<PAGE>
As filed with the Securities and Exchange Commission on August 26, 1998
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------------------------------------
UNIVEC, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3163455
(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
999 Franklin Avenue
Garden City, New York, 11530
Telephone: (516) 294-1000
Telecopier: (516) 739-3343
(Address, including zip code, and telephone number,
including area code of Principal Executive Offices)
--------------------------------------------
Joel Schoenfeld
Chairman of the Board and Chief Executive Officer
UNIVEC, Inc.
999 Franklin Avenue
Garden City, New York, 11530
Telephone: (516) 294-1000
Telecopier: (516) 739-3343
(Name, address, including zip code, and telephone number,
including area code of agent for service)
--------------------------------------------
Copies to:
Jack Becker, Esq.
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-0125
Telephone: (212) 687-3860
Telecopier: (212) 949-7052
Approximate Date of Commencement of Proposed Sale to Public: As soon as
practical after this Registration Statement becomes effective.
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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
================================================================================
<PAGE>
Calculation of Registration Fee
<TABLE>
<CAPTION>
=======================================================================================================================
Proposed Proposed
Maximum Maximum
Amount to Be Offering Price Aggregate Offering Amount of
Title of each Class of Securities to Be Registere Registered Per Share(1) Price(1) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.001 par value, 112,500(2) $1.625(4) $182,812.50 $53.93
("Common Stock")......................... 937,500(3) $1.625(4) $1,523,437.50 $449.41
- -----------------------------------------------------------------------------------------------------------------------
Total Registration Fee....................... $503.34
</TABLE>
- --------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933.
(2) Represents 112,500 shares issuable upon exercise of Common Stock
Purchase Warrants registered for sale by the selling securityholder
named herein.
(3) Represents shares issuable upon conversion of Series B 5%
Convertible Preferred Stock owned by the selling securityholder and
shares that may be issued in lieu of cash dividends on the Series B
5% Convertible Preferred Stock owned by the selling securityholder.
In accordance with Rule 416, the number of shares issuable upon
conversion is subject to change as a result of stock splits, stock
dividends and other similar transactions, and as a result of certain
events, including fluctuations in the conversion price of the Series
B 5% Convertible Preferred Stock and other contingencies outlined in
the prospectus, and this Registration Statement shall cover such
additional shares.
(4) Estimated in accordance with Rule 457(c) on the basis of the
average of the high and low sales prices for a share of Common
Stock on the Nasdaq SmallCap Market on August 13, 1998.
<PAGE>
The 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.
Preliminary Prospectus, Subject to Completion, Dated August 26, 1998
UNIVEC, INC.
1,050,000 Shares of Common Stock
This Prospectus relates to 1,050,000 shares of common stock, par value
$.001 per share (the "Common Stock") of UNIVEC, Inc. (the "Company") that may be
sold by the selling securityholder named herein (the "Selling Securityholder").
See "Selling Securityholder." Of the 1,050,000 shares of Common Stock offered
hereby, 112,500 shares are issuable upon exercise of certain Common Stock
Purchase Warrants (the "Warrants") and 937,500 shares are issuable upon
conversion of shares of the Company's Series B 5% Convertible Preferred Stock,
par value $1,000 per share (the "Series B Preferred Stock"), or in lieu of cash
dividends paid on the Series B Preferred Stock.
The Selling Securityholder may sell shares of Common Stock from time to
time directly to purchasers, or through broker-dealers who may receive
compensation in the form of commissions or discounts from the Selling
Securityholder or purchasers. Sales of shares of Common Stock may be effected by
broker-dealers in ordinary brokerage transactions or block transactions on The
Nasdaq SmallCap Market, through sales to one or more dealers who may resell as
principles, in privately negotiated transactions or otherwise, at the market
price prevailing at the time of sale, a price related to such prevailing market
price or at a negotiated price. Usual and customary or specifically negotiated
brokerage fees may be paid by the Selling Securityholder in connection
therewith. To the Company's knowledge, the Selling Securityholder has not
entered into any underwriting arrangements for the sale of such securities.
The Common Stock is listed on the Nasdaq SmallCap Market under the
symbol "UNVC". On August 13, 1998, the last reported sale price of the Common
Stock on the Nasdaq SmallCap Market was $1.625 per share.
The Company will not receive any proceeds from the sale of the shares
of Common Stock by the Selling Securityholder. See "Use of Proceeds." The
Company has agreed to bear certain expenses in connection with the registration
and sale of the shares being offered by the Selling Securityholder. The Company
has agreed to indemnify the Selling Securityholder against certain liabilities,
including liabilities under the Securities Act.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE
OF RISK. ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT
SHOULD INVEST. FOR A DESCRIPTION OF CERTAIN RISKS REGARDING AN INVESTMENT IN THE
COMPANY, SEE "RISK FACTORS" COMMENCING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is August ___, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company can be inspected and copied at the
Public Reference Room of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Regional Offices of the Commission at
Seven World Trade Center, Suite 1300, New York, New York 10048 and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60611, and copies of such material
also may be obtained from the Public Reference Room of the Commission at
prescribed rates. Information concerning the operation of the Public Reference
Room of the Commission may be obtained by calling 1-800-SEC-0330. Reports, proxy
and information statements and other information regarding the Company and other
registrants that file electronically with the Commission may also be obtained
via the Commission's website (http://www.sec.gov).
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Commission are incorporated in this
Prospectus by reference:
1. The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997.
2. The Company's Quarterly Reports on Form 10-QSB for the fiscal quarters
ended March 31, 1998 and June 30, 1998.
3. The Company's Current Report on Form 8-K dated April 28, 1998, as amended.
4. The description of the Common Stock set forth in the Company's Registration
Statement on Form 8-A (File No. 0-22413), filed pursuant to Section 12(g)
of the Exchange Act, and any amendment or report filed for the purpose of
updating such description.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14, and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering made hereby shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such documents. Any statement contained in a previously filed
document 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 modifies or supersedes such statement; and any statement
contained herein shall be deemed to be modified or superseded to the extent that
a statement in any document subsequently filed, which is 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, including any beneficial
owner, to whom a copy of this Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the documents that have been
incorporated by reference in this Prospectus (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
the documents that this Prospectus incorporates).
Requests for copies of such documents should be directed to the Company at 999
Franklin Avenue, Garden City, New York 11530, ATTN: Corporate Secretary.
2
<PAGE>
THE COMPANY
UNIVEC, Inc. (the "Company" or "UNIVEC") develops, assembles, licenses
and markets safety hypodermic syringes designed to protect the healthcare worker
and patient against cross-infection. The Company also from time to time sells
other medical devices and intends to develop other medication delivery systems.
In 1997, the Company commenced production and sales of its 1cc locking
clip syringes, which are designed to make accidental or deliberate reuse
difficult. The accidental or deliberate reuse of syringes is a frequent cause of
the spread of the human immunodeficiency ("HIV") and hepatitis viruses, as well
as other blood-borne pathogens. The Company has received 510(k) clearance from
the U.S. Food and Drug Administration (the "FDA") to market its locking clip
syringes in the United States.
The Company believes that its 1cc difficult to reuse syringes are more
effective than competitive syringes and that they are competitively priced. The
Company also believes that it is the only company that markets a difficult to
reuse syringe with a 1cc barrel, which is ideal for dispensing accurate dosages
of medicine (e.g., allergy, immunization and insulin medicines). It is more
difficult to deliver up to a .95cc dosage accurately with a syringe barrel that
is greater than 1cc. The Company does not know of any other company that offers
a lcc aspirating syringe that can be locked. Healthcare workers need aspirating
syringes to mix medications in the syringe barrel and inject medications
intravenously. Furthermore, the Company believes that aspirating syringes are
preferred by diabetes patients and needle-exchange programs.
The Company's initial marketing efforts have been directed primarily to
international relief agencies, including the International Red Cross, UNICEF and
the World Health Organization ("WHO"), as well as to public hospitals and health
facilities in the Northeastern United States. Pursuant to programs of
international relief agencies, the Company has shipped its lcc locking clip
syringe to over 30 countries. The Company also intends to market its locking
clip syringes to (i) governments of developing countries, (ii) private hospitals
and health facilities in the Northeastern United States, and (iii) distributors
in the United States. The Company also plans to license its patents and
proprietary manufacturing processes relating to its 1cc locking clip and other
syringe designs. To stimulate demand for its safety syringes, the Company plans
to initiate promotional and educational campaigns directed at (i) public health
officers and other government officials responsible for public health policies,
(ii) doctors and administrators of healthcare facilities responsible for
treatment of HIV-AIDS and hepatitis patients, and (iii) liability insurance
companies.
The Company is a Delaware corporation, incorporated on October 7, 1996,
and the successor by merger to UNIVEC, Inc., a New York corporation,
incorporated on August 18, 1992. The executive officers of the Company are
located at 999 Franklin Avenue, Garden City, New York 11530 (telephone number
(516) 294-1000).
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RISK FACTORS
The securities offered hereby are speculative and involve a high degree
of risk, including but not limited to the risk factors described below. Each
prospective investor should carefully consider the following risk factors before
making an investment decision.
This Prospectus contains certain forward-looking statements which
involve risks and uncertainties. Actual results could differ materially from
those projected in the forward-looking statements as a result of certain of the
risk factors set forth below and elsewhere in the reports incorporated by
reference in this Prospectus.
1. Continuing Losses; Accumulated Deficit; Uncertainty of
Profitability. Since inception, the Company has experienced losses, including a
net loss of approximately $1,172,000 for the year ended December 31, 1997, as
compared to a net loss of approximately $1,441,000 for the year ended December
31, 1996, and a net loss of approximately $541,000 for the fiscal quarter ended
March 31, 1998 and $711,353 for the six months ended June 30, 1998, as compared
to a net loss of approximately $682,000 for the fiscal quarter ended March 31,
1997 and $1,529,306 for the six months ended June 30, 1998. The Company expects
to continue to incur operating losses until such time as it can generate
significant sales of its locking clip syringes and adequate gross profits to
cover overhead expenses. There can be no assurance that the Company will ever
operate profitably. As of June 30, 1998, the Company had an accumulated deficit
of approximately $2,650,000. The Company's ability to operate profitably depends
upon market acceptance of its locking clip syringes, the development of an
effective sales and marketing organization, the development of new products, and
improvements to existing products and manufacturing processes. There can be no
assurance that the Company's locking clip syringes will achieve a level of
market acceptance in foreign or domestic markets to generate sufficient revenues
to become profitable. See "Risk Factors -Product Acceptance; Demand for Locking
Clip Syringes," and the Company's consolidated financial statements, including
the notes thereto, incorporated by reference into this Prospectus.
2. Limited Operating History. Although the Company was founded in
August 1992, production and sales of its 1cc locking clip syringe began in July
1997. From August 1992 to June 1997, the Company's operations consisted
primarily of the design of its patented locking clip and plunger, the design and
implementation of the equipment for production of the 1cc locking clip syringe,
the hiring of key personnel, and the sales of medical devices manufactured by
others including difficult-to-reuse syringes of an alternative design.
Accordingly, the Company has a limited operating history upon which an
evaluation of its business and prospects can be based. An investment in the
securities of the Company is subject to all of the risks involved in a newly
established business venture. Potential investors should be aware of the
problems, delays, expenses and difficulties encountered by companies at this
early stage of operations, many of which may be beyond the Company's control,
including but not limited to commencement of production, marketing and product
introduction, competition, market acceptance of the Company's difficult to reuse
syringes, and unanticipated problems and additional costs relating to the
development and testing of products. The Company's officers have limited
experience in the production and sale of medical devices. See "Risk Factors --
Limited Experience of Management in the Development, Production and Sale of
Medical Devices."
3. Ability to Continue as a "Going Concern"; Qualified Report of
Independent Accountants. The Company's consolidated financial statements for the
year ended December 31, 1997 indicate there is substantial doubt about the
Company's ability to continue as a going concern due to recurring losses. As
discussed in Note 2 to the Company's consolidated financial statements
incorporated by reference into this Prospectus, the Company's ability to
continue as a going concern is dependent, among other things, upon
4
<PAGE>
the Company's obtaining additional working capital through long term financing
or an equity infusion and the attainment of profitable commercial operations.
4. Need for Additional Financing. The Company requires additional
financing to continue its operations and may seek to raise funds through the
sale of its securities or by other means. No assurance can be given that
additional funds will be available to the Company on acceptable terms, if at
all. Additional financing may result in dilution to existing stockholders.
Anticipated increased levels of sales (as to which there can be no assurance)
would reduce the need for additional financing. However, if funds are needed but
not available in adequate amounts from additional financing sources or from
operations, the Company may be materially and adversely affected.
5. Ability to Manage Growth. Subject to sufficient cash flow from
operations and/or additional financing, the Company contemplates a rapid
expansion of its business. If the Company were to experience significant growth
in the future, such growth would likely result in new and increased
responsibilities for management personnel and place significant strain upon the
Company's management, operating and financial systems and resources. To
accommodate such growth and compete effectively, the Company must continue to
implement and improve its operational, financial, management and information
systems, procedures and controls, and to expand, train and manage its personnel.
There can be no assurance that the Company's personnel, systems, procedures or
controls will be adequate to support the Company's future operations. Any
failure to implement and improve the Company's operational, financial,
management and information systems, procedures or controls or to expand, train
or manage employees, could materially and adversely affect the Company's
business, financial condition and results of operations.
6. Government Regulation. The manufacture and distribution of medical
devices are subject to extensive regulation by the FDA in the United States, and
in some instances, by foreign and state regulatory authorities. Approval by the
FDA and foreign government authorities is unpredictable and uncertain, and no
assurance can be given that the necessary approvals or clearances for the
Company's products will be granted on a timely basis or at all. Delays in
receipt of, or a failure to receive, such approvals or clearances, or the loss
of any previously received approvals or clearances, could have a materially
adverse effect on the business, financial condition and results of operations of
the Company. Furthermore, approvals that have been or may be granted are subject
to continual review, and later discovery of previously unknown problems may
result in product labeling restrictions or withdrawal of the product from the
market. Moreover, changes in existing requirements or adoption of new
requirements or policies could adversely affect the ability of the Company to
comply with regulatory requirements. In addition, there can be no assurance that
the Company will not be required to incur significant costs to comply with
applicable laws and regulations in the future. Failure to comply with applicable
laws or regulatory requirements could have a materially adverse effect on the
Company's business, financial position and results of operations.
FDA and State Regulation. Pursuant to the Federal Food, Drug, and
Cosmetic Act, as amended, and the regulations promulgated thereunder
(collectively, the "FDC Act"), the FDA regulates the clinical testing,
manufacture, labeling, sale, distribution and promotion of medical devices.
Before a new device can be introduced into the market, a manufacturer must
obtain FDA permission to market through either the 510(k) pre-market
notification process or the costlier, lengthier and less certain pre-market
approval ("PMA") application process. The FDA has granted the Company 510(k)
clearance to market its 1cc locking clip syringe, which has been classified as a
Class II device under the FDC Act, and accordingly, the Company may market and
sell its 1cc locking clip syringe in the United States, subject to compliance
with other applicable FDA regulatory requirements. As a Class II device,
performance standards may be developed for the 1cc locking clip syringe which
the product would then be required to meet. Furthermore,
5
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manufacturers of medical devices are subject to recordkeeping requirements and
required to report adverse experiences relating to the use of the device. Device
manufacturers also are required to register their establishments and list their
devices with the FDA and with certain state agencies and are subject to periodic
inspections by the FDA and certain state agencies. The FDC Act requires devices
to be manufactured in accordance with good manufacturing practices ("GMP")
regulations, which impose certain procedural and documentation requirements upon
the Company with respect to manufacturing and quality assurance activities. The
FDA conducts periodic audits and surveillance of the manufacturing, sterilizing
and packaging facilities of medical device manufacturers to determine compliance
with GMP requirements. The failure of a medical device manufacturer to be able
to show in the audit or post-market surveillance that it has adequately complied
with GMP requirements can result in penalties or enforcement proceedings being
imposed on the manufacturer. The Company's manufacturing facilities have not
been certified as satisfying GMP requirements. The Company's facilities will be
subject to extensive audits in the future pursuant to standard FDA procedure. No
assurance can be given that when the Company is audited that it will be found to
be in compliance with GMP requirements, or that if it is not found in
compliance, what penalties, enforcement procedures or compliance effort will be
levied on or required of the Company. The FDA also has the authority to request
repair, replacement or refund of the cost of any device manufactured or
distributed by the Company, and the failure to meet standards for effectiveness
and safety could require the Company to discontinue the manufacturing and/or the
marketing of its product in the United States.
Foreign Regulation. The introduction of the Company's products in
foreign markets will subject the Company to foreign regulatory clearances which
may impose additional substantive costs and burdens. International sales of
medical devices are subject to the regulatory requirements of each country. The
regulatory review process varies from country to country. Many countries also
impose product standards, packaging requirements, labeling requirements and
import restrictions on devices. In addition, each country has its own tariff
regulations, duties and tax requirements. The Company's products also are
required to satisfy international manufacturing standards required by the
International Standards Organization ("ISO") for sale in certain foreign
countries. Although the Company's contract manufacturer in Portugal expects to
achieve ISO 9002 certification by the end of 1998, until the Portuguese
manufacturer obtains ISO 9002 certification, the Company could have difficulty
selling to certain export accounts, particularly in Europe. Currently, sales to
international relief agencies, the Company's primary market, are not affected by
ISO certification or other foreign regulations other than those imposed by such
agencies, with which the Company has been in compliance.
7. Product Acceptance; Demand for Locking Clip Syringes. The Company
expects to derive a significant portion of its revenues from sales of locking
clip syringes and/or licensing of its intellectual property. Despite increased
public awareness of the risks associated with conventional disposable syringes,
of the major syringe manufacturers only Becton-Dickinson and Company
("Becton-Dickinson") is manufacturing a difficult to reuse syringe for sale to
international relief agencies. Accordingly, the Company's future success and
financial performance will depend almost entirely on its ability to successfully
market its locking clip syringes. There can be no assurance that the Company's
marketing efforts will be successful or that sales of the Company's difficult to
reuse syringes will generate sufficient revenues for the Company to become
profitable. See "Risk Factors -- Government Regulation."
8. Licensing. Although the Company intends to license its patents and
proprietary manufacturing processes relating to its locking clip and other
syringe designs to established medical device manufacturers worldwide, there can
be no assurance that the Company will be successful in its licensing efforts.
9. Dependence on Certain Customers. The Company's initial marketing
efforts have been
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directed primarily to, and all of its revenues have been derived from,
international relief agencies. There can be no assurance as to whether the
international relief agencies will continue to purchase difficult-to-reuse
syringes from the Company. The failure of international relief agencies to
purchase the Company's locking clip syringes in substantial quantities would
have a materially adverse effect on the Company's business, financial condition
and results of operations.
10. Dependence on Portuguese Contract Manufacturer. The Company has
entered into a letter of understanding with a Portuguese contract manufacturer
for the production of its proprietary plungers (which satisfy tolerance limits
for assembly of its aspirating and non-aspirating syringes) and for the
assembly of the Company's 1cc locking clip syringes. The Company is the primary
customer of the Portuguese contract manufacturer. Furthermore, since the
Portuguese manufacturer has limited financial resources, it has been unable to
offer the Company credit terms for payment of components and finished syringes.
If the Portuguese manufacturer is unable or not willing to supply sufficient
quantities of components, the Company will be required to obtain alternative
sources of supply. However, there can be no assurance that the Company will be
able to obtain an alternative source of supply of components on acceptable
terms. Furthermore, even if the Company is able to obtain an alternative source
of supply of components, there can be no assurance that production of its 1cc
locking clip syringes will not be delayed. Delays resulting from the selection
of an alternate supplier to produce components could have a materially adverse
effect on the Company's business. See "Risk Factors -- Interruptions to
Production."
11. Interruptions to Production. There can be no assurance that the
Portuguese manufacturer will be able to produce sufficient quantities of
plungers or syringes to satisfy the Company's requirements. The failure of the
Portuguese manufacturer to produce components and/or 1cc locking clip syringes
could have a materially adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Dependence on
Portuguese Contract Manufacturer."
To augment production of its 1cc locking clip syringe, the Company has
commenced production of its 1cc locking clip syringe at its production facility
in Mineola, New York. However, there can be no assurance that production at this
facility will not be interrupted as a result of delays in obtaining supplies of
components or in complying with FDA manufacturing requirements, including the
attainment of acceptable quality levels. The failure to timely produce 1cc
locking clip syringes would have a materially adverse effect on the Company's
business, financial condition and results of operations.
Sherwood Davis & Geck ("Sherwood") has been the Company's supplier of
1cc barrels with certain sizes of hypodermic needles (e.g., .625 inch) and
plunger tips. However, the Company has instituted litigation (the "Sherwood
Litigation") against Sherwood for failure to provide components for the
manufacture of the Company's lcc syringes. There can be no assurance that
Sherwood will continue to fulfill the Company's purchase orders. To date, most
of the lcc locking clip syringes have not contained the barrels supplied by
Sherwood; however, nearly all of the Company's lcc locking clip syringes have
contained a plunger tip supplied, but not manufactured, by Sherwood. Although
smaller manufacturers have expressed an interest in supplying components, there
can be no assurance the Company can obtain adequate supplies of components for
prices and terms acceptable to it. The failure to obtain adequate supplies of
components for acceptable prices and terms could have a materially adverse
effect on the Company's business, financial condition and results of operations.
12. Limited Experience of Management in the Development, Production and
Sale of Medical Devices. The Company's management has had limited experience in
the development, production and sale of medical devices. There can be no
assurance that the Company will be able to compete successfully with the major
syringe manufacturers. See "Risk Factors -- Limited Operating History."
7
<PAGE>
13. Ability to Develop 3cc Syringe with Extendable Barrel Sleeve. The
Company intends to develop a 3cc, non-aspirating locking clip syringe for
hospitals and health clinics, and anticipates that production will commence
during 1999. In general, hospitals and health clinics use more 3cc syringes than
1cc syringes, and may not be willing to purchase the Company's 1cc locking clip
syringes until such time as the Company is able to offer 3cc syringes. However,
there can be no assurance that the 3cc designs selected for commercialization
will be accepted by hospitals and health clinics. Moreover, the Company has not
yet selected a design for the assembly equipment or an engineering firm to
construct the equipment. The Company's failure to timely select a design for the
assembly equipment or an engineering firm to construct such assembly equipment,
or the Company's inability to obtain adequate supplies of components, could
delay the production and commercial introduction of the Company's 3cc
non-aspirating syringe.
14. Uncertainty Regarding Patents and Protection of Proprietary
Technology; Risk of Future Litigation. The Company's success will depend, in
part, on the strength of its patents, as well as its ability to preserve its
trade secrets and operate without infringing the proprietary rights of others.
The Company's policy is to seek protection of its proprietary position by, among
other methods, filing United States and foreign patent applications related to
its technology, inventions and improvements that are important to the
development of its business. The Company holds three United States patents,
including a patent for its locking clip and has filed a United States patent
application for its aspirating plunger, and has filed patent applications for
its locking clip in Canada, Brazil, Mexico, certain European countries, Japan,
South Korea, China, Russia and Australia. In addition, the Company has acquired
licensed rights for a United States patent on a locking device to be used in
connection with the 3cc non-aspirating syringe that the Company plans to
develop. The Company has filed for patent protection in certain European
countries for this invention. The Company also has licensed the rights to a
patent to develop a pre-filled or unit dose syringe. This invention has U.S.
patent protection, but lacks foreign protection.
There can be no assurance that pending or future applications for
patents will mature into issued patents, or that the Company will continue to
develop its own patentable technologies. Furthermore, there can be no assurance
that any of the Company's patents or patents that may be issued in the future
will not be challenged, invalidated or circumvented in the future or that the
rights granted thereunder will provide a competitive advantage. In addition,
patent applications filed in foreign countries and patents granted in such
countries are subject to laws, rules and procedures that differ from those in
the United States. Patent protection in such countries may be different from
patent protection provided by the laws of the United States.
Patent applications in the United States are maintained in secrecy
until patents issue, and patent applications in foreign countries are maintained
in secrecy for a period after filing. Publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries and the
filing of related patent applications. Accordingly, there can be no assurance
that current and potential competitors and other third parties have not filed or
in the future will not file applications for, or have not received or in the
future will not receive, patents or obtain additional proprietary rights that
will prevent, limit or interfere with the Company's ability to make, use or sell
its products either in the United States or internationally.
The medical device industry in general has been characterized by
substantial competition and litigation regarding patent and other proprietary
rights. The Company intends to vigorously protect and defend its patents and
other proprietary rights relating to its proprietary technology. Litigation
alleging infringement claims against the Company (with or without merit), or
instituted by the Company to enforce patents and to protect trade secrets or
know-how owned by the Company or to determine the enforceability, scope and
validity of the proprietary rights of others, is costly and time consuming. If
any relevant claims of third-party patents are upheld as valid and enforceable
in any litigation or administrative
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<PAGE>
proceedings, the Company could be prevented from practicing the subject matter
claimed in such patents, or would be required to obtain licenses from the patent
owners of each patent, or to redesign its products or processes to avoid
infringement. There can be no assurance that such licenses would be available
or, if available, would be available on terms acceptable to the Company or that
the Company would be successful in any attempt to redesign its products or
processes to avoid infringement. Accordingly, an adverse determination in a
judicial or administrative proceeding or failure to obtain necessary licenses
could prevent the Company from manufacturing and selling its products, which
would have a materially adverse effect on the Company's business, financial
condition and results of operations.
The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. There can be no assurance that competitors will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's proprietary technology, or that the
Company can meaningfully protect its rights in unpatented proprietary
technology.
15. Competition. The Company's principal competition is from
manufacturers of traditional disposable syringes. Becton-Dickinson, Sherwood and
Terumo Medical Corporation of Japan ("Terumo") control approximately 74%, 19%
and 5%, respectively, or a total of approximately 98%, of the worldwide syringe
market, and are substantially larger, more established and have significantly
greater financial, sales and marketing, distribution, engineering, research and
development and other resources than the Company. To the Company's knowledge,
only Becton-Dickinson and Bader & Partner Medizintechnik GmbH ("Bader"), a
German machine tool manufacturer, distribute commercially a line of difficult to
reuse syringes, none of which allow for aspiration. The Bader DestroJect syringe
and the Becton-Dickinson SOLOSHOT and UNIJECT syringes were developed originally
for WHO-UNICEF immunization programs. There can be no assurance that the major
syringe manufacturers or others will not commence production of difficult to
reuse syringes, or that the Company will be able to successfully compete in this
market.
16. Product Liability. The manufacture and sale of medical products
exposes the Company to the risk of significant damages from product liability
claims. The Company maintains product liability insurance against product
liability claims in the amount of $5 million per occurrence and $5 million in
the aggregate. There can be no assurance that the coverage limits of the
Company's insurance policies will be adequate, or that the Company will continue
to be able to maintain such insurance coverage at acceptable cost. In addition,
any successful claim against the Company in an amount exceeding its insurance
coverage could have a materially adverse effect on its business, financial
condition or results of operations. Furthermore, the Company has no recall
insurance for foreign countries or the United States. The Company intends to
apply for product recall insurance primarily for the United States market.
However there can be no assurance that such coverage can be obtained at
acceptable cost.
17. Control of the Company; Ownership of Shares by Directors and
Officers. Officers and directors of the Company beneficially own in the
aggregate 1,178,825 shares of Common Stock, or approximately 39% of the
outstanding shares of the Company's Common Stock (excluding (a) options to
purchase 4,125,000 shares of Common stock at an exercise price of $3.50 per
share which may not be exercised prior to the earliest of (i) April 24, 2006,
(ii) the attainment of certain financial performance criteria and (iii) the
occurrence of a change in control, as defined, and (b) 460,440 shares upon
conversion of outstanding shares of Series A Preferred Stock). Although these
stockholders may or may not agree on any particular matter that is the subject
of a vote of the stockholders, these stockholders may be effectively able to
control the outcome of any issues which may be subject to a vote of
stockholders, including the election of directors, proposals to increase the
authorized capital stock, or the approval of mergers,
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acquisitions, or the sale of all or substantially all of the Company's assets.
18. Dependence on Chief Executive Officer. The Company is dependent for
the conduct of its business on the experience, abilities and continued services
of Joel Schoenfeld, Chairman of the Board and Chief Executive Officer of the
Company. Joel Schoenfeld is employed by the Company pursuant to an employment
agreement which expires on March 28, 2000. The loss of the services of Joel
Schoenfeld would have a materially adverse effect on the Company.
19. Office Lease with Related Party. Dr. Alan H. Gold, the President, a
director and principal stockholder of the Company, is the president and
stockholder of the owner of the premises occupied by the Company.
20. Limitation on Director Liability. The Company's certificate of
incorporation provides that a director of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, with certain exceptions under Delaware law. This
may discourage stockholders from bringing suit against a director for breach of
fiduciary duty and may reduce the likelihood of derivative litigation brought by
stockholders on behalf of the Company against a director. In addition, the
Company's certificate of incorporation provides for mandatory indemnification of
directors and officers.
21. Absence of Dividends on Common Stock. Since inception, the Company
has not paid any cash dividends on its Common Stock and it does not anticipate
paying such dividends in the foreseeable future. No dividends may be declared,
set aside or paid on the Common Stock unless and until all accrued and unpaid
dividends on the outstanding shares of Series A Preferred Stock and Series B
Preferred Stock have been paid. The payment of dividends by the Company is
within the discretion of its Board of Directors and depends upon the Company's
earnings, capital requirements, financial condition and other factors deemed
relevant by the Board.
22. Authorization and Discretionary Issuance of Preferred Stock. The
Company's Restated Certificate of Incorporation authorizes the issuance of
5,000,000 shares of "blank check" preferred stock with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could decrease the amount of earnings and assets
available for distribution to holders of Common Stock and adversely affect the
relative voting power or other rights of the holders of the Company's Common
Stock. In the event of issuance, the preferred stock could be used, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. The Company is not presently committed to
issue any additional shares of its preferred stock. However, the Company may
from time to time issue additional shares of preferred stock in payment of
dividends on outstanding shares of preferred stock and in connection with
additional financing which the Company may obtain for its activities.
23. No Assurance of An Active Public Market for Common Stock; Possible
Volatility of Market Price for the Common Stock. Although the Common Stock is
quoted on The Nasdaq SmallCap Market, trading volume has been limited. There can
be no assurance that broker-dealers will act as market makers for the Common
Stock. As a result, investors will be exposed to a risk of a decline in the
market prices of the Common Stock. Moreover, the market price of the Common
Stock may be highly volatile, as has been the case with the securities of many
emerging companies. The Company's operating results and various factors
affecting the medical device industry may impact the market price of the
Company's securities to a significant degree. In addition, in recent years the
stock market has experienced a high level of price and
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<PAGE>
volume volatility, and market prices for the securities of many companies have
experienced wide price fluctuations not necessarily related to the operating
performance of such companies. There can be no assurance that the market price
of the Common Stock will not experience significant fluctuations or further
declines.
24. Possible Delisting. The Common Stock is quoted on The Nasdaq
SmallCap Market. For continued inclusion on the Nasdaq SmallCap Market, an
issuer is required, among other things, to have net tangible assets of $2
million (or alternatively, net income of $500,000 in two of the most recent
three fiscal years, or a market capitalization of $35 million), a bid price of
at least $1.00 and at least two market makers. As of June 30, 1998, the Company
satisfied the maintenance criteria for continued listing on The Nasdaq SmallCap
Market. As of such date, the Company had net tangible assets of approximately
$2,571,000. The bid price of the Company's Common Stock has exceeded $1.00 per
share. There can be no assurance that the Company will be able in the future to
satisfy the maintenance criteria for continued inclusion of the Common Stock on
The Nasdaq SmallCap Market. If the Company is unable to satisfy The Nasdaq
SmallCap maintenance criteria in the future, the Common Stock may be delisted
from trading on The Nasdaq SmallCap Market, and if delisted, trading, if any,
would thereafter be conducted in the over-the-counter market in the so-called
"pink sheets" or the NASD's "Electronic Bulletin Board," and consequently, an
investor could find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's securities.
25. Risk of Low-Priced Securities. The regulations of the Securities
and Exchange Commission promulgated under the Exchange Act require additional
disclosure relating to the market for penny stocks in connection with trades in
any stock defined as a penny stock. Commission regulations generally define a
penny stock to be an equity security that has a market price of less than $5.00
per share, subject to certain exceptions. Unless an exception is available,
those regulations require the delivery, prior to any transaction involving a
penny stock, of a disclosure schedule explaining the penny stock market and the
risks associated therewith and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally institutions). In addition, the
broker-dealer must provide the customer with current bid and offer quotations
for the penny stock, the compensation of the broker-dealer and its salesperson
in the transaction, and monthly account statements showing the market value of
each penny stock held in the customer's account. Moreover, broker-dealers who
recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. If the Company's securities become subject to the regulations
applicable to penny stocks, the market liquidity for the Company's securities
could be severely affected. In such an event, the regulations on penny stocks
could limit the ability of broker-dealers to sell the Company's securities and
thus the ability of purchasers of the Company's securities to sell their
securities in the secondary market.
26. Shares Eligible for Future Sale. No assurance can be given as to
the effect, if any, that future sales of Common Stock, or the availability of
shares of Common Stock for future sales, will have on the market price of the
Common Stock from time to time. Sales of substantial amounts of Common Stock
(including shares issued upon the exercise of warrants or stock options), or the
possibility of such sales, could adversely affect the market price of the Common
Stock and also impair the Company's ability to raise capital through an offering
of its equity securities in the future. The Company has 2,981,769 shares of
Common Stock outstanding, of which only 1,725,000 shares of Common Stock are
transferable without restriction under the Securities Act. The remaining shares,
issued in private transactions, are "restricted securities" (as defined in Rule
144 promulgated under the Securities Act) which may be publicly sold only if
registered under the Securities Act or if sold in accordance with an applicable
exemption from
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<PAGE>
registration, such as Rule 144. In general, under Rule 144, as currently in
effect, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company, who has beneficially owned restricted
securities for at least one year, is entitled to sell (together with any person
with whom such individual is required to aggregate sales), within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class or, if the Common Stock
is quoted on The Nasdaq Stock Market or a national securities exchange, the
average weekly trading volume during the four calendar weeks preceding the sale.
A person who has not been an affiliate of the Company for at least three months
and who has beneficially owned restricted securities for at least two years is
entitled to sell such restricted shares under Rule 144 without regard to any of
the limitations described above. Officers, directors and other securityholders
of the Company owning and/or having rights to acquire in the aggregate 1,800,746
shares of Common Stock have entered into agreements not to sell or otherwise
dispose of any securities of the Company, including shares of Common Stock prior
to April 24, 1999 (the "Lock-Up Agreements"), without the prior written consent
of Maidstone Financial, Inc. ("Maidstone"), managing underwriter for the
Company's initial public offering in April 1997, which may be granted or
withheld in the sole and absolute discretion of Maidstone (which has ceased
operations as a broker-dealer); provided, however, that if prior to April 24,
1999, the Company's shares of Common Stock are subject to a tender offer and
holders of the Company's Common Stock (other than the current stockholders)
agree to tender a majority of the outstanding shares of Common Stock to the
offerror, then all stockholders subject to the Lock-Up Agreement will be
released from the restrictions imposed thereby solely for the purposes of
tendering their shares of Common Stock to the offerror pursuant to the terms of
the tender offer. Commencing in the second quarter of 1999, 1,121,054 shares of
Common Stock, will become eligible for resale pursuant to Rule 144, subject to
the volume limitations and compliance with the other provisions of Rule 144.
Furthermore, the holders of warrants (the "Underwriters' Warrants") to purchase
225,000 shares of Common Stock and 150,000 Warrants (including the securities
issuable upon exercise thereof) issued to Maidstone and the other underwriters
for the Company's initial public offering have demand and piggyback registration
rights with respect to the shares of Common Stock and Warrants issuable upon
exercise of the Underwriters' Warrants.
27. Effect of Issuance of Common Stock Upon Exercise of Warrants and
Options; Possible Issuance of Additional Options. The Company has 10,519,893
shares of Common Stock authorized but unissued and not reserved for specific
purposes and 11,167,318 shares of Common Stock unissued but reserved for
issuance (i) upon exercise of options (including options which may be granted in
the future pursuant to the Company's stock option plan), (ii) upon exercise of
outstanding warrants, (iii) upon conversion of the Company's Series A Preferred
Stock, (iv) upon conversion of the Company's Series B Preferred Stock, and (v)
in connection with a private offering of its securities. Except to the extent
applicable Nasdaq regulations require stockholder approval of transactions
involving the issuance of at least 20% of the Common Stock at less than fair
market value (other than in a public offering) or the issuance of more than
25,000 shares to officers and directors of the Company as a group (other than
pursuant to a plan approved by stockholders), authorized shares of Common Stock
may be issued without any action or approval by the Company's stockholders. The
Company may from time to time issue additional shares or securities convertible
into any such shares, and any shares of Common Stock issued would further dilute
the percentage ownership of the Company held by the public stockholders.
The exercise of warrants or options and the sale of the underlying
shares of Common Stock (or even the potential of such exercise or sale) may have
a depressive effect on the market price of the Common Stock. Moreover, the terms
upon which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of outstanding warrants and options can be
expected to exercise them, to the extent they are able, at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in the warrants and options.
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<PAGE>
USE OF PROCEEDS
The Company will receive no proceeds from the sale of the shares of
Common Stock offered hereby.
SELLING SECURITYHOLDER
The table below sets forth, with respect to the Selling Securityholder,
based upon information available to the Company as of August 1, 1998, the number
of shares of Common Stock beneficially owned, the number of shares of Common
Stock to be sold, and the number of outstanding shares of Common Stock
beneficially owned after the sale of the shares of Common Stock offered hereby.
The Selling Securityholder has not been an officer, director or affiliate of the
Company or had any material relationship with the Company during the preceding
three years, except that the Selling Securityholder acquired from the Company
750 shares of Series B Preferred Stock and Warrants expiring August 1, 2001, to
purchase at $2.15 per share (subject to adjustment) 112,500 shares of Common
Stock in connection with a private placement in July 1998 for a consideration of
$750,000. The following table assumes that the Selling Securityholder will sell
all shares of Common Stock offered by this Prospectus; however, there can be no
assurance that the Selling Securityholder will sell any or all of the Common
Stock.
<TABLE>
<CAPTION>
Amount and Shares of Common
Nature of Beneficial Shares of Common Stock Owned After
Name Ownership Stock to Be Sold Offering
- --------------------------------------------- --------------------- -------------------- --------------------
<S> <C> <C> <C>
The Shaar Fund Ltd........................ 655,486(1) 655,486(1) 0
- --------------------------------------------
</TABLE>
(1) Represents 542,986 shares of Common Stock issuable upon
conversion of 750 shares of Series B Preferred Stock and
and 112,500 shares of Common Stock issuable upon exercise of
Warrants expiring August 1, 2001. Does not include shares of
Common Stock issued in payment of dividends on the Series B
Preferred Stock or as a result of certain changes in the
conversion rate thereon.
PLAN OF DISTRIBUTION
The Selling Securityholder may sell the shares of Common Stock offered
hereby from time to time directly to purchasers, or through broker-dealers who
may receive compensation in the form of commissions or discounts from the
Selling Securityholder or purchasers. Sales of shares of Common Stock may be
effected by broker-dealers in ordinary brokerage transactions or block
transactions on The Nasdaq SmallCap Market, through sales to one or more dealers
who may resell as principals, in privately negotiated transactions or otherwise,
at the market price prevailing at the time of sale, a price related to such
prevailing market price or at a negotiated price. Usual and customary or
specifically negotiated brokerage fees may be paid by the Selling Securityholder
in connection therewith. To the Company's knowledge, the Selling Securityholder
has not entered into any underwriting arrangements for the sale of the shares of
Common Stock offered hereby.
The Selling Securityholder may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profits realized by it may be deemed
to be underwriting commissions. Any broker-
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<PAGE>
dealers that participate in the distribution of the shares of Common Stock also
may be deemed to be "underwriters," as defined in the Securities Act, and any
commissions or discounts paid to them, or any profits realized by them upon the
resale of any securities purchased by them as principals, may be deemed to be
underwriting commissions or discounts under the Securities Act. The sale of the
shares of Common Stock by the Selling Securityholder is subject to the
prospectus delivery and other requirements of the Securities Act.
The shares of Common Stock offered hereby have been registered pursuant
to registration rights granted to the Selling Securityholder. The Company has
agreed to bear certain expenses in connection with the registration and sale of
the shares being offered by the Selling Securityholder. The Selling
Securityholder is responsible for the payment of brokerage commissions and
discounts incurred in connection with the sale of its shares of Common Stock.
The Company has agreed to indemnify the Selling Securityholder against certain
liabilities, including liabilities under the Securities Act.
Under the Exchange Act and the regulations thereunder, any person
engaged in a distribution of the shares of Common Stock offered hereby may not
simultaneously engage in market-making activities with respect to the Common
Stock during the applicable "cooling off" period prescribed by Rule 101 of
Regulation M prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the Selling Securityholder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder including, without limitation, Rule 102 of Regulation M, which
provisions may limit the timing of purchases and sales of Common Stock by the
Selling Securityholder.
To the extent required, the Company will file, during any period in
which offers or sales of shares of Common Stock are being made by or on behalf
of the Selling Securityholder, one or more amendments or supplements to this
Prospectus which describe any material information with respect to the plan of
distribution not previously disclosed herein, including the name or names of any
underwriters, broker-dealers or agents, if any, the purchase price paid by any
underwriter for shares of Common Stock purchased from a Selling Securityholder,
and any discounts, commissions or concessions allowed or reallowed or paid to
broker-dealers.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, $0.001 par value per share, 2,500 shares of Series A 8%
Cumulative Convertible Preferred Stock, $0.001 par value per share (the "Series
A Preferred Stock"), 1,000 shares of Series B 5% Convertible Preferred Stock
(the "Series B Preferred Stock") and 4,996,500 shares of "blank check" preferred
stock, $0.001 par value per share. As of June 30, 1998, 2,981,769 shares of
Common Stock and 2,072 shares of Series A Preferred Stock were issued and
outstanding. Subsequent to June 30, 1998, 750 shares of Series B Preferred Stock
were issued and sold to the Selling Securityholder and are outstanding as of the
date of this Prospectus.
The following are brief descriptions of the securities offered hereby
and other securities of the Company. The rights of the holders of shares of the
Company's capital stock are established by the Company's Certificate of
Incorporation, a Certificate of Designation authorizing the Series A Preferred
Stock, a Certificate of Designation authorizing the Series B Preferred Stock,
the Company's By-laws and Delaware law. The following statements do not purport
to be complete or give full effect to statutory or common law, and are subject
in all respects to the applicable provisions of the Certificate of
Incorporation, the Certificates of Designation, By-laws and state law.
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<PAGE>
Common Stock. Holders of the Common Stock are entitled to one vote per
share, and subject to the rights of holders of the Series A Preferred Stock, the
Series B Preferred Stock or any other series of preferred stock, to receive
dividends when, as and if declared by the Board of Directors and to share
ratably in the assets of the Company legally available for distribution to
holders of Common Stock in the event of the liquidation, dissolution or winding
up of the Company. Holders of the Common Stock do not have subscription,
redemption, conversion or preemptive rights.
Each share of Common Stock is entitled to one vote on any matter
submitted to the holders, including the election of directors. Holders of Common
Stock do not have cumulative voting rights; therefore, holders of a majority of
the outstanding shares of Common Stock entitled to vote for the election of
Directors may elect all of the Directors to be elected, if they so choose, and
in such event, the holders of the remaining shares will not be able to elect any
of the Company's Directors. Except as otherwise required by the Delaware General
Corporation Law (the "DGCL"), all stockholder action (other than the election of
Directors, who are elected by plurality vote), is subject to approval by a
majority of the shares of Common Stock present at a stockholders' meeting at
which a quorum (a majority of the issued and outstanding shares of Common Stock)
is present in person or by proxy, or by written consent pursuant to Delaware
law.
All shares of Common Stock outstanding are fully paid and
non-assessable, and the shares of Common Stock offered hereby, when issued upon
payment of the purchase price set forth on the cover page of the Prospectus,
will be fully paid and non-assessable.
The Board of Directors is authorized to issue additional shares of
Common Stock within the limits authorized by the Company's Certificate of
Incorporation without further stockholder action.
Preferred Stock. The Company is authorized to issue up to 5,000,000
shares of "blank check" preferred stock with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without further stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights that could decrease the amount of earnings and assets
available for distribution to holders of Common Stock or adversely affect the
voting power or other rights of the holders of the Company's Common Stock. In
the event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. No shares of preferred stock are outstanding, other than
2,072 shares of Series A Preferred Stock and 750 shares of Series B Preferred
Stock.
Series A Preferred Stock. The Board of Directors has authorized the
issuance of up to 2,500 shares of Series A Preferred Stock, of which 2,072
shares are outstanding. The terms of the Series A Preferred Stock are as
follows:
Dividend Rights. Holders of Series A Preferred Stock are entitled to
receive, prior to the payment of cash dividends on the Common Stock, cumulative
dividends at the rate of $80 per share per annum, and no more, when, as and if
declared by the Company's Board of Directors, out of funds legally available
therefor. Dividends on the Series A Preferred Stock are payable, in the sole and
absolute discretion of the Board of Directors, in cash, additional shares of
Series A Preferred Stock (based upon the liquidation value thereof), or a
combination thereof. Dividends may not be paid or declared on, and no other
distributions may be made with respect to, and no expenditure shall be made for
the purchase, redemption or retirement of, any of the Company's capital stock
junior to or in parity with the Series A Preferred Stock, unless all cumulative
dividends payable on the Series A Preferred Stock for all prior annual dividend
periods have been paid. The Company has agreed that it will not declare or pay
any cash dividends on the Series A
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<PAGE>
Preferred Stock without the prior written consent of the underwriter for
Company's the initial public offering.
Redemption. The Series A Preferred Stock is not subject to redemption.
Liquidation Rights. Subject to the prior rights of the Company's
creditors and the holders of senior securities, the holders of the Series A
Preferred Stock are entitled to receive, upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, $1,000 per share, plus
accrued and unpaid dividends. If, in any such case, the assets of the Company
are insufficient to make such payment in full, then the available assets will be
distributed among the holders of the Series A Preferred Stock and any other
series of preferred stock which is in parity with the Series A Preferred Stock,
ratably in proportion to the full amount to which each holder would be entitled.
Conversion Rights. Each share of Series A Preferred Stock is
convertible into 222.22 shares of Common Stock (the "conversion rate"), subject
to adjustment in certain events, at the option of the holder thereof commencing
April 24, 1999. The conversion rate is subject to adjustment in the event of a
stock split, stock dividend, recapitalization, merger, consolidation or certain
other events. The right of conversion with respect to the shares of the Series A
Preferred Stock called for redemption will terminate at the close of business on
the business day preceding the date fixed for redemption. Upon conversion, no
payment or allowance will be made in respect of any accrued but unpaid dividends
on the Series A Preferred Stock.
Voting Rights. Holders of Series A Preferred Stock have no voting
rights, except as may be required by law.
Series B Preferred Stock. The Board of Directors has authorized the
issuance of up to 1,000 shares of Series B Preferred Stock, of which 750 shares
are outstanding. The terms of the Series B Preferred Stock are as follows:
Dividend Rights. Holders of Series B Preferred Stock are entitled to
receive, prior to the payment of cash dividends on the Common Stock or the
Series A Preferred Stock, cumulative dividends at the rate of $50 per share per
annum, and no more, when, as and if declared by the Company's Board of
Directors, out of funds legally available therefor. Dividends on the Series B
Preferred Stock are payable, in the sole and absolute discretion of the Board of
Directors, in cash, or shares of Common Stock (based upon the value thereof).
Dividends may not be paid or declared on, and no other distributions may be made
with respect to, and no expenditure shall be made for the purchase, redemption
or retirement of, any of the Company's capital stock junior to or in parity with
the Series B Preferred Stock, unless all cumulative dividends payable on the
Series B Preferred Stock for all prior annual dividend periods have been paid.
Redemption. With respect to such shares as to which the holder thereof
has not theretofore furnished an effective conversion notice and only if the
current market price of the Common Stock is not greater than one hundred thirty
percent (130%) of the closing bid price of the Common Stock on July 27, 1998,
the Company may in whole or in part from time to time redeem in cash Series B
Preferred Stock at one hundred thirty-five percent (135%) of the stated value
thereof plus all accrued and unpaid dividends thereon to the date of redemption.
Liquidation Rights. Subject to the prior rights of the Company's
creditors and the holders of senior securities, the holders of the Series B
Preferred Stock are entitled to receive, upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, $1,000 per share, plus
accrued and unpaid dividends. If, in any such case, the assets of the Company
are insufficient to make such payment in
16
<PAGE>
full, then the available assets will be distributed among the holders of the
Series B Preferred Stock and any other series of preferred stock which is in
parity with the Series B Preferred Stock, ratably in proportion to the full
amount to which each holder would be entitled.
Conversion Rights. Each share of Series B Preferred Stock is
convertible into the number of shares of Common Stock having the value of
$1,000, on the basis of the lower of (i) $1.925 per share and (ii) a price equal
to 80 to 85% of a price related to the market price for the Common Stock at the
time of conversion, as provided in and subject to the terms and conditions of
the Certificate of Designation defining the Series B Preferred Stock (the
"conversion rate"), at the option of the holder thereof. In addition, if the
Common Stock is delisted from NASDAQ for any reason, then any remaining
unconverted Series B Preferred Stock may be converted at a price per share equal
to 75% of a price related to the market price. The conversion rate is also
subject to adjustment in the event of a stock split, stock dividend,
recapitalization, merger, consolidation or certain other events. The right of
conversion with respect to the shares of the Series B Preferred Stock called for
redemption will terminate at the close of business on the business day preceding
the date fixed for redemption. Upon conversion, no payment or allowance will be
made in respect of any accrued but unpaid dividends on the Series B Preferred
Stock.
Voting Rights. Holders of Series B Preferred Stock have no voting
rights, except as may be required by law.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Snow Becker Krauss P.C., 605 Third Avenue, New York, New York,
10158-0125.
EXPERTS
The consolidated balance sheet as of December 31, 1997, and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1997, incorporated by
reference in this Prospectus, have been incorporated herein in reliance on the
report, which includes an explanatory paragraph regarding the Company's ability
to continue as a going concern, of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
17
<PAGE>
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No dealer, salesman or any other person is authorized to give any information or
to make any representations other than those contained in this Prospectus in
connection with any offer to sell or sale of the securities to which this
Prospectus relates and, if given or made, such information or representations
must not be relied upon as having been authorized. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, imply
that there has been no change in the facts herein set forth since the date
hereof. This Prospectus does not constitute an offer to sell or to a
solicitation of any offer to buy from any person in any state in which any such
offer or solicitation would be unlawful.
----------------------
TABLE OF CONTENTS
Page
----
Available Information........................................................2
The Company..................................................................3
Risk Factors.................................................................4
Use of Proceeds.............................................................13
Selling Securityholder......................................................13
Plan of Distribution........................................................13
Description of Securities...................................................14
Legal Matters...............................................................17
Experts ...................................................................17
----------------------
Until ____________, 1998 (25 days after the date of this Prospectus),
all dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a Prospectus. This is
in addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
================================================================================
<PAGE>
================================================================================
1,050,000 SHARES OF
COMMON STOCK
UNIVEC, INC.
----------------------
Prospectus
----------------------
August ___, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses which will be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered hereby. With the exception of the SEC registration fee, all
amounts indicated are estimates.
SEC Registration fee........................................... $503.34
Printing expenses (other than stock certificates).............. $5,000
Legal fees and expenses........................................ $5,000
Miscellaneous.................................................. $2,500
TOTAL.......................................................... $13,003.34
Item 15. Indemnification of Directors and Officers.
Article 6 of the Registrant's Restated Certificate of Incorporation, in
accordance with Section 145 of the DGCL, provides that directors and officers
shall be indemnified against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement in connection with specified actions, suits
or proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation -- a "derivative action")
if they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard of care is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
an action. Moreover, the DGCL requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation.
Article 6 of the Registrant's Restated Certificate of Incorporation
further provides that directors and officers are entitled to be paid by the
Registrant the expenses incurred in defending the proceedings specified above in
advance of their final disposition, provided that such payment will only be made
upon delivery to the Registrant by the indemnified party of an undertaking to
repay all amounts so advanced if it is ultimately determined that the person
receiving such payments is not entitled to be indemnified.
Article 6 of the Registrant's Restated Certificate of Incorporation
provides that a person indemnified under Article 6 of the Certificate of
Incorporation may contest any determination that a director, officer, employee
or agent has not met the applicable standard of conduct set forth in the
Restated Certificate of Incorporation by petitioning a court of competent
jurisdiction.
Article 6 of the Registrant's Restated Certificate of Incorporation
provides that the right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in the
Article will not be exclusive of any other right which any person may have or
acquire under the Restated Certificate of Incorporation, or any statute or
agreement, or otherwise.
II-1
<PAGE>
Finally, Article 6 of the Registrant's Restated Certificate of
Incorporation provides that the Registrant may maintain insurance, at its
expense, to reimburse itself and directors and officers of the Registrant and of
its direct and indirect subsidiaries against any expense, liability or loss,
whether or not the Registrant would have the power to indemnify such persons
against such expense, liability or loss under the provisions of Article 6 of the
Restated Certificate of Incorporation. The Registrant has applied for such
insurance, and expects to have such insurance in effect on the date this
Registration Statement is declared effective by the Commission.
Article 7 of the Registrant's Restated Certificate of Incorporation
eliminates the personal liability of the Registrant's directors to the
Registrant or its stockholders for monetary damages for breach of their
fiduciary duties as a director to the fullest extent provided by Delaware law.
Section 102(b)(7) of the DGCL provides for the elimination off such personal
liability, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which
the director derived any improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
Item 16. Exhibits.
4.1* Agreement and Plan of Merger dated as of October 7, 1996 between
the Registrant and UNIVEC, Inc., a New York corporation.
4.2* Form of warrants between the Registrant and the underwriters of the
Registrant's initial public offering.
4.3* Form of Warrant Agreement between the Registrant and the
underwriters of the Registrant's initial public offering.
4.4* Specimen Common Stock Certificate.
4.5* Specimen Warrant Certificate (included as Exhibit A to Exhibit 4.3
herein).
4.8* Registration Rights Agreement among the Registrant and the holders of
bridge warrants.
4.10 Certificate of Designation of Series B Preferred Stock.
4.11 Form of Warrant Agreement between Company and Selling Securityholder.
4.12 Registration Rights Agreement between Company and Selling
Securityholder.
5.1 Opinion of Snow Becker Krauss P.C., counsel to the Company.
23.1 Consent of Snow Becker Krauss P.C. is included in Exhibit 5.1 to this
Registration Statement.
23.2 Consent of PricewaterhouseCoopers LLP, independent certified public
accountants.
24.1 Power of Attorney
- --------------------------------------------
* Incorporated by reference from the Registrant's Registration Statement
on Form SB-2 (File No. 333-20187) declared effective on
April 24, 1997.
II-2
<PAGE>
Item 17. Undertakings.
(a) Rule 415 Offering
The undersigned small business issuer hereby undertakes that it will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information set forth in the registrant
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;
(iii) Include any additional or changed material information
on the plan of distribution;
(2) For determining any liability under the Securities Act, treat
each post-effective amendment as a new registration statement
relating to the securities offered, and the offering of such
securities at that time to be the initial bona fide offering
thereof;
(3) Remove from registration by means of a post-effective
amendment any of the securities that remain unsold at the
termination of the offering.
(e) Request for Acceleration of Effective Date.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of the expenses incurred or
paid by a director, officer, or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
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 Garden City, state of New York, on August 25, 1998.
UNIVEC, INC.
By s/ Joel Schoenfeld By s/ Martin Jacobson
------------------------------------- ------------------------------
Joel Schoenfeld Martin Jacobson
Chairman of the Board of Directors, Chief Financial Officer
Chief Executive Officer and Director (Principal Financial and
(Principal Executive Officer) Accounting Officer)
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.
s/ Joel Schoenfeld
- -------------------------------------------------
Joel Schoenfeld
Chairman of the Board of Directors,
Chief Executive Officer and Director
(Principal Executive Officer)
s/ Alan H. Gold*
- -------------------------------------------------
Alan H. Gold
Director
s/ Martin Jacobson
- -------------------------------------------------
Martin Jacobson
Chief Financial Officer
(Principal Financial and Accounting Officer)
s/ John Frank
- -------------------------------------------------
John Frank
Director
s/ Richard Lerner*
- -------------------------------------------------
Richard Lerner
Director
- -------------------------------------------------
David Jay
Director
*By s/ Joel Schoenfeld
- -------------------------------------------------
(Joel Schoenfeld,
Attorney-in-fact)
II-4
<PAGE>
EXHIBIT INDEX
4.1* Agreement and Plan of Merger dated as of October 7, 1996 between
the Registrant and UNIVEC, Inc., a New York corporation.
4.2* Form of warrants between the Registrant and the underwriters of the
Registrant's initial public offering.
4.3* Form of Warrant Agreement between the Registrant and the
underwriters of the Registrant's initial public offering.
4.4* Specimen Common Stock Certificate.
4.5* Specimen Warrant Certificate (included as Exhibit A to Exhibit 4.3
herein).
4.8* Registration Rights Agreement among the Registrant and the holders of
bridge warrants.
4.10 Certificate of Designation of Series B Preferred Stock.
4.11 Form of Warrant Agreement between Company and Selling Securityholder.
4.12 Registration Rights Agreement between Company and Selling
Securityholder.
5.1 Opinion of Snow Becker Krauss P.C., counsel to the Company.
23.1 Consent of Snow Becker Krauss P.C. is included in Exhibit 5.1 to this
Registration Statement.
23.2 Consent of PricewaterhouseCoopers LLP, independent certified public
accountants.
24.1 Power of Attorney
- --------------------------------------------
* Incorporated by reference from the Registrant's Registration Statement
on Form SB-2 (File No. 333-20187) declared effective on
April 24, 1997.
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
UNIVEC, INC.
----------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
----------
Univec, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation on July 17, 1998 pursuant to authority of the Board of
Directors as required by Section 151 of the General Corporation Law of the State
of Delaware:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (the "Board of Directors" or the
"Board") in accordance with the provisions of its Certificate of Incorporation,
the Board of Directors hereby authorizes a series of the Corporation's
previously authorized Preferred Stock, par value $0.001 per share (the
"Preferred Stock"), and hereby states the designation and number of shares, and
fixes the relative rights, preferences, privileges, powers and restrictions
thereof as follows:
Series B 5% Convertible Preferred Stock:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever
used in this Certificate of Designation have the following respective meanings:
(a) "Additional Capital Shares" has the meaning set forth in
Section 6.1(c).
(b) "Affiliate" has the meaning ascribed to such term in Rule
12b-2 under the Securities Exchange Act of 1934, as amended.
(c) "Business Day" means a day other than Saturday, Sunday or
any day on which banks located in the State of New York are authorized or
obligated to close.
(d) "Capital Shares" means the Common Shares and any other
shares of any other class or series of common stock, whether now or hereafter
authorized and however designated,
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<PAGE>
which have the right to participate in the distribution of earnings and assets
(upon dissolution, liquidation or winding-up) of the Corporation.
(e) "Closing Date" means July 27, 1998.
(f) "Common Shares" or "Common Stock" means shares of common
stock, $.001 par value, of the Corporation.
(g) "Common Stock Issued at Conversion" when used with
reference to the securities issuable upon conversion of the Series B Preferred
Stock, means all Common Shares now or hereafter Outstanding and securities of
any other class or series into which the Series B Preferred Stock hereafter
shall have been changed or substituted, whether now or hereafter created and
however designated.
(h) "Conversion Date" means any day on which all or any
portion of shares of the Series B Preferred Stock is converted in accordance
with the provisions hereof.
(i) "Conversion Notice" has the meaning set forth in Section
6.2.
(j) "Conversion Price" means on any date of determination the
applicable price for the conversion of shares of Series B Preferred Stock into
Common Shares on such day as set forth in Section 6.1.
(k) "Conversion Ratio" means on any date of determination the
applicable percentage of the Market Price for conversion of shares of Series B
Preferred Stock into Common Shares on such day as set forth in Section 6.1.
(l) "Corporation" means Univec, Inc., a Delaware corporation,
and any successor or resulting corporation by way of merger, consolidation, sale
or exchange of all or substantially all of the Corporation's assets, or
otherwise.
(m) "Current Market Price" means on any date of determination
the closing bid price of a Common Share on such day as reported on the Nasdaq
SmallCap Market ("NASDAQ").
(n) "Default Dividend Rate" shall be equal to the Preferred
Stock Dividend Rate plus an additional 5% per annum.
(o) "Holder" means The Shaar Fund Ltd., any successor thereto,
or any Person to whom the Series B Preferred Stock is subsequently transferred
in accordance with the provisions hereof.
(p) "Market Disruption Event" means any event that results in
a material suspension or limitation of trading of Common Shares on NASDAQ.
(q) "Market Price" per Common Share means the arithmetic mean
of the three (3) lowest closing bid prices of the Common Shares as reported on
NASDAQ for three (3) Trading
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<PAGE>
Days any Valuation Period, it being understood that such three (3) Trading Days
during any Valuation Period need not be consecutive.
(r) "Maximum Rate" has the meaning set forth in Section
7.3(b).
(s) "Outstanding" when used with reference to Common Shares or
Capital Shares (collectively, "Shares"), means, on any date of determination,
all issued and outstanding Shares, and includes all such Shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; provided, however, that any such Shares directly or
indirectly owned or held by or for the account of the Corporation or any
Subsidiary of the Corporation shall not be deemed "Outstanding" for purposes
hereof.
(t) "Person" means an individual, a corporation, partnership,
an association, a limited liability company, unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(u) "Registration Rights Agreement" means that certain
Registration Rights Agreement dated a date even herewith between the Corporation
and The Shaar Fund Ltd.
(v) "SEC" means the United States Securities and Exchange
Commission.
(w) "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations of the SEC thereunder, all as in effect
at the time.
(x) "Securities Purchase Agreement" means that certain
Securities Purchase Agreement dated a date even herewith between the Corporation
and The Shaar Fund Ltd.
(y) "Series B Preferred Stock" means the Series B 5%
Convertible Preferred Stock of the Corporation or such other convertible
Preferred Stock exchanged therefor as provided in Section 2.1.
(z) "Stated Value" has the meaning set forth in Article 2.
(aa) "Subsidiary" means any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
(bb) "Trading Day" means any day on which purchases and sales
of securities authorized for quotation on NASDAQ are reported thereon and on
which no Market Disruption Event has occurred.
(cc) "Valuation Event" has the meaning set forth in Section
6.1.
(dd) "Valuation Period" means the twenty Trading Day period
immediately preceding the Conversion Date.
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<PAGE>
All references to "cash" or "$" herein means currency of the
United States of America.
ARTICLE 2
DESIGNATION AND AMOUNT
SECTION 2.1
The designation of this series, which consists of 1,000 shares
of Preferred Stock, is Series B 5% Convertible Preferred Stock (the "Series B
Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "Stated Value").
ARTICLE 3
RANK
SECTION 3.1
The Series B Preferred Stock shall rank (i) prior to the
Common Stock; (ii) prior to the Corporation's Series A 8% Cumulative Convertible
Preferred Stock; (iii) prior to any class or series of capital stock of the
Corporation hereafter created other than "Pari Passu Securities" (collectively,
with the Common Stock, "Junior Securities"); and (iv) pari passu with any class
or series of capital stock of the Corporation hereafter created specifically
ranking on parity with the Series B Preferred Stock ("Pari Passu Securities").
ARTICLE 4
DIVIDENDS
SECTION 4.1
(a) (i) The Holder shall be entitled to receive, and the Board
of Directors shall be required to declare, out of funds legally available for
the payment of dividends, dividends (subject to Sections 4(a)(ii) hereof) at the
rate of 5% per annum (computed on the basis of a 360-day year) (the "Dividend
Rate") on the Liquidation Value (as defined below) of each share of Series B
Preferred Stock on and as of the most recent Dividend Payment Due Date (as
defined below) with respect to each Dividend Period (as defined below).
Dividends on the Series B Preferred Stock shall be cumulative from the date of
issue, whether or not declared for any reason, including if such declaration is
prohibited under any outstanding indebtedness or borrowings of the Corporation
or any of its Subsidiaries, or any other contractual provision binding on the
Corporation or any of its Subsidiaries, and whether or not there shall be funds
legally available for the payment thereof.
(ii) Each dividend shall be payable in equal quarterly amounts
on each March 31, June 30, September 30 and December 31 of each year (each, a
"Dividend Payment Due Date"), commencing September 30, 1998, to the holders of
record of shares of the Series B Preferred Stock, as they appear on the stock
records of the Corporation at the close of business on any record date, not more
than 60 days or less than 10 days preceding the payment dates thereof, as shall
be fixed by the Board of Directors. For the purposes hereof, "Dividend Period"
means the quarterly
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<PAGE>
period commending on and including the day after the immediately preceding
Dividend Payment Date and ending on and including the immediately subsequent
Dividend Payment Date. Accrued and unpaid dividends for any past Dividend Period
may be declared and paid at any time, without reference to any Dividend Payment
Due Date, to holders of record on such date, not more than 15 days preceding the
payment date thereof, as may be fixed by the Board of Directors.
(iii) At the option of the Corporation, the dividend shall be
paid in cash or through the issuance of duly and validly authorized and issued,
fully paid and nonassessable, freely tradeable shares of the Common Stock valued
at the Market Price. The Common Stock to be issued in lieu of cash payments
shall be registered for resale in the Registration Statement (as defined in the
Registration Rights Agreement) to be filed by the Corporation to register the
Common Stock issuable upon conversion of the shares of Series B Preferred Stock
and exercise of the Warrants as set forth in the Registration Rights Agreement.
Notwithstanding the foregoing, until such Registration Statement (as defined in
the Registration Rights Agreement) has been declared effective under the
Securities Act by the SEC, payment of dividends on the Series B Preferred Stock
shall be in cash.
(b) The Holder shall not be entitled to any dividends in
excess of the cumulative dividends, as herein provided, on the Series B
Preferred Stock. Except as provided in this Article 4, no interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on the Series B Preferred Stock that may be in arrears.
(c) So long as any shares of the Series B Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on Pari Passu Securities for
any period unless full cumulative dividends required to be paid in cash have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series B Preferred
Stock for all Dividend Periods terminating on or prior to the date of payment of
the dividend on such class or series of Pari Passu Securities. When dividends
are not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series B Preferred Stock
and all dividends declared upon any other class or series of Pari Passu
Securities shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series B Preferred Stock and accumulated
and unpaid on such Pari Passu Securities.
(d) So long as any shares of the Series B Preferred Stock are
outstanding, no dividends shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any subsidiary, (all such dividends, distributions,
redemptions or purchases being hereinafter referred to as a "Junior Securities
Distribution") for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly, unless in each case (i) the full cumulative
dividends required to be paid in cash on all outstanding shares of the Series B
Preferred Stock and any other Pari Passu Securities shall have been paid or set
apart for payment for all past Dividend Periods with respect to the Series B
Preferred Stock and all past dividend periods with respect to such Pari Passu
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<PAGE>
Securities, and (ii) sufficient funds shall have been paid or set apart for the
payment of the dividend for the current Dividend Period with respect to the
Series B Preferred Stock and the current dividend period with respect to such
Pari Passu Securities.
ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.1
(a) If the Corporation shall commence a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation upon liquidation, dissolution or winding up
unless prior thereto, the holders of shares of Series B Preferred Stock, subject
to Article 5, shall have received the Liquidation Preference (as defined in
Article 5(c)) with respect to each share. If upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
holders of the Series B Preferred Stock and holders of Pari Passu Securities
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series B Preferred Stock and the Pari
Passu Securities shall be distributed ratably among such shares in proportion to
the ratio that the Liquidation Preference payable on each such share bears to
the aggregate liquidation Preference payable on all such shares.
(b) At the option of each Holder, the sale, conveyance of
disposition of all or substantially all of the assets of the Corporation, the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, or the consolidation, merger or other business combination of the
Corporation with or into any other Person (as defined below) or Persons when the
Corporation is not the survivor shall either: (i) be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to which the Corporation
shall be required to distribute, upon consummation of and as a condition to,
such transaction an amount equal to one hundred percent (100%) of the
Liquidation Preference with respect to each outstanding share of Series B
Preferred Stock in accordance with and subject to the terms of this Article 5 or
(ii) be treated pursuant to Article 5(c)(iii) hereof; provided, that all holders
of Series B Preferred Stock shall be deemed to elect the option set forth in
clause (i) hereof if at least a majority in interest of such holders elect such
option.
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<PAGE>
(c) For purposes hereof, the "Liquidation Preference" with
respect to a share of the Series B Preferred Stock shall mean an amount equal to
the sum of (i) the Stated Value thereof, plus (ii) the aggregate of all accrued
and unpaid dividends on such share of Series B Preferred Stock until the most
recent Dividend Payment Due Date; provided that, in the event of an actual
liquidation, dissolution or winding up of the Corporation, the amount referred
to in clause (iii) above shall be calculated by including accrued and unpaid
dividends to the actual date of such liquidation, dissolution or winding up,
rather than the Dividend Payment Due Date referred to above.
ARTICLE 6
CONVERSION OF PREFERRED STOCK
SECTION 6.1 Conversion; Conversion Price. At the option of the Holder,
the shares of Preferred Stock may be converted, either in whole or in part, into
Common Shares (calculated as to each such conversion to the nearest 1/100th of a
share), at any time, and from time to time following the date of issuance of the
Series B Preferred Stock (the "Issue Date") at a Conversion Price per share of
Common Stock equal to the lesser of: (i) $1.925, or (ii) 85% of the Market
Price; provided that any unconverted Series B Preferred Stock remaining one
hundred fifty (150) days after the Closing Date may be converted, at the sole
option of the Holder, at a Conversion Price per share of Common Stock equal to
82.5% of the Market Price, provided, further, that any unconverted Series B
Preferred Stock remaining one hundred eighty (180) days after the Closing Date
may be converted, at the sole option of the Holder, at a Conversion Price per
share of Common Stock equal to 80% of the Market Price, and, provided, further,
that if the Corporation's Common Stock is delisted on NASDAQ, for any reason,
then any remaining unconverted Series B Preferred Stock may be converted, at the
sole option of the Holder, at a Conversion Price per share of Common Stock equal
to 75% of the Market Price; provided, however, that the Holder shall not have
the right to convert any portion of the Series B Preferred Stock to the extent
that the issuance to the Holder of Common Shares upon such conversion would
result in the Holder being deemed the "beneficial owner" of 5% or more of the
then outstanding Common Shares within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended. At the Corporation's option, the
amount of accrued and unpaid dividends as of the Conversion Date shall not be
subject to conversion but instead may be paid in cash as of the Conversion Date;
if the Corporation elects to convert the amount of accrued and unpaid dividends
at the Conversion Date into Common Stock, the Common Stock issued to the Holder
shall be valued at the Conversion Price. Notwithstanding the previous sentence,
in no event shall the Holder have the right to convert that portion of the
Series B Preferred Stock to the extent that the issuance of Common Shares upon
the conversion of such Series B Preferred Stock, when combined with shares of
Common Stock received upon other conversions of Series B Preferred Stock by such
Holder and any other holders of Series B Preferred Stock, would exceed 19.99% of
the Common Stock outstanding on the Closing Date, unless the Corporation's
shareholders approve the issuance of an amount of the Corporation's Common Stock
in excess of the 19.99% threshold. Within ten (10) Business Days after the
receipt of the Conversion Notice which upon conversion would, when combined with
shares of Common Stock received upon other conversions of Series B Preferred
Stock by such Holder and any other holders of Series B Preferred Stock and
Warrants, exceed 19.99% of the Common Stock outstanding on the Closing Date, the
Corporation shall redeem those outstanding shares of Series B Preferred Stock in
excess of the 19.99% threshold at one hundred twenty-five percent (125%) of the
Stated Value thereof, together with all accrued and unpaid dividends thereon, in
cash, to the date of redemption.
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The Holder of the Series B Preferred Stock may exercise its
right of conversion of such shares as follows: (i) 33 1/3% of the aggregate
number of Series B Preferred Shares issued to the Holder up to 150 days after
the Closing Date; (ii) 66 2/3% of the aggregate number of Series B Preferred
Shares issued to the Holder up to 180 days after the Closing Date; and (iii)
thereafter, 100% of the aggregate number of Series B Preferred Shares issued to
the Holder.
The number of shares of Common Stock due upon conversion of
Series B Preferred Stock shall be (i) the number of shares of Series B Preferred
Stock to be converted, multiplied by (ii) the Stated Value and divided by (iii)
the applicable Conversion Price.
Within two (2) Business Days of the occurrence of a Valuation
Event, the Corporation shall send notice (the "Valuation Event Notice") of such
occurrence to the Holder. Notwithstanding anything to the contrary contained
herein, if a Valuation Event occurs during any Valuation Period, a new Valuation
Period shall begin on the Trading Day immediately following the occurrence of
such Valuation Event and end on the Conversion Date; provided that, if a
Valuation Event occurs on the fifth day of any Valuation Period, then the
Conversion Price shall be the Current Market Price of the Common Shares on such
day; and provided, further, that the Holder may, in its discretion, postpone
such Conversion Date to a Trading Day which is no more than five (5) Trading
Days after the occurrence of the latest Valuation Event by delivering a
notification to the Corporation within two (2) Business Days of the receipt of
the Valuation Event Notice. In the event that the Holder deems the Valuation
Period to be other than the five (5) Trading Days immediately prior to the
Conversion Date, the Holder shall give written notice of such fact to the
Corporation in the related Conversion Notice at the time of conversion.
For purposes of this Section 6.1, a "Valuation Event" shall mean an event in
which the Corporation at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution of its Capital Shares;
(c) issues any additional Capital Shares (the "Additional
Capital Shares"), otherwise than as provided in the foregoing Sections 6.1(a)
and 6.1(b) above, at a price per share less, or for other consideration lower,
than the Current Market Price in effect immediately prior to such issuances, or
without consideration, except for issuances under employee benefit plans
consistent with those presently in effect and issuances under presently
outstanding warrants, options or convertible securities;
(d) Issues any warrants, options or other rights to subscribe
for or purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or
exercisable for Capital Shares and the consideration per share for which
Additional Capital Shares may at any time
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thereafter be issuable pursuant to the terms of such convertible, exchangeable
or exercisable securities shall be less than the Current Market Price in effect
immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a dividend in liquidation
or by way of return of capital or other than as a dividend payable out of
earnings or surplus legally available for the payment of dividends under
applicable law or any distribution to such holders made in respect of the sale
of all or substantially all of the Corporation's assets (other than under the
circumstances provided for in the foregoing Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the foregoing Sections
6.1(a) through 6.1(f) hereof, inclusive, which in the opinion of the
Corporation's Board of Directors, determined in good faith, would have a
material adverse effect upon the rights of the Holder at the time of a
conversion of the Preferred Stock.
SECTION 6.2 Exercise of Conversion Privilege. (a) Conversion of the
Series B Preferred Stock may be exercised, in whole or in part, by the Holder by
telecopying an executed and completed notice of conversion in the form annexed
hereto as Annex I (the "Conversion Notice") to the Corporation. Each date on
which a Conversion Notice is telecopied to and received by the Corporation in
accordance with the provisions of this Section 6.2 shall constitute a Conversion
Date. The Corporation shall convert the Preferred Stock and issue the Common
Stock Issued at Conversion effective as of the Conversion Date. The Conversion
Notice also shall state the name or names (with addresses) of the persons who
are to become the holders of the Common Stock Issued at Conversion in connection
with such conversion. The Holder shall deliver the shares of Series B Preferred
Stock to the Corporation by express courier within 30 days following the date on
which the telecopied Conversion Notice has been transmitted to the Corporation.
Upon surrender for conversion, the Preferred Stock shall be accompanied by a
proper assignment thereof to the Corporation or be endorsed in blank. As
promptly as practicable after the receipt of the Conversion Notice as aforesaid,
but in any event not more than five Business Days after the Corporation's
receipt of such Conversion Notice, the Corporation shall (i) issue the Common
Stock issued at Conversion in accordance with the provisions of this Article 6,
and (ii) cause to be mailed for delivery by overnight courier to the Holder (X)
a certificate or certificate(s) representing the number of Common Shares to
which the Holder is entitled by virtue of such conversion, (Y) cash, as provided
in Section 6.3, in respect of any fraction of a Share issuable upon such
conversion and (Z) cash in the amount of accrued and unpaid dividends as of the
Conversion Date. Such conversion shall be deemed to have been effected at the
time at which the Conversion Notice indicates so long as the Preferred Stock
shall have been surrendered as aforesaid at such time, and at such time the
rights of the Holder of the Preferred Stock, as such, shall cease and the Person
and Persons in whose name or names the Common Stock Issued at Conversion shall
be issuable shall be deemed to have become the holder or holders of record of
the Common Shares represented thereby. The Conversion Notice shall constitute a
contract between the Holder and the Corporation, whereby the Holder shall be
deemed to subscribe for the number of Common Shares which it will be entitled to
receive upon such conversion and, in payment and satisfaction of such
subscription (and for any cash adjustment to which it is entitled pursuant to
Section 6.4), to surrender the Preferred Stock and to release the Corporation
from all
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liability thereon. No cash payment aggregating less than $1.00 shall be required
to be given unless specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes
or denies the right of the Holder hereof to effect the conversion of the
Preferred Stock into Common Shares or otherwise dishonors or rejects any
Conversion Notice delivered in accordance with this Section 6.2 or (ii) any
third party who is not and has never been an Affiliate of the Holder commences
any lawsuit or proceeding or otherwise asserts any claim before any court or
public or governmental authority which seeks to challenge, deny, enjoin, limit,
modify, delay or dispute the right of the Holder hereof to effect the conversion
of the Preferred Stock into Common Shares, then the Holder shall have the right,
by written notice to the Corporation, to require the Corporation to promptly
redeem the Series B Preferred Stock for cash at a redemption price equal to one
hundred twenty percent (120%) of the Stated Value thereof together with all
accrued and unpaid dividends thereon (the "Mandatory Purchase Amount"). Under
any of the circumstances set forth above, the Corporation shall be responsible
for the payment of all costs and expenses of the Holder, including reasonable
legal fees and expenses, as and when incurred in disputing any such action or
pursuing its rights hereunder (in addition to any other rights of the Holder).
SECTION 6.3 Fractional Shares. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series B Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series B Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction. No cash payment of less than $1.00 shall be required
to be given unless specifically requested by the Holder.
SECTION 6.4 Reclassification, Consolidation, Merger or Mandatory Share
Exchange. At any time while the Series B Preferred Stock remains outstanding and
any shares thereof has not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series B
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series B Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the Series B Preferred Stock), or in the case of any sale or
transfer to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation, or such successor,
resulting or purchasing corporation, as the case may be, shall, without payment
of any additional consideration therefor, execute a new Series B Preferred Stock
providing that the Holder shall have the right to convert such new Series B
Preferred Stock (upon terms and conditions not less favorable to the Holder than
those in effect pursuant to the Series B Preferred Stock) and to receive upon
such exercise, in lieu of each Common Share theretofore issuable upon conversion
of the Series B Preferred Stock, the kind and amount of shares of stock, other
securities, money or property receivable upon such reclassification, change,
consolidation, merger, mandatory share exchange, sale or transfer by the holder
of one Common Share issuable
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upon conversion of the Series B Preferred Stock had the Series B Preferred Stock
been converted immediately prior to such reclassification, change,
consolidation, merger, mandatory share exchange or sale or transfer. The
provisions of this Section 6.4 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, mandatory share exchanges
and sales and transfers.
SECTION 6.5 Adjustments to Conversion Ratio. For so long as any shares
of the Series B Preferred Stock are outstanding, if the Corporation (i) issues
and sells pursuant to an exemption from registration under the Securities Act
(A) Common Shares at a purchase price on the date of issuance thereof that is
lower than the Conversion Price, (B) warrants or options with an exercise price
representing a percentage of the Current Market Price with an exercise price on
the date of issuance of the warrants or options that is lower than the agreed
upon exercise price for the Holder, except for employee stock option agreements
or stock incentive agreements of the Corporation, or (C) convertible,
exchangeable or exercisable securities with a right to exchange at lower than
the Current Market Price on the date of issuance or conversion, as applicable,
of such convertible, exchangeable or exercisable securities, except for stock
option agreements or stock incentive agreements; and (ii) grants the right to
the purchaser(s) thereof to demand that the Corporation register under the
Securities Act such Common Shares issued or the Common Shares for which such
warrants or options may be exercised or such convertible, exchangeable or
exercisable securities may be converted, exercised or exchanged, then the
Conversion Ratio shall be reduced to equal the lowest of any such lower rates.
SECTION 6.6 Optional Redemption Under Certain Circumstances. At anytime
after the date of issuance of the Series B Preferred Stock until the Mandatory
Conversion Date (as defined below), the Corporation, upon notice delivered to
the Holder as provided in Section 6.7, may redeem in whole or in part from time
to time the Series B Preferred Stock (but only with respect to such shares as to
which the Holder has not theretofore furnished a Conversion Notice in compliance
with Section 6.2), at one hundred thirty-five percent (135%) of the Stated Value
thereof (the "Optional Redemption Price"), together with all accrued and unpaid
dividends thereon to the date of redemption (the "Redemption Date"); provided,
however, that the Corporation may only redeem the Series B Preferred Stock under
this Section 6.6 if the Current Market Price is not greater than one hundred
thirty percent (130%) of the Current Market Price on the Closing Date. Except as
set forth in this Section 6.6, the Corporation shall not have the right to
prepay or redeem the Series B Preferred Stock.
SECTION 6.7 Notice of Redemption. Notice of redemption pursuant to
Section 6.6 shall be provided by the Corporation to the Holder in writing (by
registered mail or overnight courier at the Holder's last address appearing in
the Corporation's security registry) not less than ten (10) nor more than
fifteen (15) days prior to the Redemption Date, which notice shall specify the
Redemption Date and refer to Section 6.6 (including, a statement of the Market
Price per Common Share) and this Section 6.7.
SECTION 6.8 Surrender of Preferred Stock. Upon any redemption of the
Series B Preferred Stock pursuant to Sections 6.6 or 6.7, the Holder shall
either deliver the Series B Preferred Stock by hand to the Corporation at its
principal executive offices or surrender the same to the Corporation at such
address by express courier. Payment of the optional Redemption Price specified
in Section
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6.6 shall be made by the Corporation to the Holder against receipt of the Series
B Preferred Stock (as provided in this Section 6.8) by wire transfer of
immediately available funds to such account(s) as the Holder shall specify to
the Corporation. If payment of such redemption price is not made in full by the
Mandatory Redemption Date or the Redemption Date, as the case may be, the Holder
shall again have the right to convert the Series B Preferred Stock as provided
in Article 6 hereof.
SECTION 6.9 Mandatory Conversion. On the second anniversary of the date
of this Agreement (the "Mandatory Conversion Date"), the Corporation shall
convert all Series B Preferred Stock outstanding at the Conversion Price.
Notwithstanding the previous sentence, in no event shall the Corporation convert
that portion of the Series B Preferred Stock to the extent that the issuance of
Common Shares upon the conversion of such Series B Preferred Stock, when
combined with shares of Common Stock received upon other conversions of Series B
Preferred Stock by such Holder and any other holders of Series B Preferred Stock
and Warrants, would exceed 19.99% of the Common Stock outstanding on the Closing
Date, unless the Corporation's shareholders approve the issuance of an amount of
the Corporation's Common Stock in excess of the 19.99% threshold. Within ten
(10) Business Days after the Mandatory Conversion Date, the Corporation shall
redeem those outstanding shares of Series B Preferred Stock in excess of the
19.99% threshold at one hundred and thirty-five percent (135%) of the Stated
Value thereof, together with all accrued and unpaid dividends thereon, in cash,
to the date of redemption.
ARTICLE 7
VOTING RIGHTS
The holders of the Series B Preferred Stock have no voting
power, except as otherwise provided by the General Corporation Law of the State
of Delaware ("DGCL"), in this Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide each
holder of Series B Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least thirty (30) days prior to the consummation of the transaction
or event, whichever is earlier), of the date on which any such acting is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the holders of
the Series B Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Series B Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series B
Preferred Stock (except as otherwise may be
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required under the DGCL) shall constitute the approval of such action by the
class. To the extent that under the DGCL holders of the Series B Preferred Stock
are entitled to vote on a matter with holders of Common Stock, voting together
as one class, each share of Series B Preferred Stock shall be entitled to a
number of votes equal to the number of shares of Common Stock into which it is
then convertible using the record date for the taking of such vote of
shareholders as the date as of which the Conversion Price is calculated. Holders
of the Series B Preferred Stock shall be entitled to notice of all shareholder
meetings or written consents (and copies of proxy materials and other
information sent to shareholders) with respect to which they would be entitled
tonight, which notice would be provided pursuant to the Corporation's bylaws and
the DGCL.
ARTICLE 8
PROTECTIVE PROVISIONS
So long as shares of Series B Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by the DGCL) of the holders of at least a majority
of the then outstanding shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or privileges of
the Series B Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation ("Senior Securities")
or alter or change the rights, preferences or privileges of any Senior
Securities so as to affect adversely the Series B Preferred Stock;
(c) increase the authorized number of shares of Series B
Preferred Stock; or
(d) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series B Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event holders of at least a majority of the then
outstanding shares of Series B Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of Series B
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series B
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series B Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and Dissenting Holders shall
have the right for a period of thirty (30) days to convert pursuant to the terms
of this Certificate of Designation as they exist prior to such alteration or
change or continue to hold their shares of Series B Preferred Stock.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 Loss, Theft, Destruction of Preferred Stock. Upon
receipt of evidence satisfactory to the Corporation of the loss, theft,
destruction or mutilation of shares of Series B
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Preferred Stock and, in the case of any such loss, theft or destruction, upon
receipt of indemnity or security reasonably satisfactory to the Corporation, or,
in the case of any such mutilation, upon surrender and cancellation of the
Series B Preferred Stock, the Corporation shall make, issue and deliver, in lieu
of such lost, stolen, destroyed or mutilated shares of Series B Preferred Stock,
new shares of Series B Preferred Stock of like tenor. The Series B Preferred
Stock shall be held and owned upon the express condition that the provisions of
this Section 9.1 are exclusive with respect to the replacement of mutilated,
destroyed, lost or stolen shares of Series B Preferred Stock and shall preclude
any and all other rights and remedies notwithstanding any law or statute
existing or hereafter enacted to the contrary with respect to the replacement of
negotiable instruments or other securities without the surrender thereof.
SECTION 9.2 Who Deemed Absolute Owner. The Corporation may deem the
Person in whose name the Series B Preferred Stock shall be registered upon the
registry books of the Corporation to be, and may treat it as, the absolute owner
of the Series B Preferred Stock for the purpose of receiving payment of
dividends on the Series B Preferred Stock, for the conversion of the Series B
Preferred Stock and for all other purposes, and the Corporation shall not be
affected by any notice to the contrary. All such payments and such conversion
shall be valid and effectual to satisfy and discharge the liability upon the
Series B Preferred Stock to the extent of the sum or sums so paid or the
conversion so made.
SECTION 9.3 Notice of Certain Events. In the case of the occurrence of
any event described in Sections 6.1, 6.6 or 6.7 of this Certificate of
Designation, the Corporation shall cause to be mailed to the Holder of the
Series B Preferred Stock at its last address as it appears in the Corporation's
security registry, at least twenty (20) days prior to the applicable record,
effective or expiration date hereinafter specified (or, if such twenty (20) days
notice is not possible, at the earliest possible date prior to any such record,
effective or expiration date), a notice stating (x) the date on which a record
is to be taken for the purpose of such dividend, distribution, issuance or
granting of rights, options or warrants, or if a record is not to be taken, the
date as of which the holders of record of Series B Preferred Stock to be
entitled to such dividend, distribution, issuance or granting of rights, options
or warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is
expected to become effective, and the date as of which it is expected that
holders of record of Series B Preferred Stock will be entitled to exchange their
shares for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale transfer, dissolution, liquidation
or winding-up.
SECTION 9.4 Register. The Corporation shall keep at its principal
office a register in which the Corporation shall provide for the registration of
the Series B Preferred Stock. Upon any transfer of the Series B Preferred Stock
in accordance with the provisions hereof, the Corporation shall register such
transfer on the Series B Preferred Stock register.
The Corporation may deem the person in whose name the Series B
Preferred Stock shall be registered upon the registry books of the Corporation
to be, and may treat it as, the absolute owner of the Series B Preferred Stock
for the purpose of receiving payment of dividends on the Series B Preferred
Stock, for the conversion of the Series B Preferred Stock and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary. All such payments and such
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conversions shall be valid and effective to satisfy and discharge the liability
upon the Series B Preferred Stock to the extent of the sum or sums so paid or
the conversion or conversions so made.
SECTION 9.5 Withholding. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
B Preferred Stock.
SECTION 9.6 Headings. The headings of the Articles and Sections of this
Certificate of Designation are inserted for convenience only and do not
constitute a part of this Certificate of Designation.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Designation to be signed by its duly authorized officers on this
27th day of July, 1998.
UNIVEC, INC.
By: s/ Alan H. Gold
-------------------------
Name: Alan H. Gold, M.D.
Title: President
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CERTIFICATE OF CORRECTION OF
CERTIFICATE OF DESIGNATION OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
UNIVEC, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation")
is
UNIVEC, Inc.
2. The Certificate of Designation of Series B Convertible Preferred
Stock of Univec, Inc., which was filed by the Secretary of State of Delaware on
July 27, 1998, is hereby corrected.
3. The inaccuracy to be corrected in said instrument is as follows:
The phrase "in cash," immediately following the words
"in whole or in part from time to time," appearing in Section
6.6 thereof was omitted therefrom in error.
4. The portion of the instrument in corrected form is as follows:
Section 6.6. Optional Redemption Under Certain Circumstances.
At any time after the date of issuance of the Series B Preferred Stock
until the Mandatory Conversion Date (as defined below), the
Corporation, upon notice delivered to the Holder as provided in Section
6.7, may redeem, in whole or in part from time to time, in cash, the
Series B Preferred Stock (but only with respect to such shares as to
which the Holder has not theretofore furnished a Conversion Notice in
compliance with Section 6.2), at one hundred thirty-five percent (135%)
of the Stated Value thereof (the "Optional Redemption Price"), together
with all accrued and unpaid dividends thereon to the date of redemption
(the "Redemption Date"); provided, however, that the Corporation may
only redeem the Series B Preferred Stock under this Section 6.6 if the
Current Market Price is not greater than one hundred thirty percent
(130%) of the Current Market Price on the Closing Date. Except as set
forth in this Section 6.6, the Corporation shall not have the right to
prepay or redeem the Series B Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Correction to be signed by its duly authorized officer on this 28th day of July,
1998.
UNIVEC, INC.
By: s/ Joel Schoenfeld
--------------------------------
Name: Joel Schoenfeld
Title: Chief Executive Officer
<PAGE>
THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES
REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT,
THE RULES AND REGULATIONS THEREUNDER OR THE
PROVISIONS OF THIS COMMON STOCK PURCHASE
WARRANT.
Number of Shares of Common Stock: 112,500
Warrant No.1
COMMON STOCK PURCHASE WARRANT
To Purchase Common Stock of
Univec, Inc.
THIS IS TO CERTIFY THAT The Shaar Fund Ltd., or registered
assigns, is entitled, at any time from the Closing Date (as hereinafter defined)
to the Expiration Date (as hereinafter defined), to purchase from Univec, Inc.,
a Delaware corporation (the "Company"), 112,500 shares of Common Stock (as
hereinafter defined and subject to adjustment as provided herein), in whole or
in part, including fractional parts, at a purchase price equal to $2.15 per
share, all on the terms and conditions and pursuant to the provisions
hereinafter set forth.
1. DEFINITIONS
As used in this Common Stock Purchase Warrant (this
"Warrant"), the following terms have the respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Closing Date, other than Warrant
Stock.
"Book Value" shall mean, in respect of any share of Common
Stock on any date herein specified, the consolidated book value of the Company
as of the last day of any month immediately preceding such date, divided by the
number of Fully Diluted Outstanding shares of Common Stock as determined in
accordance with GAAP (assuming the payment of the exercise prices for such
shares) by Richard A. Eisner & Company, LLP or any other firm of independent
certified public accountants of recognized national standing selected by the
Company and reasonably acceptable to the Holder.
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<PAGE>
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Closing Date" shall have the meaning set forth in the
Securities Purchase Agreement.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency then administering the Securities Act and other
federal securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, par value $.001, of the Company as constituted on
the Closing Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the holders of
Common Stock of the Company in the circumstances contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"Current Warrant Price" shall mean, in respect of a share of
Common Stock at any date herein specified, the price at which a share of Common
Stock may be purchased pursuant to this Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this
Warrant is exercisable pursuant to Section 2.1.
"Expiration Date" shall mean August 1, 2001.
"Fully Diluted Outstanding" shall mean, when used with
reference to Common Stock, at any date as of which the number of shares thereof
is to be determined, all shares of Common Stock Outstanding at such date and all
shares of Common Stock issuable in respect of this Warrant, outstanding on such
date, and other options or warrants to purchase, or securities convertible into,
shares of Common Stock outstanding on such date which would be deemed out
standing in accordance with GAAP for purposes of determining book value or net
income per share.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
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"Holder" shall mean the Person in whose name the Warrant or
Warrant Stock set forth herein is registered on the books of the Company
maintained for such purpose.
"Other Property" shall have the meaning set forth in
Section 4.4.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company or any subsidiary thereof, and shall include all
shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Registration Rights Agreement" shall mean the Registration
Rights Agreement dated a date even herewith by and between the Company and The
Shaar Fund Ltd., as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities
Purchase Agreement dated as of a date even herewith by and between the Company
and The Shaar Fund, Ltd. as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section
9.2.
"Warrants" shall mean this Warrant and all warrants issued
upon transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Price" shall mean an amount equal to (i) the number
of shares of Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of
such exercise.
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"Warrant Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1 Manner of Exercise. From and after the Closing Date and until 5:00
P.M., New York time, on the Expiration Date, Holder may exercise this Warrant,
on any Business Day, for all or any part of the number of shares of Common Stock
purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at its principal office at 999 Franklin Avenue,
Garden City, New York 11530, or at the office or agency designated by the
Company pursuant to Section 12, (i) a written notice of Holder's election to
exercise this Warrant, which notice shall specify the number of shares of Common
Stock to be purchased, (ii) payment of the Warrant Price in cash or by wire
transfer or cashier's check drawn on a United States bank and (iii) this
Warrant. Such notice shall be substantially in the form of the subscription form
appearing at the end of this Warrant as Exhibit A, duly executed by Holder or
its agent or attorney. Upon receipt of the items referred to in clauses (i),
(ii) and (iii) above, the Company shall, as promptly as practicable, and in any
event within five (5) Business Days thereafter, execute or cause to be executed
and deliver or cause to be delivered to Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as Holder
shall request in the notice and shall be registered in the name of Holder or,
subject to Section 9, such other name as shall be designated in the notice. This
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other Person
so designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the notice, together with
the cash or check or checks and this Warrant, is received by the Company as
described above and all taxes required to be paid by Holder, if any, pursuant to
Section 2.2 prior to the issuance of such shares have been paid. if this Warrant
shall have been exercised in part, the Company shall, at the time of delivery of
the certificate or certificates representing Warrant Stock, deliver to Holder a
new Warrant evidencing the rights of Holder to purchase the unpurchased shares
of Common Stock called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant, or, at the request of Holder,
appropriate notation may be made on this Warrant and the same returned to
Holder. Notwithstanding any provision herein to the contrary, the Company shall
not be required to register shares in the name of any Person who acquired this
Warrant (or part hereof) or any Warrant Stock otherwise than in accordance with
this Warrant.
2.2 Payment of Taxes and Charges. All shares of Common Stock issuable
upon the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable, freely tradeable and without any
preemptive rights. The Company shall pay all expenses in connection with, and
all taxes and other governmental charges that may be imposed with respect to,
the issue or delivery thereof, unless such tax or charge is imposed by law upon
Holder, in which case such taxes or charges shall be paid by Holder. The Company
shall not be required, however, to pay any tax or other charge imposed in
connection with any transfer involved in the issue of any certificate for shares
of Common Stock issuable upon exercise of this Warrant in any
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name other than that of Holder, and in such case the Company shall not be
required to issue or deliver any stock certificate until such tax or other
charge has been paid or it has been established to the satisfaction of the
Company that no such tax or other charge is due.
2.3 Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the Current Warrant Price
per share of Common Stock as of the Closing Date.
2.4 Continued Validity. A holder of shares of Common Stock issued upon
the exercise of this Warrant, in whole or in part (other than a holder who
acquires such shares after the same have been publicly sold pursuant to a
Registration Statement under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled with respect to such shares to all
rights to which it would have been entitled as Holder under Sections 9, 10 and
14 of this Warrant. The Company will, at the time of exercise of this Warrant,
in whole or in part, upon the request of Holder, acknowledge in writing, in form
reasonably satisfactory to Holder, its continuing obligation to afford Holder
all such rights; provided, however, that if Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to Holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1 Transfer. Subject to compliance with Section 9, transfer of this
Warrant and all rights hereunder, in whole or in part, shall be registered on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company referred to in Section 2.1
or the office or agency designated by the Company pursuant to Section 12,
together with a written assignment of this Warrant substantially in the form of
Exhibit B hereto duly executed by Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such transfer.
Upon such surrender and, if required, such payment, the Company shall, subject
to Section 9, execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the portion
of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A
Warrant, if properly assigned in compliance with Section 9, may be exercised by
a new Holder for the purchase of shares of Common Stock without having a new
warrant issued.
3.2 Division and Combination. Subject to Section 9, this Warrant may be
divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3 Expenses. The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
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3.4 Maintenance of Books. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1 Stock Dividends, Subdivisions and Combinations. If at any time the
Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2 Certain Other Distributions. If at any time the Company shall take
a record of the holders of its Common Stock for the purpose of entitling them to
receive any dividend or other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other
than cash, Convertible Securities or Additional Shares of Common
Stock), or
(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock),
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then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1.
4.3 Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price provided for in this Section 4:
(a) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified
event requiring an adjustment shall occur. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(b) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/10th of a share.
(c) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase
rights and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
(d) Challenge to Good Faith Determination. Whenever the Board
of Directors of the Company shall be required to make a determination
in good faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by the Holder, and any
dispute shall be resolved by an investment banking firm of recognized
national standing selected by the Company and acceptable to the Holder.
4.4 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or
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acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company, then Holder shall have the right
thereafter to receive, upon exercise of the Warrant, the number of shares of
common stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and Other Property receivable upon or as a result
of such reorganization, reclassification, merger, consolidation or disposition
of assets by a holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such event. In case of any such
reorganization, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and
every covenant and condition of this Warrant to be performed and observed by the
Company and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined by resolution of the
Board of Directors of the Company) in order to provide for adjustments of shares
of Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 4. For
purposes of this Section 4.4, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 4.4 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
4.5 Other Action Affecting Common Stock. In case at any time or from
time to time the Company shall take any action in respect of its Common Stock,
other than any action described in this Section 4, which would have a materially
adverse effect upon the rights of the Holder, the number of shares of Common
Stock and/or the purchase price thereof shall be adjusted in such manner as may
be equitable in the circumstances, as determined in good faith by the Board of
Directors of the Company.
4.6 Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the Current Warrant Price to be less
than the par value per share of Common Stock.
5. NOTICES TO HOLDER
5.1 Notice of Adjustments. Whenever the number of shares of Common
Stock for which this Warrant is exercisable, or whenever the price at which a
share of such Common Stock may be purchased upon exercise of the Warrants, shall
be adjusted pursuant to Section 4, the Company shall forthwith prepare a
certificate to be executed by the chief financial officer of the Company setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated (including a description of the basis on
which the Board of Directors of the Company determined the fair value of any
evidences of indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights referred to in Section 4.2),
specifying the number of shares of Common Stock for which this Warrant is
exercisable and (if such adjustment was made pursuant to Section 4.4 or 4.5)
describing the number and kind of any other
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shares of stock or Other Property for which this warrant is exercisable, and any
change in the purchase price or prices thereof, after giving effect to such
adjustment or change. The Company shall promptly cause a signed copy of such
certificate to be delivered to the Holder in accordance with Section 14.2. The
Company shall keep at its office or agency designated pursuant to Section 12
copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by the Holder or any
prospective purchaser of a Warrant designated by the Holder.
5.2 Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or
other distribution, or any right to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any
other securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any
sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 30 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
6. NO IMPAIRMENT
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or
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performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form satisfactory
to Holder, the continuing validity of this Warrant and the obligations of the
Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, the Company shall at all times reserve
and keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. All shares of Common Stock
which shall be so issuable, when issued upon exercise of any Warrant and payment
therefor in accordance with the terms of such Warrant, shall be duly and validly
issued and fully paid and nonassessable, and not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and non-assessable shares of such Common Stock at
such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to
the holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of the close of business on
a Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
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9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1 Restrictive Legend. (a) The Holder by accepting this Warrant and
any Warrant Stock agrees that this Warrant and the Warrant Stock issuable upon
exercise hereof may not be assigned or otherwise transferred unless and until
(i) the Company has received an opinion of counsel for the Holder that such
securities may be sold pursuant to an exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act") or (ii) a registration
statement relating to such securities has been filed by the Company and declared
effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall
bear a legend as follows unless such securities have been sold pursuant to an
effective registration statement under the Securities Act:
"These securities have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or
the securities laws of any state, and are being offered and
sold pursuant to an exemption from the registration
requirements of the Securities Act and such laws. These
securities may not be sold or transferred except pursuant to
an effective registration statement under the Securities Act
or pursuant to an available exemption from the registration
requirements of the Securities Act or such other laws."
(b) Except as otherwise provided in this Section 9, the
Warrant shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"This Warrant and the securities represented hereby have not
been registered under the Securities Act of 1933, as amended,
and may not be transferred in violation of such Act, the rules
and regulations thereunder or the provisions of this Warrant."
9.2 Notice of Proposed Transfers. Prior to any Transfer or attempted
Transfer of any Warrants or any shares of Restricted Common Stock, the Holder
shall give ten days, prior written notice (a "Transfer Notice") to the Company
of Holder's intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and obtain from counsel to Holder who
shall be reasonably satisfactory to the Company, an opinion that the proposed
Transfer of such Warrants or such Restricted Common Stock may be effected
without registration under the Securities Act. After receipt of the Transfer
Notice and opinion, the Company shall, within five days thereof, notify the
Holder as to whether such opinion is reasonably satisfactory and, if so, such
holder shall thereupon be entitled to Transfer such Warrants or such Restricted
Common Stock, in accordance with the terms of the Transfer Notice. Each
certificate, if any, evidencing such shares of Restricted Common Stock issued
upon such Transfer shall bear the restrictive legend set forth in Section
9.1(a), and the Warrant issued upon such Transfer shall bear the restrictive
legend set forth in Section
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9.1(b), unless in the opinion of such counsel such legend is not required in
order to ensure compliance with the Securities Act. The Holder shall not be
entitled to Transfer such Warrants or such Restricted Common Stock until receipt
of notice from the Company under this Section 9.2(a) that such opinion is
reasonably satisfactory.
9.3 Required Registration. Pursuant to the terms and conditions set
forth in the Registration Rights Agreement, the Company shall prepare and file
with the Commission not later than the 30th day after the Closing Date, a
Registration Statement relating to the offer and sale of the Common Stock
issuable upon exercise of the Warrants and shall use its best efforts to cause
the Commission to declare such Registration Statement effective under the
Securities Act as promptly as practicable but no later than one hundred fifty
(150) days after the Closing Date.
9.4 Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1 shall terminate as to any particular Warrant
or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable
upon the exercise of the warrants) (i) when and so long as such security shall
have been effectively registered under the Securities Act and disposed of
pursuant thereto or (ii) when the Company shall have received an opinion of
counsel reasonably satisfactory to it that such shares may be transferred
without registration thereof under the Securities Act. Whenever the restrictions
imposed by Section 9 shall terminate as to this Warrant, as hereinabove
provided, the Holder hereof shall be entitled to receive from the Company upon
written request of the Holder, at the expense of the Company, a new Warrant
bearing the following legend in place of the restrictive legend set forth
hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE
WITHIN WARRANT CONTAINED IN SECTION 9 HEREOF
TERMINATED ON ________________, 19__, AND ARE OF NO
FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.1(a).
9.5 Listing on Securities Exchange. If the Company shall list any
shares of Common Stock on any securities exchange, it will, at its expense, list
thereon, maintain and, when necessary, increase such listing of, all shares of
Common Stock issued or, to the extent permissible under the applicable
securities exchange rules, issuable upon the exercise of this Warrant so long as
any shares of Common Stock shall be so listed during any such Exercise Period.
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10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such information
as may be reasonably necessary for Holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of any
Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like tenor
to Holder; provided, in the case of mutilation, no indemnity shall be required
if this Warrant in identifiable form is surrendered to the Company for
cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
14. MISCELLANEOUS
14.1 Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate as a
waiver of such right or otherwise prejudice Holder's rights, powers or remedies.
If the Company fails to make, when due, any payments provided for hereunder, or
fails to comply with any other provision of this Warrant, the Company shall pay
to Holder such amounts as shall be sufficient to cover any costs and expenses
including, but not limited to, reasonable attorneys' fees, including those of
appellate proceedings, incurred by Holder in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
14.2 Notice Generally. Except as may be otherwise provided herein, any
notice or other communication or delivery required or permitted hereunder shall
be in writing and shall be delivered personally or sent by certified mail,
postage prepaid, or by a nationally recognized overnight courier service, and
shall be deemed given when so delivered personally or by overnight courier
service, or, if mailed, three (3) days after the date of deposit in the United
States mails, as follows:
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<PAGE>
(1) if to the Company, to:
Univec, Inc.
999 Franklin Avenue
Garden City, New York 11530
Telephone: (516) 294-1000
Attention: Joel Schoenfeld
Telephone: (516) 294-1000
Facsimile: (516) 739-3343
With a copy to:
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-0125
Attention: Jack Becker, Esq.
Telephone: (212) 687-3860
Facsimile: (212) 947-7052
(2) if to the Holder, to:
THE SHAAR FUND LTD.,
c/o SHAAR ADVISORY SERVICES LTD.
62 King George Street, Apartment 4F
Jerusalem, Israel
Attention: Samuel Levinson
With a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
Telephone: (212) 592-1435
Facsimile: (212) 889-7577
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3 Indemnification. The Company agrees to indemnify and hold harmless
Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant; provided,
however, that the Company will not be liable
-14-
<PAGE>
hereunder to the extent that any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
or disbursements are found in a final non-appealable judgment by a court to have
resulted from Holder's gross negligence, bad faith or willful misconduct in its
capacity as a stockholder or warrantholder of the Company.
14.4 Remedies. Holder in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under Section 9 of this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of Section 9 of this
Warrant and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
14.5 Successors and Assigns. Subject to the provisions of Sections 3.1
and 9, this Warrant and the rights evidenced hereby shall inure to the benefit
of and be binding upon the successors of the Company and the successors and
assigns of Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and, with respect to
Section 9 hereof, holders of Warrant Stock, and shall be enforceable by any such
Holder or holder of Warrant Stock.
14.6 Amendment. This Warrant and all other Warrants may be modified or
amended or the provisions hereof waived with the written consent of the Company
and the Holder.
14.7 Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
14.8 Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
14.9 Governing Law. This Warrant shall be governed by the laws of the
State of New York, without regard to the provisions thereof relating to conflict
of laws.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: July 27, 1998
UNIVEC, INC.
By: s/ Alan H. Gold
------------------------------------
Name: Alan H. Gold, M.D.
Title: President
Attest:
By:
- ------------------------------------
Name:
Title:
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<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this warrant for the purchase of ____________ Shares of Common Stock
of Univec, Inc. and herewith makes payment therefor, all at the price and on the
terms and conditions specified in this Warrant and requests that certificates
for the shares of Common Stock hereby purchased (and any securities or other
property issuable upon such exercise) be issued in the name of and delivered to
_______________________________ whose address is __________________________ and,
if such shares of Common Stock shall not include all of the shares of Common
Stock issuable as provided in this Warrant, that a new Warrant of like tenor and
date for the balance of the shares of Common Stock issuable hereunder be
delivered to the undersigned.
______________________________________________
(Name of Registered owner)
______________________________________________
(Signature of Registered Owner)
______________________________________________
(Street Address)
______________________________________________
(city) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of
Common Stock
and does hereby irrevocably constitute and appoint attorney-in-fact to register
such transfer on the books of maintained for the purpose, with full power of
substitution in the premises.
Dated: _______________________________ Print Name: __________________________
Signature: ___________________________
Witness: _____________________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated this 27th day of July 1998
(this "Agreement") , between Univec, Inc., a Delaware corporation, with
principal executive offices located at 999 Franklin Avenue, Garden City, New
York 11530 (the "Company"), and the undersigned (the "Initial Investor").
W I T N E S S E T H :
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement dated as of July 27, 1998, between the Initial
Investor and the Company (the "Securities Purchase Agreement") , the Company has
agreed to issue and sell to the Initial Investor (i) 750 shares of Series B 5%
Convertible Preferred Stock, par value $.001 (the "Preferred Shares") which,
upon the terms of and subject to the conditions of the Company's Certificate of
Designation to the Company's Articles of Incorporation (the "Certificate of
Designation"), are convertible into shares of the Company's common stock, par
value $.001 (the "Common Stock") and (ii) Common Stock Purchase Warrants (the
"Warrants") to purchase 112,500 shares of Common Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide with
respect to the Common Stock issued or issuable in lieu of cash dividend payments
on the Preferred Shares, upon conversion of the Preferred Shares and exercise of
the Warrants certain registration rights under the Securities Act;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have
the meanings:
(i) "Affiliate", of any specified Person means any
other Person who directly, or indirectly through one or more intermediaries, is
in control of, is controlled by, or is under common control with, such specified
Person. For purposes of this definition, control of a Person means the power,
directly or indirectly, to direct or cause the direction of the management and
policies of such Person whether by contract, securities, ownership or otherwise;
and the terms "controlling" and "controlled" have the respective meanings
correlative to the foregoing.
(ii) "Closing Date" means the date and time of the
issuance and sale of the Preferred Shares.
(iii) "Commission" means the Securities and Exchange
Commission.
(iv) "Current Market Price" on any date of
determination means the closing bid price of a share of the Common Stock on such
day as reported on the Nasdaq Stock
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<PAGE>
Market ("Nasdaq"), or, if such security is not listed or admitted to trading on
the Nasdaq, on the principal national security exchange or quotation system on
which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange or
quotation system, the closing bid price of such security on the over-the-counter
market on the day in question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting service, or if not so
available, in such manner as furnished by any Nasdaq member firm of the National
Association of Securities Dealers, Inc. selected from time to time by the Board
of Directors of the Company for that purpose, or a price determined in good
faith by the Board of Directors of the Company as being equal to the fair market
value thereof, as the case may be.
(v) "Exchange Act" means the Securities Exchange Act
of 1934, as amended, and the rules and regulations of the Commission thereunder,
or any similar successor statute.
(vi) "Investors" means the Initial Investor and any
transferee or assignee of Registrable Securities who agrees to become bound by
all of the terms and provisions of this Agreement in accordance with Section 8
hereof.
(vii) "Public Offering" means an offer registered
with the Commission and the appropriate state securities commissions by the
Company of its Common Stock and made pursuant to the Securities Act.
(viii) "Person" means any individual, partnership,
corporation, limited liability company, joint stock company, association, trust,
unincorporated organization, or a government or agency or political subdivision
thereof.
(ix) "Prospectus" means the prospectus (including,
without limitation, any preliminary prospectus and any final prospectus filed
pursuant to Rule 424(b) under the Securities Act, including any prospectus that
discloses information previously omitted from a prospectus filed as part of an
effective registration statement in reliance on Rule 430A under the Securities
Act) included in the Registration Statement, as amended or supplemented by any
prospectus supplement with respect to the terms of the offering of any portion
of the Registrable Securities covered by the Registration Statement and by all
other amendments and supplements to such prospectus, including all material
incorporated by reference in such prospectus and all documents filed after the
date of such prospectus by the Company under the Exchange Act and incorporated
by reference therein.
(x) "Registrable Securities" means the Common Stock
issued or issuable (i) in lieu of cash dividend payments on the Preferred
Shares, (ii) upon conversion of the Preferred Shares or (iii) upon exercise of
the Warrants; provided, however, a share of Common Stock shall cease to be a
Registrable Security for purposes of this Agreement when it no longer is a
Restricted Security.
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<PAGE>
(xi) "Registration Statement" means a registration
statement of the Company filed on an appropriate form under the Securities Act
providing for the registration of, and the sale on a continuous or delayed basis
by the holders of, all of the Registrable Securities pursuant to Rule 415 under
the Securities Act, including the Prospectus contained therein and forming a
part thereof, any amendments to such registration statement and supplements to
such Prospectus, and all exhibits and other material incorporated by reference
in such registration statement and Prospectus.
(xii) "Restricted Security" means any share of Common
Stock issued or issuable in lieu of cash dividend payments on the Preferred
Shares, upon conversion of the Preferred Shares or exercise of the Warrants
except any such share that (i) has been registered pursuant to an effective
registration statement under the Securities Act and sold in a manner
contemplated by the Prospectus included in the Registration Statement, (ii) has
been transferred in compliance with the resale provisions of Rule 144 under the
Securities Act (or any successor provision thereto) or is transferable pursuant
to paragraph (d) of Rule 144 under the Securities Act (or any successor
provision thereto), or (iii) otherwise has been transferred and a new share of
Common Stock not subject to transfer restrictions under the Securities Act has
been delivered by or on behalf of the Company.
(xiii) "Securities Act" means the Securities Act of
1933, as amended, and the rules and regulations of the Commission thereunder, or
any similar successor statute.
(b) All capitalized terms used and not defined herein have the
respective meaning assigned to them in the Securities Purchase Agreement.
2. Registration.
(a) Filing and Effectiveness of Registration Statement. The
Company shall prepare and file with the Commission not later than 30 days after
the Closing Date, a Registration Statement relating to the offer and sale of the
Registrable Securities and shall use its best efforts to cause the Commission to
declare such Registration Statement effective under the Securities Act as
promptly as practicable but not later than one hundred fifty (150) days after
the Closing Date, assuming for purposes hereof a Conversion Price under the
Certificate of Designation of $0.80 per share. The Company shall not include any
other securities in the Registration Statement relating to the offer and sale of
the Registrable Securities. The Company shall notify the Initial Investor by
written notice that such Registration Statement has been declared effective by
the Commission within 24 hours of such declaration by the Commission.
(b) Registration Default. If the Registration Statement
covering the Registrable Securities or the Additional Registrable Securities (as
defined in Section 2(d) hereof) required to be filed by the Company pursuant to
Section 2 (a) or (2d) hereof, as the case may be, is not (i) filed with the
Commission within 30 days after the Closing Date or (ii) declared effective by
the Commission within 150 days after the Closing Date (either of which, without
duplication, an "Initial Date"), then the Company shall make the payments to the
Initial Investor as provided in the next sentence as liquidated damages and not
as a penalty. The amount to be paid by the Company to the Initial Investor shall
be determined as of each Computation Date (as defined below), and such amount
shall
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<PAGE>
be equal to 2% (the "Liquidated Damage Rate") of the Purchase Price (as defined
in the Securities Purchase Agreement) from the Initial Date to the first
Computation Date and for each Computation Date thereafter, calculated on a pro
rata basis to the date on which the Registration Statement is filed with (in the
event of an Initial Date pursuant to (c)(i) above) or declared effective by (in
the event of an Initial Date pursuant to (c) (ii) above) the Commission (the
"Periodic Amount") provided, however, that in no event shall the Liquidated
Damages be less than $25,000. The full Periodic Amount shall be paid by the
Company to the Initial Investor by wire transfer of immediately available funds
within three days after each Computation Date.
As used in this Section 2(b) , "Computation Date" means the
date which is 30 days after the Initial Date and, if the Registration Statement
required to be filed by the Company pursuant to Section 2(a) has not theretofore
been declared effective by the Commission, each date which is 30 days after the
previous Computation Date until such Registration Statement is so declared
effective.
Notwithstanding the above, if the Registration Statement
covering the Registrable Securities or the Additional Registrable Securities (as
defined in Section 2(d) hereof) required to be filed by the Company pursuant to
Section 2(a) or 2(d) hereof, as the case may be, is not filed with the
Commission by the thirtieth (30th) day after the Closing Date, the Company shall
be in default of this Registration Rights Agreement.
(c) Eligibility for Use of Form S-3. The Company agrees that
at such time as it meets all the requirements for the use of Securities Act
Registration Statement on Form S-3 it shall file all reports and information
required to be filed by it with the Commission in a timely manner and take all
such other action so as to maintain such eligibility for the use of such form.
(d) In the event the Current Market Price declines to $.90,
the Company shall, to the extent required by the Securities Act (because the
additional shares were not covered by the Registration Statement filed pursuant
to Section 2(a)), as reasonably determined by the Initial Investor, file an
additional Registration Statement with the Commission for such additional number
of Registrable Securities as would be issuable upon conversion of the Preferred
Shares and exercise of the Warrants (the "Additional Registrable Securities") in
addition to those previously registered, assuming a Conversion Price of $0.40
per share. The Company shall, to the extent required by the Securities Act, as
reasonably determined by the Initial Investor, prepare and file with the
Commission not later than the 30th day thereafter, a Registration Statement
relating to the offer and sale of such Additional Registrable Securities and
shall use its best efforts to cause the Commission to declare such Registration
Statement effective under the Securities Act as promptly as practicable but not
later than 60 days thereafter. The Company shall not include any other
securities in the Registration Statement relating to the offer and sale of such
additional Registrable Securities.
(e) (i) If the Company proposes to register any of its
warrants, Common Stock or any other shares of common stock of the Company under
the Securities Act (other than a registration (A) on Form S-8 or S-4 or any
successor or similar forms, (B) relating to Common Stock or any other shares of
common stock of the Company issuable upon exercise of employee share options or
in connection with any employee benefit or similar plan of the Company or (C) in
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<PAGE>
connection with a direct or indirect acquisition by the Company of another
Person or any transaction with respect to which Rule 145 (or any successor
provision) under the Securities Act applies), whether or not for sale for its
own account, it will each such time, give prompt written notice at least 20 days
prior to the anticipated filing date of the registration statement relating to
such registration to the Initial Investor, which notice shall set forth such
Initial Investor's rights under this Section 3(e) and shall offer the Initial
Investor the opportunity to include in such registration statement such number
of Registrable Shares as the Initial Investor may request. Upon the written
request of an Initial Investor made within ten (10) days after the receipt of
notice from the Company (which request shall specify the number of Registrable
Shares intended to be disposed of by such Initial Investor), the Company will
use its best efforts to effect the registration under the Securities Laws of all
Registrable Shares that the Company has been so requested to register by the
Initial Investor, to the extent requisite to permit the disposition of the
Registrable Shares so to be registered; provided, however, that (A) if such
registration involves a Public Offering, the Initial Investor must sell their
Registrable Shares to the underwriters selected as provided in Section 3(b)
hereof on the same terms and conditions as apply to the Company and (B) if, at
any time after giving written notice of its intention to register any
Registrable Shares pursuant to this Section 3 and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such Registrable Shares,
the Company shall give written notice to the Initial Investor and, thereupon,
shall be relieved of its obligation to register any Registrable Shares in
connection with such registration. The Company's obligations under this Section
2(e) shall terminate on the date that the registration statement to be filed in
accordance with Section 2(a) is declared effective by the Commission.
(ii) If a registration pursuant to this Section 2(e)
involves a Public Offering and the managing underwriter thereof advises the
Company that, in its view, the number of shares of Common Stock, Warrants or
other shares of Common Stock that the Company and the Initial Investor intend to
include in such registration exceeds the largest number of shares of Common
Stock or Warrants (including any other shares of Common Stock or Warrants of the
Company) that can be sold without having an adverse effect on such Public
Offering (the "Maximum Offering Size"), the Company will include in such
registration, only that number of shares of Common Stock or Warrants, as
applicable, such that the number of Registrable Shares registered does not
exceed the Maximum Offering Size, with the difference between the number of
shares in the Maximum Offering Size and the number of shares to be issued by the
Company to be allocated (after including all shares to be issued and sold by the
Company) among the Company and the Initial Investor pro rata on the basis of the
relative number of Registrable Shares offered for sale under such registration
by each of the Company and the Initial Investor.
If as a result of the proration provisions of this
Section 2 (e) (ii) , any Initial Investor is not entitled to include all such
Registrable Shares in such registration, such Initial Investor may elect to
withdraw its request to include any Registrable Shares in such registration.
With respect to registrations pursuant to this Section 2(e), the number of
securities required to satisfy any underwriters' over-allotment option shall be
allocated pro rata among the Company and the Initial Investor on the basis of
the relative number of securities otherwise to be included by each of them in
the registration with respect to which such over-allotment option relates.
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<PAGE>
3. Obligations of the Company. In connection with the registration of
the Registrable Securities, the Company shall:
(a) Promptly (i) prepare and file with the Commission such
amendments (including post-effective amendments) to the Registration Statement
and supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of two years from the date on which the Registration
Statement is first declared effective by the Commission (the "Effective Time")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, transferred
pursuant to Rule 144 under the Securities Act or otherwise transferred in a
manner that results in the delivery of new securities not subject to transfer
restrictions under the Securities Act (the "Registration Period") and (ii) take
all lawful action such that each of (A) the Registration Statement and any
amendment thereto does not, when it becomes effective, contain an 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 forming part of the Registration Statement, and any amendment
or supplement thereto, does not at any time during the Registration Period
include an 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 under which they were made, not misleading.
Notwithstanding the foregoing provisions of this Section 3(a), the Company may,
during the Registration Period, suspend the use of the Prospectus for a period
not to exceed 60 days (whether or not consecutive) in any 12-month period if the
Board of Directors of the Company determines in good faith that because of valid
business reasons, including pending mergers or other business combination
transactions, the planned acquisition or divestiture of assets, pending material
corporate developments and similar events, it is in the best interests of the
Company to suspend such use, and prior to or contemporaneously with suspending
such use the Company provides the Investors with written notice of such
suspension, which notice need not specify the nature of the event giving rise to
such suspension. At the end of any such suspension period, the Company shall
provide the Investors with written notice of the termination of such suspension.
(b) During the Registration Period, comply with the provisions
of the Securities Act with respect to the Registrable Securities of the Company
covered by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus forming part of the
Registration Statement;
(c) (i) Prior to the filing with the Commission of any
Registration Statement (including any amendments thereto) and the distribution
or delivery of any Prospectus (including any supplements thereto) , provide
draft copies thereof to the Investors and reflect in such documents all such
comments as the Investors (and their counsel) reasonably may propose and (ii)
furnish to each Investor whose Registrable Securities are included in the
Registration Statement and its legal counsel identified to the Company, (A)
promptly after the same is prepared and publicly distributed, filed with the
Commission, or received by the Company, one copy of the Registration Statement,
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<PAGE>
each Prospectus, and each amendment or supplement thereto, and (B) such number
of copies of the 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;
(d) (i) Register or qualify the Registrable Securities covered
by the Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such 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,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction or
(C) file a general consent to service of process in any such jurisdiction;
(e) As promptly as practicable after becoming aware of such
event, notify each Investor of the occurrence of any event, 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
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
(g) Cause all the Registrable Securities covered by the
Registration Statement to be listed on the principal national securities
exchange, and included in an inter-dealer quotation system of a registered
national securities association, on or in which securities of the same class or
series issued by the Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
(i) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates for the Registrable
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<PAGE>
Securities to be in such denominations or amounts, as the case may be, as the
Investors reasonably may request and registered in such names as the Investor
may request; and, within three business days after a Registration Statement
which includes Registrable Securities is declared effective by the Commission,
deliver and cause legal counsel selected by the Company to deliver to the
transfer agent for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement) an
appropriate instruction and, to the extent necessary, an opinion of such
counsel;
(j) Take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Investors of their Registrable
Securities in accordance with the intended methods therefor provided in the
Prospectus which are customary under the circumstances;
(k) Make generally available to its security holders as soon
as practicable, but in any event not later than three (3) months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and (ii) the effective date of each post-effective
amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(l) In the event of an underwritten offering, promptly include
or incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(m) (i) Make reasonably available for inspection by Investors,
any underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material nonpublic information shall be kept
confidential by such Investors and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such holder or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity
promptly to seek a protective order or otherwise limit the scope of the
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and provided further that, if the foregoing inspection and information gathering
would otherwise disrupt the Company's conduct of its business, such inspection
and information gathering shall, to the maximum extent possible, be
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<PAGE>
coordinated on behalf of the Investors and the other parties entitled thereto by
one firm of counsel designed by and on behalf of the majority in interest of
Investors and other parties;
(n) In connection with any underwritten offering, make such
representations and warranties to the Investors participating in such
underwritten offering and to the managers, in form, substance and scope as are
customarily made by the Company to underwriters in secondary underwritten
offerings;
(o) In connection with any underwritten offering, obtain
opinions of counsel to the Company (which counsel and opinions (in form, scope
and substance) shall be reasonably satisfactory to the managers) addressed to
the underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);
(p) In connection with any underwritten offering, obtain "cold
comfort" letters and updates thereof from the independent public accountants of
the Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(q) In connection with any underwritten offering, deliver such
documents and certificates as may be reasonably required by the managers, if
any; and
(r) In the event that any broker-dealer registered under the
Exchange Act shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules
and regulations of the National Association of Securities Dealers, Inc. (the
"NASD Rules") (or any successor provision thereto)) of the Company or has a
"conflict of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any
successor provision thereto)) and such broker-dealer shall underwrite,
participate as a member of an underwriting syndicate or selling group or assist
in the distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "qualified independent underwriter" (as defined in Rule 2720(b) (15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement relating to such Registrable
Securities, to exercise usual
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<PAGE>
standards of due diligence in respect thereof and to recommend the public
offering price of such Registrable Securities, (B) indemnifying such qualified
independent underwriter to the extent of the indemnification of underwriters
provided in Section 5 hereof, and (C) providing such information to such
broker-dealer as may be required in order for such broker-dealer to comply with
the requirements of the NASD Rules.
4. Obligations of the Investors. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:
(a) 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 such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. As least seven
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if such Investor elects to
have any of its Registrable Securities included in the Registration Statement.
If at least two business days prior to the anticipated filing date the Company
has not received the Requested Information from an Investor (a "Non-Responsive
Investor") , then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor and have no
further obligations to the Non-Responsive Investor;
(b) Each Investor by its acceptance of the Registrable
Securities agrees to cooperate with the Company in connection with the
preparation and filing of the Registration Statement hereunder, unless such
Investor has notified the Company in writing of its election to exclude all of
its Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from
the Company of the occurrence of any event of the kind described in Section 3(e)
or 3(f), it shall immediately discontinue its disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3(e) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice.
5. Expenses of Registration. All expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 3, but including, without limitation, all
registration, listing, and qualifications fees, printing and engraving fees,
accounting fees, and the fees and disbursements of counsel for the Company, and
the reasonable fees of one firm of counsel to the holders of a majority in
interest of the Registrable Securities shall be borne by the Company.
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<PAGE>
6. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each
Investor and each underwriter, if any, which facilitates the disposition of
Registrable Securities, and each of their respective officers and directors and
each person who controls such Investor or underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act (each such
person being sometimes hereinafter referred to as an "Indemnified Person") from
and against any losses, claims, damages or liabilities, joint or several, to
which such Indemnified Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
an omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, not misleading, or
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e), the use by
the Indemnified Person of an outdated or defective Prospectus after the Company
has provided to such Indemnified Person an updated Prospectus correcting the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.
(b) Indemnification by the Investors and Underwriters. Each
Investor agrees, as a consequence of the inclusion of any of its Registrable
Securities in a Registration Statement, and each underwriter, if any, which
facilitates the disposition of Registrable Securities shall agree, as a
consequence of facilitating such disposition of Registrable Securities,
severally and not jointly, to (i) indemnify and hold harmless the Company, its
directors (including any person who, with his or her consent, is named in the
Registration Statement as a director nominee of the Company), its officers who
sign any Registration Statement and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act, against any losses, claims, damages or liabilities to
which the Company or such other persons may become subject, under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in such Registration
Statement or Prospectus or arise out of or are based upon the omission or
alleged omission to state therein 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, in the case of the Prospectus), not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged
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<PAGE>
omission was made in reliance upon and in conformity with written information
furnished to the Company by such holder or underwriter expressly for use
therein; provided, however, that no Investor or underwriter shall be liable
under this Section 6(b) for any amount in excess of the net proceeds paid to
such Investor or underwriter in respect of shares sold by it, and (ii) reimburse
the Company for any legal or other expenses incurred by the Company in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(c) Notice of Claims, etc. Promptly after receipt by a party
seeking indemnification pursuant to this Section 6 (an "Indemnified Party") of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a "Claim"), the
Indemnified Party promptly shall notify the party against whom indemnification
pursuant to this Section 6 is being sought (the "Indemnifying Party") of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (y) the Indemnified Party and the Indemnifying Party shall
reasonably have concluded that representation of the Indemnified Party by the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x) , (y) or (z) above, the fees, costs and expenses of
such legal counsel shall be borne exclusively by the Indemnified Party. Except
as provided above, the Indemnifying Party shall not, in connection with any
Claim in the same jurisdiction, be liable for the fees and expenses of more than
one firm of counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnifying Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnifying Party from all
liabilities with respect to such Claim or judgment.
(d) Contribution. If the indemnification provided for in this
Section 6 is unavailable to or insufficient to hold harmless an Indemnified
Person under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
each Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and
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<PAGE>
the Indemnified Party in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
fault of such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
relates to information supplied by such Indemnified Party or by such Indemnified
Party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The parties hereto
agree that it would not be just and equitable if contribution pursuant to this
Section 6(d) were determined by pro rata allocation (even if the Investors or
any underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in this Section 6 (d) . The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligations of the Investors
and any underwriters in this Section 6(d) to contribute shall be several in
proportion to the percentage of Registrable Securities registered or
underwritten, as the case may be, by them and not joint.
(e) Notwithstanding any other provision of this Section 6, in
no event shall any (i) Investor be required to undertake liability to any person
under this Section 6 for any amounts in excess of the dollar amount of the
proceeds to be received by such Investor from the sale of such Investor's
Registrable Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Registration Statement under which such
Registrable Securities are to be registered under the Securities Act and (ii)
underwriter be required to undertake liability to any Person hereunder for any
amounts in excess of the aggregate discount, commission or other compensation
payable to such underwriter with respect to the Registrable Securities
underwritten by it and distributed pursuant to the Registration Statement.
(f) The obligations of the Company under this Section 6 shall
be in addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
7. Rule 144. With a view to making available to the Investors the
benefits of Rule 144 under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to use its best efforts to:
(a) comply with the provisions of paragraph (c) (1) of Rule
144; and
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<PAGE>
(b) file with the Commission in a timely manner all reports
and other documents required to be filed by the Company pursuant to Section 13
or 15(d) under the Exchange Act; and, if at any time it is not required to file
such reports but in the past had been required to or did file such reports, it
will, upon the request of any Holder, make available other information as
required by, and so long as necessary to permit sales of, its Registrable
Securities pursuant to Rule 144.
8. Assignment. The rights to have the Company register Registrable
Securities pursuant to this Agreement shall be automatically assigned by the
Investors to any permitted transferee of all or any portion of such securities
(or all or any portion of any Preferred Shares or Warrant of the Company which
is convertible into such securities) of Registrable Securities only if: (a) the
Investor agrees in writing with the transferee or assignee 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 or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment, the securities so transferred
or assigned to the transferee or assignee constitute Restricted Securities, and
(d) at or before the time the Company received the written notice contemplated
by clause (b) of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein.
9. Amendment and Waiver. Any provision of this Agreement may be amended
and the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and Investors who hold a majority-in-interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon each Investor and the Company.
10. Miscellaneous.
(a) A person or entity shall be deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) If, after the date hereof and prior to the Commission
declaring the Registration Statement to be filed pursuant to Section 2(a)
effective under the Securities Act, the Company grants to any Person any
registration rights with respect to any Company securities which are more
favorable to such other Person than those provided in this Agreement, then the
Company forthwith shall grant (by means of an amendment to this Agreement or
otherwise) identical registration rights to all Investors hereunder.
(c) Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally or sent by certified mail, postage
prepaid, or by a nationally recognized overnight courier
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<PAGE>
service, and shall be deemed given when so delivered personally or by overnight
courier service, or, if mailed, three (3) days after the date of deposit in the
United States mails, as follows:
(1) if to the Company, to:
Univec, Inc.
999 Franklin Avenue
Garden City, New York 11530
Attention: Joel Schoenfeld
Telephone: (516) 294-1000
Facsimile: (516) 739-3343
With a copy to:
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-0125
Attention: Jack Becker, Esq.
Telephone: (212) 687-3860
Facsimile: (212) 947-7052
(2) if to the Initial Investor, to:
THE SHAAR FUND LTD.,
c/o SHAAR ADVISORY SERVICES LTD.
62 King George Street, Apartment 4F
Jerusalem, Israel
Attention: Samuel Levinson
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
Telephone: (212) 592-1435
Facsimile: (212) 889-7577
(3) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company.
The Company, the Initial Investor or any Investor may change the foregoing
address by notice given pursuant to this Section 10(c).
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<PAGE>
(d) 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, shall not operate as a waiver thereof.
(e) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
(f) The remedies provided in this Agreement are cumulative and
not exclusive of any remedies provided by law. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provision, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(g) The Company shall not enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
holders of Registrable Securities in this Agreement or otherwise conflicts with
the provisions hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person which conflicts with the Company's obligations hereunder or gives any
other party the right to include any securities in any Registration Statement
filed pursuant hereto, except for such rights and conflicts as have been
irrevocably waived. Without limiting the generality of the foregoing, without
the written consent of the Holders of a majority in interest of the Registrable
Securities, the Company shall not grant to any person the right to request it to
register any of its securities under the Securities Act unless the rights so
granted are subject in all respect to the prior rights of the holders of
Registrable Securities set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement. The restrictions on the
Company's rights to grant registration rights under this paragraph shall
terminate on the date the Registration Statement to be filed pursuant to Section
2(a) is declared effective by the Commission.
(h) This Agreement, the Securities Purchase Agreement, the
Escrow Instructions, dated as of the date hereof (the "Escrow Instructions"),
between the Company, the Initial Investor and Herrick, Feinstein LLP, the
Preferred Shares and the Warrants constitute 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, the Securities Purchase Agreement, the
Escrow Instructions, the Certificate of Designation and the Warrants supersede
all prior agreements and undertakings among the parties hereto with respect to
the subject matter hereof.
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<PAGE>
(i) Subject to the requirements of Section 8 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(j) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(k) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(l) The Company acknowledges that any failure by the Company
to perform its obligations under Section 3, or any delay in such performance
could result in direct damages to the Investors and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
such failure or delay.
(m) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
UNIVEC, INC.
By: s/ Alan H. Gold
-----------------------------------
Name: Alan H. Gold, M.D.
Title: President
THE SHAAR FUND LTD.
By: INTERCARIBBEAN SERVICES, LTD.
By:________________________________
Name:
Title:
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<PAGE>
EXHIBIT 5.1
SNOW BECKER KRAUSS P.C.
Attorneys at Law
605 Third Avenue
New York, New York 10158
----------
(212) 687-3860
August 14, 1998
Board of Directors
UNIVEC, Inc.
999 Franklin Avenue
Garden City, NY 11530
Ladies and Gentlemen:
You have requested our opinion, as counsel for UNIVEC, Inc., a Delaware
corporation (the "Company"), in connection with the registration statement on
Form S-3 (No. 333-_______) (the "Registration Statement"), under the Securities
Act of 1933 (the "Act"), filed by the Company with the Securities and Exchange
Commission.
The Registration Statement relates to an offering by a certain selling
securityholder of up to 1,050,000 shares (the "Shares") of common stock, par
value $0.001 ("Common Stock"), of the Company.
We have examined such records and documents and made such examinations of
law as we have deemed relevant in connection with this opinion. It is our
opinion that when there has been compliance with the Act and the applicable
state securities laws:
(1) The Shares have been duly authorized and, when issued, delivered and
paid for in the manner described in the form of Certificate of
Designation filed as Exhibit 4.10 or the Warrant Agreement filed as
Exhibit 4.11 to the Registration Statement, will be legally issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
/s/ Snow Becker Krauss P.C.
---------------------------
SNOW BECKER KRAUSS P.C.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Univec, Inc. and Subsidiary on Form S-3 (File No. 333- ) of our report, which
includes an explanatory paragraph regarding the Company's ability to continue as
a going concern, dated March 18, 1998, on our audits of the consolidated
financial statements of Univec, Inc. and Subsidiary as of December 31, 1997 and
for the years ended December 31, 1997 and 1996 which report is incorporated by
reference in this annual report on Form 10-K. We also consent to the reference
to our firm under the caption "Experts."
s/ PricewaterhouseCoopers LLP
------------------------------------
PricewaterhouseCoopers LLP
Melville, New York
August 17, 1998
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EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Joel Schoenfeld and Martin Jacobson,
acting singly, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacitates, to sign this Registration Statement and any and all
amendments (including post-effective amendments) hereto, and any Registration
Statement filed pursuant to Rule 462(b) promulgated by the Commission under the
Securities Act of 1933, and to file the same and all exhibits thereto, and all
documents in connection therewith, with the Commission, granting said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in about the premises, as
full to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 25, 1998
s/ Joel Schoenfeld
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Joel Schoenfeld
Chairman of the Board of Directors,
Chief Executive Officer and Director
s/ Alan H. Gold
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Alan H. Gold
Director
s/ Martin Jacobson
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Martin Jacobson
Chief Financial Officer
s/ John Frank
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John Frank
Director
s/ Richard Lerner
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Richard Lerner
Director
- -----------------------------------------
David Jay
Director
