes cast by the holders of shares of Common Stock (in person
or by proxy) at a meeting of the stockholders of the Company (duly convened at
which a quorum was present), or a written consent of holders of shares of Common
Stock entitled to such number of votes given without a meeting, of the issuance
by the Company of 20% or more of the Common Stock of the Company outstanding on
the date of issuance of the Company's Series A Custom Convertible Preferred
Stock for less than the greater of the book or market value of such Common Stock
on conversion of the Preferred Stock, as and to the extent required under Rule
713 of the AMEX as in effect from time to time or any successor provision.
(k) BEST EFFORTS. Each of the parties shall use its best efforts
timely to satisfy each of the conditions to the other party's obligations to
sell and purchase the Preferred Shares set forth in Section 6 or 7, as the case
may be, of this Agreement on or before the Closing Date.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE.
The Buyer understands that the Company's obligation to sell the
Preferred Shares to the Buyer pursuant to this Agreement is conditioned upon the
satisfaction of the following conditions precedent on or before the Closing Date
(any or all of which may be waived by the Company in its sole discretion):
(a) Delivery by the Buyer to the Escrow Agent of good funds in an
amount equal to the Purchase Price;
(b) On the Closing Date, no legal action, suit or proceeding shall
be pending or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement;
(c) The representations and warranties of the Buyer contained in
this Agreement, in the Questionnaire and in each other document or instrument
executed by the Buyer and delivered to the Company in connection with this
Agreement shall be true and correct on the Closing Date as if made on the
Closing Date and the Buyer shall have performed on or
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<PAGE> 25
before the Closing Date all covenants and agreements of the Buyer contained
herein and therein which are required to be performed on or before the Closing
Date;
(d) The Company shall have received satisfactory confirmation of
the filing of the Certificate of Designations with the Secretary of State of the
State of Delaware; and
(e) The closing under each of the Other Subscription Agreements
shall have occurred at or before the time of the closing under this Agreement.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase
the Preferred Shares on the Closing Date is conditioned upon the satisfaction of
the following conditions precedent on or before the Closing Date (any or all of
which may be waived by the Buyer in its sole discretion):
(a) Delivery by the Company to the Escrow Agent of the
certificates for the Preferred Shares in accordance with this Agreement;
(b) The Conversion Agent shall have executed and delivered the
Conversion Agent Agreement in the form attached hereto as ANNEX III.
(c) On the Closing Date, no legal action, suit or proceeding shall
be pending or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement;
(d) The representations and warranties of the Company contained in
this Agreement and each other agreement or instrument executed and delivered by
the Company in connection with this Agreement shall be true and correct on the
Closing Date as if made on the Closing Date; and on or before the Closing Date
the Company shall have performed all covenants and agreements of the Company
contained herein and therein which are required to be performed by the Company
on or before the Closing Date;
(e) No event which, if the Preferred Shares were outstanding,
would constitute an Optional Redemption Event or, with the giving of notice or
the lapse of time, or both, would constitute an Optional Redemption Event shall
have occurred and be continuing;
(f) The Company shall have delivered to the Buyer its certificate,
dated the Closing Date, duly executed by its Chief Financial Officer to the
effect set forth in subparagraphs (c), (d), and (e) of this Section 7;
(g) The Buyer shall have received satisfactory confirmation of the
filing of the Certificate of Designations with the Secretary of State of the
State of Delaware;
(h) The Conversion Shares shall have been approved for listing,
subject to official notice of issuance, by the AMEX and the Buyer shall have
received evidence or confirmation, reasonably acceptable to the Buyer, of such
approval by the AMEX;
(i) The Buyer shall have received a certificate, dated the Closing
Date, of the Secretary of the Company certifying (1) the Certificate of
Incorporation and By-Laws of the Company as in effect on the Closing Date, (2)
all resolutions of the Board of Directors (and committees thereof) of the
Company relating to this Agreement and the transactions contemplated hereby and
(3) such other matters as reasonably requested by the Buyer;
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(j) The Buyer shall have received on the Closing Date an opinion
of counsel for the Company, dated the Closing Date addressed to the Buyer, in
form, scope and substance reasonably satisfactory to the Buyer, to the effect
set forth in ANNEX IV attached hereto;
(k) On the Closing Date, (i) trading in securities on the New York
Stock Exchange, Inc., the AMEX or Nasdaq shall not have been suspended or
materially limited and (ii) a general moratorium on commercial banking
activities in the State of Maryland or the State of New York shall not have been
declared by either federal or state authorities; and
(l) The closing under each of the Other Subscription Agreements
shall have occurred at or before the time of the closing under this Agreement.
8. REGISTRATION RIGHTS.
(a) MANDATORY REGISTRATION. (1) The Company shall prepare promptly
and, on or prior to the date which is 20 days after the Closing Date, file with
the SEC a Registration Statement on Form S-3 covering the resale by the Buyer of
a number of shares of Common Stock equal to at least the number of Conversion
Shares issuable to the Buyer upon conversion of the Preferred Shares, determined
at the Conversion Price which is applicable on the day the Registration
Statement is filed with the SEC (and determined without regard to the limitation
on beneficial ownership contained in the second sentence of Section 10(a) of the
Certificate of Designations), which Registration Statement shall state that, in
accordance with Rule 416 under the 1933 Act, such Registration Statement also
covers such indeterminate number of additional shares of Common Stock as may
become issuable upon conversion of the Preferred Shares to prevent dilution
resulting from stock splits, stock dividends or similar transactions. If,
notwithstanding Rule 416 under the 1933 Act, the Registration Statement is not
deemed to cover such indeterminate number of additional shares of Common Stock
as shall be issuable upon conversion of the Preferred Shares based on changes
from time to time in the Conversion Price such that at any time the number of
additional shares of Common Stock included in the Registration Statement
required to be filed as provided in the first sentence of this Section 8(a)
shall be insufficient to cover the number of shares of Common Stock issuable on
conversion in full of the unconverted Preferred Shares, then promptly, but in no
event later than 15 days after such insufficiency shall occur, the Company shall
file with the SEC an additional Registration Statement on Form S-3 (which shall
not constitute a post-effective amendment to the Registration Statement filed
pursuant to the first sentence of this Section 8(a)) covering such number of
shares of Common Stock as shall be sufficient to permit such conversion;
provided, however, that nothing in this Section 8(a) shall limit the rights of
the holders of the Preferred Shares to have all or a portion of the Preferred
Shares redeemed pursuant to Section 11 of the Certificate of Designations. For
all purposes of this Agreement such additional Registration Statement shall be
deemed to be the Registration Statement required to be filed by the Company
pursuant to this Section 8(a), and the Company and the Investors shall have the
same rights and obligations with respect to such additional Registration
Statement as they shall have with respect to the initial Registration Statement
required to be filed by the Company pursuant to this Section 8(a). The Company
shall be entitled to include all Persons who are Investors at the time a
Registration Statement is filed with the SEC and whose Registrable Securities
are to be included in such Registration Statement as selling stockholders in a
single Registration Statement.
(2) At any time during the Registration Period when the
Registration Statement for any reason is unavailable for use by any Investor for
the resale of any of Registrable Securities, the Company shall not file any
other registration statement or any amendment thereto with the SEC under the
1933 Act or request the acceleration of the effectiveness of any other
registration statement previously filed with the SEC, other than any
registration statement on Form S-8 or a Registration Statement under this
Agreement; provided, however, that the restrictions in this Section 8(a)(2)
shall not apply during any period that the
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Registration Statement is unavailable for use by any Investor due to an action
or omission by an Investor in breach of Section 8(c) or a material misstatement
or omission in information provided in writing by an Investor to the Company for
use in the Registration Statement or Prospectus, so long as in each such case
the Company shall be in compliance with Section 8(b)(5).
(b) OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall:
(1) use its best efforts to cause the Registration Statement
referred to in the first sentence of Section 8(a)(1) to become effective as
promptly as possible after the Closing Date, and keep the Registration Statement
effective pursuant to Rule 415 at all times during the Registration Period. The
Company shall submit to the SEC, within three Business Days after the Company
learns that no review of the Registration Statement will be made by the staff of
the SEC or that the staff of the SEC has no further comments on or questions
with respect to the Registration Statement, as the case may be, a request for
acceleration of effectiveness of the Registration Statement to the earliest time
and date after the submission of such request which is permitted under the
practices of the staff of the SEC. The Company represents and warrants to the
Investors that (a) the Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein), at the time it is first
filed with the SEC, at the time it is ordered effective by the SEC and at all
times during which it is required to be effective hereunder (and each such
amendment and supplement at the time it is filed with the SEC and at all times
during which it is available for use in connection with the offer and sale of
the Registrable Securities) shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading and (b) the Prospectus, at the
time the Registration Statement is declared effective by the SEC and at all
times that the Prospectus is required by this Agreement to be available for use
by any Investor, shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading;
(2) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
Prospectus as may be necessary to keep the Registration Statement effective, and
the Prospectus current, at all times during the Registration Period, and, during
the Registration Period, comply with the provisions of the 1933 Act applicable
to the Company in order to permit the disposition by the Investors of all
Registrable Securities covered by the Registration Statement in accordance with
the plan of distribution described therein as supplemented from time to time;
(3) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel, (1) promptly after
the same is prepared and publicly distributed, filed with the SEC or received by
the Company, five copies of the Registration Statement and any amendment
thereto, each Prospectus and each amendment or supplement thereto, (2) one copy
of each letter written by or on behalf of the Company to the SEC or the staff of
the SEC and each item of correspondence from the SEC or the staff of the SEC
relating to such Registration Statement (other than any portion of any thereof
which contains information for which the Company has sought confidential
treatment), each of which the Company hereby determines to be confidential
information and which the Buyer hereby agrees to keep confidential as a
confidential Record in accordance with Section 8(b)(9) and (3) such number of
copies of a Prospectus and all amendments and supplements thereto and such other
documents, as such Investor may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Investor; and deliver to
the AMEX ten copies of the Prospectus within one Business Day after the SEC
Effective Date and ten copies of each supplement to the Prospectus within one
Business Day after such supplement is available for use under the 1933
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Act, and take such other action in each such case so as to make available Rule
153 under the 1933 Act;
(4) use its best efforts to (i) to register and qualify the
Registrable Securities covered by the Registration Statement under the
securities or blue sky laws of such jurisdictions as the Investors who hold a
majority in interest of the Registrable Securities reasonably request, (ii) to
prepare and to file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period and (iii) to take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for sale
by the Investors in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto (I) to
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 8(b)(4), (II) to subject itself to
general taxation in any such jurisdiction, (III) to file a general consent to
service of process in any such jurisdiction, (IV) to provide any undertakings
that cause more than nominal expense or burden to the Company or (V) to make any
change in its charter or by-laws which any officer of the Company determines to
be contrary to the best interests of the Company and its stockholders;
(5) as promptly as practicable after becoming aware of such event
or circumstance, notify each Investor of any event or circumstance of which the
Company has knowledge, as a result of which the Prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement and Prospectus
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(6) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold of the issuance
by the SEC of any stop order or other suspension of effectiveness of the
Registration Statement at the earliest possible time;
(7) permit the Investors who hold Registrable Securities being
included in the Registration Statement and a single firm of counsel designated
as selling stockholders' counsel by the Investors who hold a majority in
interest of the Registrable Securities being sold to review the Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC and shall not file any document in a form to
which any Investor or such counsel reasonably and timely objects;
(8) make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earning statement (in form complying with the provisions of
Rule 158 under the 1933 Act) covering a twelve-month period beginning not later
than the first day of the Company's fiscal quarter next following the effective
date of the Registration Statement;
(9) make available for inspection by any Investor and any
Inspector retained by any such Investor at such Investor's sole expense, all
Records as shall be reasonably necessary to enable each Investor to exercise its
due diligence responsibility and cause the Company's and the Subsidiaries'
officers, directors and employees to supply all information which any Investor
or Inspector may reasonably request for purposes of such due diligence;
provided, however, that the Investors and each Inspector shall hold in
confidence and shall not make any disclosure (except to an Investor) of any
Record or other information which the
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Company determines in good faith to be confidential, and of which determination
the Investors and the Inspectors are so notified, unless and to the extent (i)
the disclosure of such Record is necessary under the 1933 Act or applicable
state securities laws to avoid or correct a misstatement or omission in any
Registration Statement, (ii) the release of such Record is ordered pursuant to a
subpoena or other order from a court or government body of competent
jurisdiction, in which case the Investors and each Inspector may disclose such
Record to the extent necessary to comply with such subpoena or order, subject to
any confidentiality afforded by such subpoena or order, or (iii) the information
in such Record has been made generally available to the public other than by
disclosure in violation of this Agreement or any other agreement. The Company
shall not be required to disclose any confidential information in such Records
to any Inspector until and unless such Inspector shall have entered into a
confidentiality agreement with the Company with respect thereto in the form
attached hereto as ANNEX VII. Each Investor agrees that it shall, upon learning
that disclosure of such Records is sought in or by a court or governmental body
of competent jurisdiction or through other means, give prompt notice to the
Company and, at the Company's expense, (A) allow the Company to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential and (B) reasonably cooperate with the
Company in such action by the Company. The Company shall hold in confidence and
shall not make any disclosure of information concerning an Investor provided to
the Company pursuant to this Agreement unless and to the extent (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other order from a court
or governmental body of competent jurisdiction, in which case the Company may
disclose such information to the extent necessary to comply with such subpoena
or order, subject to any confidentiality afforded by such subpoena or order, or
(iv) such information has been made generally available to the public other than
by disclosure in violation of this or any other agreement. The Company agrees
that it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor and, at
such Investor's expense, (X) allow such Investor to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, such information
and (Y) reasonably cooperate with such Investor in such action by such Investor.
No Investor or Inspector shall use any Record for any purpose other than in the
exercise of its due diligence and in connection with the Transaction Documents
and the exercise and enforcement of the rights of the Investors under the
Transaction Documents. The Company shall not use any such confidential
information concerning an Investor for any purpose other than for the
preparation, filing and maintenance of effectiveness of the Registration
Statement and in connection with the Transaction Documents and the exercise and
enforcement of the rights of the Company under the Transaction Documents;
(10) use its best efforts to cause all the Registrable Securities
covered by the Registration Statement to be listed on the AMEX prior to the
Closing Date or such other principal securities market on which securities of
the same class or series issued by the Company are then listed or traded;
(11) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the SEC Effective Date;
(12) cooperate with the Investors who hold Registrable Securities
being offered to facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legends from and after the SEC Effective Date)
representing Registrable Securities to be offered pursuant to the Registration
Statement and enable such certificates to be in such denominations or amounts as
the Investors may reasonably request and registered in such names as the
Investors may request; and, not later than the SEC Effective Date, the Company
shall deliver, and shall
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cause legal counsel selected by the Company to deliver, (i) to the Conversion
Agent (with copies to the Investors whose Registrable Securities are included in
such Registration Statement) an instruction substantially in the form attached
hereto as ANNEX V and (ii) to the Investors whose Registrable Securities are
included in such Registration Statement and to the Conversion Agent an opinion
of such counsel, in the form attached hereto as ANNEX VI; and
(13) during the Registration Period, the Company shall not bid for
or purchase any Common Stock or any right to purchase Common Stock or attempt to
induce any Person to purchase any such security or right if such bid, purchase
or attempt would in any way limit the right of the Investors to sell Registrable
Securities by reason of the limitations set forth in Regulation M under the 1934
Act.
(c) OBLIGATIONS OF THE BUYER AND OTHER INVESTORS. In connection
with the registration of the Registrable Securities, the Investors shall have
the following obligations:
(1) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company the Required Information and shall execute such documents
in connection with such registration as the Company may reasonably request. At
least six Business Days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the Required
Information if any of such Investor's Registrable Securities are eligible for
inclusion in the Registration Statement. If the Company has not received the
Required Information from an Investor at least three Business Days prior to the
proposed filing date of the Registration Statement, then the Company may
postpone filing the Registration Statement until the date which is three
Business Days after the Company receives the Required Information from such
Non-Responsive Investor and, if the failure of a Non-Responsive Investor to
provide Required Information to the Company causes the Company to be unable to
file the Registration Statement with the SEC by the deadline specified in
Section 8(a), the Company shall not have any liability to any Investor by reason
of such failure to file the Registration Statement on a timely basis in
accordance with Section 8(a) so long as in such circumstance the Company files
the Registration Statement with the SEC within three Business Days after the
date on which the Company receives the Required Information from all
Non-Responsive Investors;
(2) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing, and
obtaining and maintaining effectiveness, of the Registration Statement
hereunder, unless such Investor has notified the Company in writing of such
Investor's election to exclude all of such Investor's Registrable Securities
from the Registration Statement;
(3) Each Investor agrees that it will not effect any offer, sale
or other disposition of the Registrable Securities except as contemplated in the
Registration Statement or as shall otherwise be in compliance with the
registration requirements of applicable securities laws or an exemption
therefrom and that it will promptly notify the Company of any material changes
in the information set forth in the Registration Statement regarding such
Investor or its plan of distribution; each Investor agrees (a) to notify the
Company in writing in the event that such Investor enters into any material
agreement with a broker or a dealer for the sale of the Registrable Securities
through a block trade, special offering, exchange distribution or a purchase by
a broker or dealer and (b) in connection with such agreement, to provide to the
Company in writing the information reasonably necessary to prepare any
supplemental prospectus pursuant to Rule 424(c) under the 1933 Act which is
required with respect to such transaction;
(4) Each Investor acknowledges that there may occasionally be
times as specified in Section 8(b)(5) or 8(b)(6) when the Company must suspend
the use of the Prospectus
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<PAGE> 31
until such time as an amendment to the Registration Statement has been filed by
the Company and declared effective by the SEC, the Company has prepared a
supplement to the Prospectus or the Company has filed an appropriate report with
the SEC pursuant to the 1934 Act which is incorporated by reference in the
Prospectus and has the effect of amending or supplementing the Prospectus for
the purposes of the 1933 Act. Each Investor hereby covenants that it will not
sell any Registrable Securities pursuant to said Prospectus during the period
commencing at the time at which the Company gives such Investor notice of the
suspension of the use of said Prospectus in accordance with Section 8(b)(5) or
8(b)(6) and ending at the time the Company gives such Investor notice that such
Investor may thereafter effect sales pursuant to the Prospectus, or until the
Company delivers to such Investor an amended or supplemented Prospectus for such
use; and
(5) In connection with any sale of Registrable Securities which is
made by an Investor pursuant to the Registration Statement (A) if such sale is
made through a broker, such Investor shall instruct its broker or brokers to
deliver the Prospectus to the purchaser or purchasers in connection with such
sale and shall supply copies of such Prospectus to such broker or brokers; (B)
if such sale is made in a transaction directly by such Investor with a purchaser
and not through the facilities of any securities exchange or market, such
Investor shall deliver, or cause to be delivered, the Prospectus to such
purchaser; and (C) if such sale is made by any means other than those described
in the immediately preceding clauses (A) and (B), such Investor shall otherwise
use its reasonable best efforts to comply with the prospectus delivery
requirements of the 1933 Act applicable to such sale.
(d) REPORTS UNDER 1934 ACT. With a view to making available to the
Investors the benefits of Rule 144, the Company agrees to:
(1) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, such information as may be
necessary to permit the Investors to sell their Registrable Securities pursuant
to Rule 144 without registration; and
(2) if at any time the Company is not required to file reports
with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, use its best
efforts to, upon the request of an Investor, make publicly available other
information so long as is necessary to permit publication by brokers and dealers
of quotations for the Common Stock and sales of the Registrable Securities in
accordance with Rule 15c2-11 under the 1934 Act.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION. (1) To the extent not prohibited by
applicable law, the Company will indemnify and hold harmless each Indemnified
Person against any Claims to which any of them may become subject under the 1933
Act, the 1934 Act or otherwise, insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any Violation. Subject to the restrictions set forth in
Section 9(a)(3), the Company shall reimburse the Investors and each such
controlling Person, promptly as such expenses are incurred and are due and
payable, for any reasonable legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 9(a)(1): shall not apply to (I) a Claim
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information relating to an Indemnified Person furnished in
writing to the Company by any Indemnified Person or underwriter for such
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such Prospectus was timely made available by the Company pursuant to Section
8(b)(3) hereof; (II) any Claim arising out of or based on any statement or
omission in any Prospectus which was corrected in any subsequent Prospectus that
was delivered to the Indemnified Person prior to the
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<PAGE> 32
pertinent sale or sales by the Indemnified Person; and (III) amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 10(j).
(2) In connection with the Registration Statement, each Investor
agrees to indemnify and hold harmless, to the same extent and in the same manner
set forth in Section 9(a)(1), each Indemnified Party against any Claim to which
any of them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim arises out of or is based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement;
provided, however, that the indemnity agreement contained in this Section
9(a)(2) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Section 9(a)(2) for only that amount of a
Claim as does not exceed the amount by which the proceeds to such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement exceeds the price paid by such Investor for such Registrable
Securities. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 9(a)(2) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the Prospectus, as then amended or
supplemented.
(3) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 9(a) of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 9(a), deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with one counsel reasonably satisfactory to all
Indemnified Persons or all Indemnified Parties, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party (but not more than one such counsel for all Indemnified Persons or
Indemnified Parties, as the case may be, and one counsel for all Indemnified
Persons or Indemnified Parties, as the case may be, in each local jurisdiction
in which a Claim is pending or threatened), if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such counsel
of the Indemnified Person or Indemnified Party and the indemnifying party would
be inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 9(a), except to the
extent that the indemnifying party is thereby prejudiced in its ability to
defend such action. The indemnification required by this Section 9(a) shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
(b) CONTRIBUTION. To the extent any indemnification by an
indemnifying party as set forth in Section 9(a) above is applicable by its terms
but is prohibited or limited by
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<PAGE> 33
law, the indemnifying party agrees to make the maximum contribution with respect
to any amounts for which it would otherwise be liable under Section 9(a) to the
fullest extent permitted by law. In determining the amount of contribution to
which the respective parties are entitled, there shall be considered the
relative fault of each party, the parties' relative knowledge of and access to
information concerning the matter with respect to which the claim was asserted,
the opportunity to correct and prevent any statement or omission and any other
equitable considerations appropriate under the circumstances; provided, however,
that (a) no contribution shall be made under circumstances where the maker would
not have been liable for indemnification under the fault standards set forth in
Section 9(a), (b) no Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any other Person who was not guilty of such fraudulent misrepresentation and (c)
contribution by any Investor shall be limited to the amount by which the
proceeds received by such Investor from the sale of such Registrable Securities
exceeds the amount paid by such Investor for such Registrable Securities.
(c) OTHER RIGHTS. The indemnification and contribution provided in
this Section shall be in addition to any other rights and remedies available at
law or in equity.
10. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York.
(b) HEADINGS. The headings, captions and footers of this Agreement
are for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
(c) SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
(d) NOTICES. Any notices required or permitted to be given under
the terms of this Agreement shall be in writing and shall be sent by mail or
delivered personally (which shall include telephone line facsimile transmission)
or by courier and shall be effective five days after being placed in the mail,
if mailed, or upon receipt, if delivered personally or by courier, in the case
of the Company addressed to the Company at its address shown in the introductory
paragraph of this Agreement, Attention: Chief Financial Officer (telephone line
facsimile transmission number (301) 854-3901), with a copy to White & McDermott,
P.C., 65 William Street, Suite 209, Wellesley, Massachusetts 02181 (telephone
line facsimile transmission number (781) 237-8120), or, in the case of the
Buyer, at its address or telephone line facsimile transmission number shown on
the signature page of this Agreement with a copy to Diaz & Altschul Advisors,
LLC, 745 Fifth Avenue, Suite 3001, New York, New York 10151 (telephone line
facsimile transmission number (212) 751-5757) or such other address as a party
shall have provided by notice to the other party in accordance with this
provision. The Buyer hereby designates as its address for any notice required or
permitted to be given to the Buyer pursuant to the Certificate of Designations
the address shown on the signature page of this Agreement, with a copy to: Diaz
& Altschul Advisors, LLC, 745 Fifth Avenue, Suite 3001, New York, New York 10151
(telephone line facsimile transmission number (212) 751-5757), until the Buyer
shall designate another address for such purpose. In each case, a copy shall be
sent to: Diaz & Altschul Capital, LLC, 745 Fifth Avenue, Suite 3001, New York,
New York 10151 (telephone line facsimile transmission number (212) 751-5757).
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<PAGE> 34
(e) COUNTERPARTS. This Agreement may be executed in counterparts
and by the parties hereto on separate counterparts, all of which together shall
constitute one and the same instrument. A facsimile transmission of this
Agreement bearing a signature on behalf of a party hereto shall be legal and
binding on such party.
(f) ENTIRE AGREEMENT; BENEFIT. This Agreement, including the
Annexes, Exhibits and Schedules hereto, constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties, or undertakings, other than those set forth
or referred to herein. This Agreement, including the Annexes, Exhibits and
Schedules hereto, supersedes all prior agreements and understandings, whether
written or oral among the parties hereto with respect to the subject matter
hereof. This Agreement and the terms and provisions hereof are for the sole
benefit of the Company, the Buyer and their respective successors and permitted
assigns.
(g) WAIVER. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, or any course of dealings between the parties, shall not operate as a
waiver thereof or an amendment hereof, nor shall any single or partial exercise
of any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
exercise of any other right or power.
(h) AMENDMENT. No amendment, modification, waiver, discharge or
termination of any provision of this Agreement nor consent to any departure by
the Buyer or the Company therefrom shall in any event be effective unless the
same shall be in writing and signed by the party to be charged with enforcement,
and then shall be effective only in the specific instance and for the purpose
for which given. No consideration shall be offered or paid to any person to
demand, modify, waive, discharge or terminate any provision of any of the
Transaction Documents unless the same consideration also is offered to all
Investors and Other Buyers who, at the time of such offer or payment, own any
shares of Preferred Stock. No course of dealing between the parties hereto shall
operate as an amendment of, or a waiver of any right under, this Agreement.
(i) FURTHER ASSURANCES. Each party to this Agreement will perform
any and all acts and execute any and all documents as may be necessary and
proper under the circumstances in order to accomplish the intents and purposes
of this Agreement and to carry out its provisions.
(j) ASSIGNMENT OF CERTAIN RIGHTS AND OBLIGATIONS. (1) The rights
of the Buyer or any other Investor under Sections 5, 8, 9 and 10 shall be
assigned by the Buyer or such Investor to any Permitted Transferee only if the
Buyer or such other Investor complies with the following requirements (in which
case such assignment shall be automatic): (A) such Investor agrees in writing
with such Permitted Transferee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time after such
assignment, (B) the Company is, within a reasonable time after such transfer,
furnished with notice of (i) the name and address of such Permitted Transferee
and (ii) the securities with respect to which such rights and obligations are
being transferred, (C) in the case of an assignment of the rights under Section
8, immediately following such transfer the further disposition of Registrable
Securities by such Permitted Transferee is restricted under the 1933 Act or
applicable state securities laws, (D) at or before the time the Company received
the notice contemplated by clause (B) of this sentence such Permitted Transferee
agrees in writing with the Company to be bound by all of the provisions
contained in Sections 5(a), 5(b), 8, 9 and this Section 10 (other than Section
10(n)) and furnishes to the Company a questionnaire in substantially the form of
the Questionnaire indicating, to the reasonable satisfaction of the Company,
that such Permitted Transferee is an "accredited investor" as defined in
Regulation D under the 1933 Act and (E) in the case of any
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<PAGE> 35
such assignment arising in connection with a transfer of Preferred Shares or
Registrable Securities, the transfer of Preferred Shares or Registrable
Securities to such Permitted Transferee is made in accordance with the
requirements of Section 5(a).
(2) Upon any such assignment in accordance with paragraph (1) of
this Section, from and after the receipt by the Company of the notice required
by clause (B) of Section 10(j)(1) the Company shall be obligated to such
transferee to perform all of its covenants under Sections 5, 8, 9 and 10 (other
than Section 10(n)) of this Agreement as if such transferee were the Buyer. In
connection with any such assignment the Company shall, at its sole cost and
expense, promptly after such assignment take such actions as shall be reasonably
acceptable to the assigning Investor and such transferee to assure that the
Registration Statement and related Prospectus are available for use by such
transferee for sales of the Registrable Securities in respect of which such
rights and obligations have been so assigned.
(k) CERTAIN EXPENSES. The Company and the Buyer shall each be
responsible for its own expenses (including, without limitation, legal fees and
expenses of its counsel) incurred by it in connection with the negotiation and
execution of, and closing under, this Agreement. All expenses incurred in
connection with securities registrations, filings or qualifications pursuant to
this Agreement shall be paid by the Company, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees and
the fees and disbursements of counsel for the Company, but excluding (a) fees
and expenses of investment bankers or underwriters retained by any Investor, (b)
brokerage commissions incurred by any Investor, (c) stock transfer fees or taxes
relating to any transfer of Shares by an Investor and (d) fees and expenses of
counsel for the Investors. The Company shall pay on demand all expenses incurred
by the Buyer, including reasonable attorneys' fees and expenses, as a
consequence of, or in connection with (1) the negotiation, preparation or
execution of any amendment, modification or waiver of the Transaction Documents
requested by the Company, (2) any default or breach of any of the Company's
obligations set forth in any of the Transaction Documents and (3) the
enforcement or restructuring of any right of, including the collection of any
payments due, the Buyer under any of the Transaction Documents, including any
action or proceeding relating to such enforcement or any order, injunction or
other process seeking to restrain the Company from paying any amount due the
Buyer, in which the Buyer prevails. The Buyer agrees to pay on demand all
expenses incurred by the Company, including reasonable attorney's fees and
expenses, as a consequence of, or in connection with the negotiation,
preparation or execution of any amendment, modification or waiver of the
Transaction Documents requested by the Buyer. Except as provided in this Section
10(k), each of the Company and the Buyer shall bear its own expenses in
connection with this Agreement and the transactions contemplated hereby. Nothing
herein shall limit the rights of Diaz & Altschul Capital, LLC under its
Engagement Agreement with the Company.
(l) TERMINATION. The Buyer shall have the right to terminate this
Agreement by giving notice to the Company at any time at or prior to the Closing
Date if:
(1) the Company shall have failed, refused, or been unable at or
prior to the date of such termination of this Agreement to perform any
of its material obligations hereunder;
(2) any other condition of the Buyer's obligations hereunder is
not fulfilled; or
(3) the closing shall not have occurred on a Closing Date on or
before January 31, 1998, other than solely by reason of a breach of
this Agreement by the Buyer.
Any such termination shall be effective upon the giving of notice thereof by the
Buyer. Upon such termination, the Buyer shall have no further obligation to the
Company hereunder and the
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<PAGE> 36
Company shall remain liable for any breach of this Agreement or the other
documents contemplated hereby which occurred on or prior to the date of such
termination.
(m) SURVIVAL. The respective representations, warranties,
covenants and agreements of the Buyer and the Company contained in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
delivery of and payment for the Preferred Shares and shall remain in full force
and effect as of the dates made and deemed to be made regardless of any
investigation made by or on behalf of the Buyer or any Person controlling or
acting on behalf of the Buyer or by the Company or any Person controlling or
acting on behalf of the Company.
(n) PUBLIC STATEMENTS, PRESS RELEASES, ETC. During the period from
the date of execution and delivery of this Agreement by the Company and the
Buyer to the date which is 183 days after the Closing Date, the Company and the
Buyer shall have the right to review and comment on any press release or any
other written public statement with respect to the transactions contemplated
hereby before such press release or written public statement is issued or made;
provided, however, that with respect to any press release or other public
disclosure with respect to such transactions which is required by applicable law
and regulations to be made by the Company, the Company shall make reasonable
efforts to consult with the Buyer in connection with any such press release or
other written public disclosure prior to its release and shall provide a copy
thereof to the Buyer. Notwithstanding the foregoing, the Company shall not at
any time issue any press release or make any public statement (other than in the
Registration Statement) with respect to the transactions contemplated hereby
which press release or public statement names the Buyer unless the Company shall
have afforded the Buyer an opportunity to review the same a reasonable period of
time prior to issuing such press release or statement and obtained the approval
thereof by the Buyer (which approval shall not be unreasonably withheld, delayed
or conditioned).
(o) CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
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<PAGE> 37
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto by their respective officers thereunto duly authorized as of the
date first set forth above.
NUMBER OF SHARES: 3,750
PRICE PER SHARE: $1,000.00
AGGREGATE PURCHASE PRICE: $3,750,000
DELTA OPPORTUNITY FUND, LTD.
By: /s/ illegible signature
-------------------------
Title: Director
Address:
c/o International Fund Management Ltd.
48 Par La Ville Road
Hamilton, HM11
Bermuda
Facsimile No: (441) 295-9637
NOVAVAX, INC.
By:
-------------------------
Title:
<PAGE> 38
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto by their respective officers thereunto duly authorized as of the
date first set forth above.
NUMBER OF SHARES: 3,750
PRICE PER SHARE: $1,000.00
AGGREGATE PURCHASE PRICE: $3,750,000
DELTA OPPORTUNITY FUND, LTD.
By:
-------------------------
Name:
Title:
Address:
c/o International Fund Management Ltd.
48 Par La Ville Road
Hamilton, HM11
Bermuda
Facsimile No: (441) 295-9637
NOVAVAX, INC.
By: /s/ Brenda Fugagli
-------------------------
Name: Brenda Fugagli
Title: VP and CEO
<PAGE> 39
PAGE 1
State of Delaware
Office of the Secretary of State
------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "NOVAVAX, INC.", FILED IN THIS OFFICE ON THE TWENTY-EIGHTH DAY OF
JANUARY, A.D. 1998, AT 9 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2129598 8100 AUTHENTICATION: 8888832
981033435 DATE: 01-28-98
<PAGE> 1
EXHIBIT 5.1
WHITE & MCDERMOTT, P.C.
65 William Street, Suite 209
Wellesley, MA 02181
February 17, 1998
Novavax, Inc.
8320 Guilford Road
Columbia, MD 21046
Gentlemen:
We have assisted with the preparation of a Registration Statement on Form
S-3 (the "Registration Statement"), filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to the
registration of 2,206,350 shares (the "Shares") of common stock, $.01 par value
(the "Common Stock"), of Novavax, Inc. (the "Company") which may be acquired
upon the conversion of the Series A Preferred Stock of the Company (the "Series
A Preferred Stock").
We have examined the most recent Amendment to the Certificate of
Incorporation and the Restated Certificate of Incorporation, the By-laws of the
Company and all amendments thereto and have examined and relied on originals, or
copies certified to our satisfaction, of such records of meetings, written
actions in lieu of meetings, or resolutions adopted at meetings, of the
directors of the Company, and such other documents and instruments as in our
judgment are necessary or appropriate to enable us to render the opinions
expressed below.
In our examination of the foregoing documents, we have assumed (i) the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals, (ii) the conformity to original documents of all documents
submitted to us as certified or photostatic copies and (iii) the authenticity of
the originals of the latter documents.
Based upon and subject to the foregoing, we are of the opinion that (i)
the shares of Series A Preferred Stock have been duly and validly authorized
and issued and are fully paid and non-assessable and (ii) upon conversion of
the Series A Preferred Stock in accordance with the terms of the Series A
Preferred Stock, and the issuance of the Shares by the Company upon such
conversion, the Shares will be fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the prospectus forming a part of the Registration Statement.
Very truly yours,
White & McDermott, P.C.
By: /s/ David A. White
--------------------------
David A. White
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration
statement of Novavax, Inc. on Form S-3 of our report dated February 7, 1997,
except as to Note 13 for which the date is March 14, 1997, on our audits of the
consolidated financial statements of Novavax, Inc. as of December 31, 1995 and
1996 and for the years ended December 31, 1994, 1995 and 1996, which report is
included in Novavax, Inc.'s Annual Report of Form 10-K for the year ended
December 31, 1996. We also consent to the reference to our Firm under the
caption "Experts."
/s/ Coopers & Lybrand L.L.P.
----------------------------------
Coopers & Lybrand L.L.P.
Rockville, Maryland
February 17, 1998
