SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 9, 1998
IMMUNOMEDICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-12104 61-1009366
(State or Other Jurisdiction (Commission) (IRS Employer
of Incorporation) File Number) Identification No.)
300 American Road, Morris Plains, New Jersey 07950
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 605-8200
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
On December 9, 1998, Immunomedics, Inc. (the "Company") completed a
private placement of 1,250 shares of Series F Convertible Preferred Stock, par
value $.01 per share ( "Series F Stock") to several institutional investors (the
"Investors") and received gross proceeds of $12,500,000.
Each share of Series F Stock has an initial stated value of $10,000,
which increases at the rate of 4% per annum (such amount, as increased from time
to time, the "Liquidation Value"). The Series F Stock is convertible, in whole
or in part at the option of the holder, beginning on June 8, 1999, subject to
acceleration in certain instances, into such number of shares of the Company's
common stock, par value $.01 per share (the "Common Stock") as is determined by
dividing the Liquidation Value by the conversion price then in effect. The
conversion price is equal to (a) the Variable Conversion Price (as defined
below), if such Variable Conversion Price is less than the Trigger Price (as
defined below), (b) the Trigger Price, if the Variable Conversion Price is equal
to or greater than the Trigger Price and less than 150% of the Trigger Price or
(c) the Trigger Price plus one-half of the amount, if any, by which the Variable
Conversion Price exceeds 150% of the Trigger Price, if the Variable Conversion
Price is greater that 150% of the Trigger Price. The "Trigger Price" is equal to
125% of the Initial Fixed Price. The "Initial Fixed Price" is equal to the
average closing bid price of the Common Stock during the 20 trading days ending
June 6, 1999. The "Variable Conversion Price" is equal to the average of the 15
lowest closing bid prices for the Common Stock during the 45 trading days
preceding a conversion date.
To the extent that the Series F Stock would be convertible at a price
less than 90% of the Initial Fixed Price, the Investors have agreed to certain
restrictions on the number of shares of Series F Stock that can be converted
during the first several months after the Series F Stock becomes convertible.
Any shares of Series F Stock outstanding on December 9, 2003 will automatically
be converted into Common Stock.
Subject to certain conditions and limitations, including that the
Variable Conversion Price has been at least equal to 125% of the Trigger Price
for a specified period of time, the Company, during the 90-day period commencing
on December 1, 1999 may, at its option, require the Investors to purchase up to
an additional 750 shares ($7.5 million) of Series F Stock. Under certain
circumstances and at certain prices, the Company may elect to redeem any shares
of Series F Stock and under certain circumstances may require the Investors to
convert their Series F Stock. The Company has granted the Investors certain
participation rights if the Company issues any future floating rate convertible
securities.
Upon the occurrence of a Major Transaction (as defined in Section
(3)(c) of the Amended Certificate of Designations, Preferences and Rights of
Series F Convertible Preferred Stock (the "Certificate of Designations")), a
Trigger Event (as defined in Section (3)(d) of the Certificate of Designations),
or the delisting of the Common Stock from the Nasdaq National Market other than
as a result of the limitations imposed by the Exchange Cap (as defined below),
the Investors may require the Company to redeem the Series F Stock at a price
per share (the "Redemption Price") equal to the greater of (i) 125% of the
Liquidation Value and (ii) the value of the Common Stock issuable upon
conversion of the Series F Stock.
Notwithstanding the foregoing, under the circumstances set forth below
in lieu of permitting the holders of the Series F Stock to required the Company
to redeem their Series F Stock, the Company may elect the following:
(a) if, despite the best efforts of the Company, the registration
statement (the "Registration Statement") under the Securities Act of 1933
covering the resale by the investors of the Common Stock issuable upon
conversion of the Series F Stock is not declared effective on or before May 8,
1999; then
2
<PAGE>
the Company, at its option, may (x) redeem the Series F Stock at the Redemption
Price or (y) pay a penalty equal to 1% of the Liquidation Value per day (the
"Redemption Penalty") and readjust the Initial Fixed Price to 80% of the lowest
Variable Conversion Price during the period commencing the 150th day after
closing and ending on the day the Registration Statement is declared effective.
(b) if, after the Registration Statement becomes effective and despite
the best efforts of the Company to keep it available for use by the Investor;
such Registration Statement ceases to be available for more than 10 consecutive
days, then the Company, at its option, may (x) redeem the Series F Stock at the
Redemption Price or (y) pay the Redemption Penalty and readjust the Initial
Fixed Price to 80% of the lowest Variable Conversion Price during the period
commencing on the day the Registration Statement became unavailable and ending
on the day the Registration Statement is again available for use.
(c) if the Common Stock is delisted from the Nasdaq National Market
(other than as a result of a voluntary delisting by the Company as a result of
the Exchange Cap; then the Company, at its option, may (x) redeem the Series F
Stock at the Redemption Price or (y) readjust the Initial Fixed Price to 68.5%
of the lowest Variable Conversion Price during the period commencing on the date
of delisting and continuing for 45 days thereafter or (z) pay the Redemption
Penalty.
(d) if a purchase, tender or exchange offer is accepted by holders of
more than a specified percentage of the Common Stock which was not approved or
recommended by the Board of Directors of the Company or a proxy or consent
solicitation is made which results is consolidation, merger or other business
combination where such proxy or consent solicitation was not approved or
recommended by the Board of Directors of the Company; then the Company may (x)
redeem the Preferred Shares at the Liquidation Value or (y) readjust the Initial
Fixed Price to 80% of the lower of (A) the lowest Variable Conversion Price
during the period beginning on the date such offer or solicitation is announced
and ending on the date such offer or solicitation is consummated, abandoned or
terminated or (B) the Initial Fixed Price then in effect or (z) pay the
Redemption Penalty.
The Company is not required to pay the Redemption Penalty, in the
aggregate, for more than 15 days (or 10 days in the case of the events set forth
in clause (d) above) in any 365-day period.
The Company also has agreed to hold a Special Meeting of Stockholders
on or before March 24, 1999, to seek approval of the issuance of any shares upon
conversion of the Series F Stock in excess of 20% of the number of outstanding
shares of Common Stock on December 9, 1998 (i.e., 7,577,617 in accordance with
the rules and The Nasdaq Market, Inc. (the "Exchange Cap"). Approval of the
proposal will only require a majority of the shares voting in person or by proxy
at the Special Meeting of Stockholders. Dr. Goldenberg, certain members of his
family and certain executive officers of the Company, holding in the aggregate
approximately 30% of the currently outstanding Common Stock have agreed to vote
their shares in favor of such proposal. Such persons also have agreed not to
dispose of shares constituting approximately 27% of the currently outstanding
shares of Common Stock prior to such stockholders meeting. The Company has
agreed, among other things, to the payment of certain penalties if the Special
Meeting is not held on or before March 24, 1999 or if the proposal is not
approved by stockholders.
The Investors have agreed that if they engage in short sales
transactions or other hedging activities during the 45 trading days immediately
preceding a Conversion Date (the "Pricing Period") which involve, among other
things, sales of shares of Common Stock, the Investors will place their sale
orders for common stock in the course of such activities so as not to complete
or effect any such sale on any trading day during the Pricing Period at a price
which is lower than the lowest sale effected on such day by persons other than
such Investor and its affiliates. The Investors also have agreed not to enter
into any short sales or other hedging activities which involve, among other
things, sales of shares of Common
3
<PAGE>
Stock, during the 25 trading days ending June 7, 1999 (the date on which the
Initial Fixed Price is determined).
The Company has agreed to file the Registration Statement on or before
January 23, 1999 and to maintain effectiveness (subject to certain penalties for
non-compliance in addition to the penalties set forth above), of the
Registration Statement. The Company has agreed to reimburse the Investors for
their expenses in connection with their investment in the Series F Stock and the
preparation of th Registration Statement, up to a maximum of $50,000.
The offer and sale of the Series F Stock and the common stock issuable
upon conversion thereof was made pursuant to the exemption from registration
provided Regulation D under the Securities Act of 1933.
The foregoing summaries of agreements are necessarily incomplete and
selective, and are qualified in their entirety by reference to the agreements
summarized, each of which is attached hereto as an exhibit
Item 7. Financial Statements and Exhibits
(c) Exhibits
Exhibit No. Description
3.1 Amended Certificate of Designations, Preferences and Rights of
Series F Convertible Preferred Stock of Immunomedics, Inc.
10.1 Securities Purchase Agreement, dated December 9, 1998, by and
among Immunomedics, Inc. and the Investors.
10.2 Registration Rights Agreement by and among dated December 9,
1998, by and among Immunomedics, Inc. and the Investors.
99.1 Press Release, dated December 9, 1998.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMMUNOMEDICS, INC.
By:/s/ Robert J. DeLuccia
Robert J. DeLuccia
President and
Chief Executive Officer
Date: December 15, 1998
5
<PAGE>
AMENDED
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES F CONVERTIBLE PREFERRED STOCK
OF
IMMUNOMEDICS, INC.
Immunomedics, Inc. (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company, and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
(A) on December 7, 1998 the Company filed a Certificate of Designation,
designating the preferences and rights of the Series F Convertible Preferred
Stock (the "Original Designation"), (B) as of the date hereof no shares of
preferred stock have been issued pursuant to the Original Designation and (C)
the Board of Directors of the Company at a meeting duly held adopted resolutions
(i) authorizing a series of the Company's previously authorized preferred stock,
par value $.01 per share, and (ii) providing for the designations, preferences
and relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of 2,000 shares of Series F Convertible
Preferred Stock of the Company (which shall amend and restate the Original
Designation), as follows:
RESOLVED, that the Company is authorized to issue 2,000 shares
of Series F Convertible Preferred Stock (the "Preferred Shares"), par
value $.01 per share, which shall have the following powers,
designations, preferences and other special rights:
(1) Dividends. The Preferred Shares shall not bear and dividends.
(2) Holder's Conversion of Preferred Shares. A holder of
Preferred Shares shall have the right, at such holder's option, to convert the
Preferred Shares into shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), on the following terms and conditions:
(a) Conversion Right. Subject to Section 2(j),
at any time or times on or after the Issuance Date (as defined below), any
holder of Preferred Shares shall be entitled to convert any whole number of
Preferred Shares into fully paid and nonassessable shares (rounded to the
<PAGE>
nearest whole share in accordance with Section 2(h)) of Common Stock, at the
Conversion Rate (as defined below); provided, however, that in no event shall
any holder be entitled to convert Preferred Shares in excess of that number of
Preferred Shares which, upon giving effect to such conversion, would cause the
aggregate number of shares of Common Stock beneficially owned by the holder and
its affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such conversion. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of the Preferred Shares with respect to which the determination of
such proviso is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) conversion of the remaining, nonconverted
Preferred Shares beneficially owned by the holder and its affiliates, and (ii)
exercise or conversion of the unexercised or unconverted portion of any other
securities of the Company (including, without limitation, any warrants) subject
to a limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the holder and its affiliates. Except as set forth
in the preceding sentence, for purposes of this Section 2(a), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of
1934, as amended.
(b) Conversion Rate. The number of shares
of Common Stock issuable upon conversion of each of the Preferred Shares
pursuant to Sections (2)(a) and 2(g) and Section 5 shall be determined according
to the following formula (the
"Conversion Rate"):
Conversion Amount
Conversion Price
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "Conversion Price" means, on a per
share basis, as of the Conversion Date (as defined below) or other date of
determination of the applicable Preferred Shares (A) the Variable Conversion
Price (as defined below) when the Variable Conversion Price is less than the
Trigger Price (as defined below) provided, however, that prior to the date which
is the earlier of ((alpha)) 365 days after the Initial Issuance Date (as defined
below) and ((beta)) a date on which a Triggering Event, a Major Transaction or
the public announcement of a pending Major Transaction (each as defined below)
occur, if the Variable Conversion Price on a Conversion Date is greater than 90%
of the Initial Fixed Price (as defined below) and less than the Trigger Price,
then the Conversion Price shall equal the Trigger Price, (B) the Trigger Price
when the Variable Conversion Price is equal to or greater than the Trigger Price
and less than or equal to 150% of the Trigger Price or (C) the Profit-Sharing
Conversion Price (as defined below) when the Variable Conversion Price is
greater than 150% of the Trigger Price;
(ii) "Variable Conversion Price" means, as
of any date of determination, the average of the 15 lowest Closing Bid Prices
(as defined below) of the Common Stock during the 45 consecutive trading days
immediately preceding a date of determination;
(iii) "Profit-Sharing Conversion Price"
means, as of any date of determination, the amount determined according to the
following formula:
-2-
<PAGE>
Profit-Sharing Conversion Price =
Trigger Price + Variable Conversion Price -(1.5 x Trigger Price)
________________________________________________
2
(iv) "Conversion Amount" means, on a per
share basis, the sum of (A) the
Additional Amount (as defined below), unless the Company has exercised its
option to pay such amount in cash, and (B) $10,000;
(v) "Additional Amount" means, on a per
share basis the result of the following formula: (.04)(N/365)($10,000);
(vi) "Initial Fixed Price" means, with
respect to (A) Preferred Shares issued on the Initial Issuance Date (I) on any
date prior to the Fixed Conversion Price Trigger Date, $4.00 and (II) on any
Conversion Date on or after the Fixed Conversion Price Trigger Date, the lesser
of the average of the Closing Bid Prices for the Common Stock during the 20
consecutive trading days immediately preceding (y) the Fixed Conversion Price
Trigger Date and (z) the date which is 180 days after the Initial Issuance Date
or (B) Preferred Shares issued after the Initial Issuance Date, the average of
the Closing Bid Prices of the Common Stock during the five consecutive trading
days immediately preceding the Put Share Notice Date (as defined in the
Securities Purchase Agreement), subject in each case to adjustment as provided
herein. Notwithstanding the foregoing, should there occur one or more Excluded
Redemption Events (as defined in Section 3) which results in a change to the
Initial Fixed Price of the Preferred Shares as in effect immediately prior to
the occurrence of such Excluded Redemption Events pursuant to Section 3, the
Initial Fixed Price shall mean the lesser of ((alpha)) the Initial Fixed Price
as defined above and ((beta)) the Initial Fixed Price following such Excluded
Redemption as determined pursuant to Section 3.
(vii) "Trigger Price" means 125% of the
Initial Fixed Price, as adjusted;
(viii) "Fixed Conversion Price Trigger Date"
means, the earlier of (I) the
date that is 180 days after the Initial Issuance Date and (II) if the
stockholders have not approved of the issuance of the Preferred Shares and the
Conversion Shares (as defined below) pursuant to Section 4(l) of the Securities
Purchase Agreement on or prior to the date which is 105 days after the Initial
Issuance Date, then the date which is 105 days after the Initial Issuance Date;
(ix) "N" means the number of days from, but
excluding, the Issuance Date
of the applicable Preferred Share through and including the Conversion Date or
the Maturity Date for the Preferred Shares for which conversion and/or
redemption is being elected, as the case may be;
(x) "Issuance Date" means, with respect to
each Preferred Share, the date of issuance of the applicable Preferred Share;
-3-
<PAGE>
(xi) "Initial Issuance Date" means the first
date on which any Preferred Shares are issued by the Company;
(xii) "Business Day" means any day other
than Saturday, Sunday or other day on which commercial banks in the City of New
York are authorized or required by law to remain closed;
(xiii) "Securities Purchase Agreement" means
that certain securities purchase agreement between the Company and the initial
holders of the Preferred Shares;
(xiv) "Registration Rights Agreement" means
that certain registration rights agreement between the Company and the initial
holders of the Preferred Shares relating to the filing of a registration
statement covering the resale of the Conversion Shares;
(xv) "Conversion Shares" means shares of
Common Stock issuable upon conversion of Preferred Shares and any shares of
Common Stock issuable as Registration Delay Payments (as defined in the
Registration Rights Agreement);
(xvi) "Closing Bid Price" means, for any
security as of any date, the last closing bid price for such security on The
Nasdaq National Market (as reported by Bloomberg Financial Markets
("Bloomberg")), or, if The Nasdaq National Market is not the principal
trading market for such security, the average of the high and low trading prices
on such date of such security on the principal securities exchange or trading
market where such security is listed or traded (as reported by Bloomberg), or if
the foregoing do not apply, the average of the high and low trading prices on
such date of such security in the over-the-counter market on the electronic
bulletin board for such security (as reported by Bloomberg). If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as mutually determined by the Company and the holders of a
majority of the outstanding Preferred Shares (including for purposes of this
determination any Preferred Shares with respect to which the Closing Bid Price
is being determined). If the Company and the holders of Preferred Shares are
unable to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 2(f)(iii). (All such
determinations to be appropriately adjusted for any stock dividend, stock split
or other similar transaction during such period);
(c) Company's Option to Pay Additional Amount in
Cash. Upon conversion pursuant to Sections 2(a) or 2(g) or Section 5, the
Company shall have the right to elect to pay the Additional Amount in cash, in
lieu of conversion to Common Stock. If the Company elects to pay the Additional
Amount in cash, such cash shall be paid simultaneously with the delivery to the
holder of the certificates representing the Common Stock issuable upon
conversion in accordance with Section 2(f) or upon the credit to the holder's or
its designees account with the Depository Trust Company. In order to exercise
its right to pay any Additional Amount in cash, the Company must advise each
holder of Preferred Shares in writing (the
-4-
<PAGE>
"Cash Dividend Notice") that the Additional Amount shall be paid in cash until
such time as the Company shall terminate the Cash Dividend Notice by providing
at least five Business Days prior written notice of such termination (the
"Termination Notice"). The Cash Dividend Notice shall set forth the effective
date of the Cash Dividend Notice, which date shall be at least five Business
Days after the date the Cash Dividend Notice is deemed to have been delivered
pursuant to Section 20. The Termination Notice shall be effective on the fifth
Business Day after the date the Termination Notice is deemed to have been
delivered pursuant to Section 20 unless a later date shall be specified in the
Termination Notice.
(d) Adjustment to Conversion Price -- Dilution
and Other Events. In order to prevent dilution of the rights granted under this
Certificate of Designations, the Initial Fixed Prices, the Trigger Price and the
Conversion Price will be subject to adjustment from time to time as provided in
this Section 2(d).
(i) Adjustment of Initial Fixed Price
upon Issuance of Common Stock. Except as provided in Section 2(d)(iv), if and
whenever on or after the Initial Issuance Date, the Company issues or sells, or
is deemed to have issued or sold, any shares of Common Stock (other than
Preferred Shares or shares of Common Stock issued upon conversion of Preferred
Shares or deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below) or the Excluded Securities (as defined
below)) for a consideration per share less than a price (the "Applicable Price")
equal to a Trigger Price in effect immediately prior to such issuance or sale,
then immediately after such issue or sale, the Initial Fixed Price then in
effect, which relates to such Trigger Price, shall be reduced to an amount equal
to (a) if such issuance or sale or deemed issuance or sale was for a security
which has both a Variable Price (as defined below) and a Set Price (as defined
below) component and the holders of the Preferred Shares either did not exercise
their rights to participate, or were excluded from participating, in such
issuance or sale pursuant to Section 4(g) of the Securities Purchase Agreement,
then the product of (A) .80 and (B) such consideration per share received and
(b) if such issuance or sale or deemed issuance or sale was for a security other
than as described in the immediately preceding clause (a), then the product of
(y) the Initial Fixed Price in effect immediately prior to such issue or sale
and (z) the quotient determined by dividing (1) the sum of (I) the product of
the Applicable Price and the number of shares of Common Stock Deemed Outstanding
(as defined below) immediately prior to such issue or sale, and (II) the
consideration, if any, received by the Company upon such issue or sale
(excluding the consideration received or to be received from the holders of the
Preferred Shares pursuant to the exercise of their right to participate pursuant
to Section 4(g) of the Securities Purchase Agreement), by (2) the product of (I)
the Applicable Price and (II) the number of shares of Common Stock Deemed
Outstanding immediately after such issue or sale (excluding those shares issued
or deemed to be issued to the holders of the Preferred Shares pursuant to the
exercise of their right to participate pursuant to Section 4(g) of the
Securities Purchase Agreement). For purposes of determining the adjusted Initial
Fixed Price under this Section 2(d)(i), the following shall be applicable:
(A) Issuance of Options. If
and whenever on or after the Initial Issuance Date, the Company in any
manner grants any rights or options to subscribe for or to purchase
Common Stock (other than the Excluded Securities or pursuant to an
Approved Stock Plan or upon conversion of the Preferred Shares) or any
stock or other securities convertible into or exchangeable for Common
-5-
<PAGE>
Stock (such rights or options being herein called "Options" and such
convertible or exchangeable stock or securities being herein called
"Convertible Securities") and the price per share for which Common
Stock is issuable upon the exercise of such Options or upon conversion
or exchange of such Convertible Securities is less than the Applicable
Price, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such Options at the time of issuance of
such Options (without regard to limitations on exercise, conversion or
exchange) shall be deemed to be outstanding and to have been issued
and sold by the Company for such price per share. For purposes of this
Section 2(d)(i)(A), the "price per share for which Common Stock is
issuable upon exercise of such Options or upon conversion or exchange
of such Convertible Securities" is determined by dividing (I) the
total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to the Company
upon the exercise of all such Options at the time of issuance of such
Options (without regard to limitations on exercise, conversion or
exchange), plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or
sale of such Convertible Securities and the conversion or exchange
thereof, by (II) the total maximum number of shares of Common Stock
issuable upon exercise of such Options at the time of issuance of such
Options (without regard to limitations on exercise, conversion or
exchange) or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. Except as set
forth in Section 2(d)(i)(C) below, no adjustment of the Initial Fixed
Prices shall be made upon the actual issuance of such Common Stock or
of such Convertible Securities upon the exercise of such Options or
upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(B) Issuance of Convertible
Securities. If and whenever on or after the Initial Issuance Date, the
Company in any manner issues or sells any Convertible Securities and
the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Applicable Price, then the
maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities at the time of issuance of
such Convertible Securities (without regard to limitations on
exercise, conversion or exchange) shall be deemed to be outstanding
and to have been issued and sold by the Company for such price per
share. For the purposes of this Section 2(d)(i)(B), the "price per
share for which Common Stock is issuable upon such conversion or
exchange" is determined by dividing (I) the total amount received or
receivable by the Company as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof at the time of issuance of such
Convertible Securities (without regard to limitations on exercise,
conversion or exchange), by (II) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities at the time of issuance of such Convertible
Securities (without regard to limitations on exercise, conversion or
exchange). Except as set forth in Section 2(d)(i)(C) below, no
-6-
<PAGE>
adjustment of an Initial Fixed Prices shall be made upon the actual
issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustment of an Initial Fixed Prices had been or are to be made
pursuant to other provisions of this Section 2(d)(i), no further
adjustment of such Initial Fixed Prices shall be made by reason of
such issue or sale.
(C) Change in Option Price
or Rate of Conversion. If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable
for Common Stock change at any time, the Initial Fixed Price of any
Preferred Shares in effect at the time of such change shall be
readjusted to the Initial Fixed Price which would have been in effect
at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold; provided that no adjustment
shall be made if such adjustment would result in an increase of such
Initial Fixed Price then in effect.
(D) Certain Definitions. For
purposes of determining the adjusted Initial Fixed Price under this
Section 2(d)(i), the following terms have the meanings set forth
below:
(I) "Approved Stock Plan"
shall mean any contract, plan or agreement which is approved by the
Board of Directors of the Company, pursuant to which the Company's
securities (including stock appreciation rights, phantom stock rights
or other rights with equity features) may be issued to any employee,
officer, director, consultant or other service provider.
(II) "Common Stock Deemed
Outstanding" means, at any given time, the number of shares of Common
Stock actually outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections 2(d)(i)(A)
and 2(d)(i)(B) hereof regardless of whether the Options or Convertible
Securities are actually exercisable at such time, but excluding any
shares of Common Stock issuable upon conversion of the Preferred
Shares.
(III) "Excluded Securities"
means any security of the Company issued after November 17, 1998 and
prior to December 31, 1998 pursuant to the terms of the Structured
Equity Line Flexible Financing Agreement, between Cripple Creek, a
Delaware limited liability company and the Company (as such agreement
is attached to the Securities Purchase Agreement as Exhibit E).
(IV) "Set Price" means,
with respect to the conversion, exchange, or exercise price of any
security, a price which has the possibility of not varying with the
market price of the Common Stock.
-7-
<PAGE>
(E) Effect on Initial Fixed
Price of Certain Events. For purposes of determining the adjusted
Initial Fixed Price under this Section 2(d)(i), the following shall be
applicable:
(I) Calculation of
Consideration Received. If any Common Stock, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the
net amount received by the Company therefor plus actual legal expenses
incurred pursuant to such issuance or sale of up to $50,000. In case
any Common Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the consideration
other than cash received by the Company will be the fair value of such
consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will
be the average of the Closing Bid Prices of such securities for the
five consecutive trading days immediately preceding the date of
receipt. In case any Common Stock, Options or Convertible Securities
are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value
of such portion of the net assets and business of the non-surviving
entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration
other than cash or securities will be determined jointly by the
Company and the holders of a majority of the Preferred Shares then
outstanding. If such parties are unable to reach agreement within ten
(10) days after the occurrence of an event requiring valuation (the
"Valuation Event") the Company shall use its best efforts to cause the
fair value of such consideration to be determined within 48 hours of
the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser selected by the Company, which appraiser shall be
reasonably acceptable to two-thirds (_) of the holders of the
Preferred Shares. The determination of such appraiser shall be binding
upon all parties absent manifest error.
(II) Integrated Transactions.
In case any Option is issued in connection with the issue or sale of
other securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have
been issued for a consideration of $.01 and the aggregate
consideration received by the Company in such integrated transaction
shall be included in the adjustment calculation in Section 2(d)(i)
above.
(III) Treasury Shares. The
number of shares of Common Stock outstanding at any given time does
not include shares owned or held by or for the account of the Company,
and the disposition of any shares so owned or held will be considered
an issue or sale of Common Stock.
(IV) Record Date. If the
Company takes a record of the holders of Common Stock for the purpose
-8-
<PAGE>
of entitling them (1) to receive a dividend or other distribution
payable in Common Stock, Options or in Convertible Securities, or (2)
to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued
or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii) Adjustment of Initial Fixed Price upon
Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, each Initial Fixed Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time combines
(by combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, each Initial
Fixed Price in effect immediately prior to such combination will be
proportionately increased.
(iii) Reorganization, Reclassification,
Consolidation, Merger or Sale. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets to another Person (as defined below) or other transaction which
is effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock is referred to herein as
"Organic Change." Prior to the consummation of any Organic Change, the Company
will make appropriate provision (in form and substance reasonably satisfactory
to the holders of a majority of the Preferred Shares then outstanding) to insure
that each of the holders of the Preferred Shares will thereafter have the right
to acquire and receive in lieu of or in addition to (as the case may be) the
shares of Common Stock otherwise acquirable and receivable upon the conversion
of such holder's Preferred Shares, such shares of stock, securities or assets
that would have been issued or payable in such Organic Change with respect to or
in exchange for the number of shares of Common Stock which would have been
acquirable and receivable upon the conversion of such holder's Preferred Shares
had such Organic Change not taken place (without taking into account any
limitations or restrictions on the timing or amount of conversions). In any such
case, the Company will make appropriate provision (in form and substance
reasonably satisfactory to the holders of a majority of the Preferred Shares
then outstanding) with respect to such holders' rights and interests to insure
that the provisions of this Section 2(d) and Section 2(e) will thereafter be
applicable to the Preferred Shares (including, in the case of any such
consolidation, merger or sale in which the successor entity or purchasing entity
is other than the Company, an immediate adjustment of each of the Initial Fixed
Prices to the value for the Common Stock reflected by the terms of such
consolidation, merger or sale, if the value so reflected is less than such
Initial Fixed Price in effect immediately prior to such consolidation, merger or
sale and an immediate revision to the Initial Fixed Prices to reflect the price
of the common stock of the surviving entity and the market in which such common
stock is traded). The Company will not effect any such consolidation, merger or
sale, unless prior to the consummation thereof, the successor entity (if other
than the Company) resulting from consolidation or merger or the entity
purchasing such assets assumes, by written instrument (in form and substance
reasonably satisfactory to the holders of a majority of the Preferred Shares
-9-
<PAGE>
then outstanding), the obligation to deliver to each holder of Preferred Shares
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire. "Person" shall mean an
individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
(iv) Adjustment of Variable Conversion
Price upon Issuance of Convertible Securities. If and whenever after the
Issuance Date, the Company in any manner issues or sells Convertible Securities
(other than Excluded Securities or any Convertible Securities issued in an
offering with respect to which the holders of the Preferred Shares purchased
Convertible Securities pursuant to their right to participate in such offering
pursuant to Section 4(g) of the Securities Purchase Agreement) that are
convertible into or exercisable or exchangeable for Common Stock at a price
which may vary with the market price of the Common Stock (the formulation for
such variable price being herein referred to as, the "Variable Price") and such
Variable Price is not calculated using the same formula used to calculate the
Variable Conversion Price in effect immediately prior to the time of such issue
or sale, the Company shall provide written notice thereof via facsimile and
overnight courier to each holder of the Preferred Shares ("Variable Notice") on
the date of issuance of such Convertible Securities. If the holders of Preferred
Shares representing at least two-thirds of the Preferred Shares then outstanding
provide written notice via facsimile and overnight courier (the "Variable Price
Election Notice") to the Company within five (5) Business Days of receiving a
Variable Notice that such holders desire to replace the Variable Conversion
Price then in effect with the Variable Price described in such Variable Notice,
then from and after the date of the Company's receipt of the Variable Price
Election Notice the Variable Conversion Price will automatically be replaced
with the Variable Price (together with such modifications to this Certificate of
Designations as may be required to give full effect to the substitution of the
Variable Price for the Variable Conversion Price), subject to further
adjustments as provided in this Certificate of Designations. A holder's delivery
of a Variable Price Election Notice shall serve as the consent required to amend
this Certificate of Designations pursuant to Section 15 below. In the event that
a holder delivers a Conversion Notice at any time after the Company's issuance
of Convertible Securities with a Variable Price but before such holder's receipt
of the Company's Variable Notice, then such holder shall have the option by
written notice to the Company to have the Conversion Price be equal to such
Variable Price for the conversion effected by such Conversion Notice, provided
that two-thirds of the preferred shares then outstanding have elected such
Variable Price to replace the existing Variable Conversion Price.
(v) Certain Events. If any event occurs
of the type contemplated by the provisions of this Section 2(d) but not
expressly provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights with
equity features other than pursuant to an Approved Stock Plan), then the
Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Preferred
Shares; provided, however, that no such adjustment will increase the Conversion
Price as otherwise determined pursuant to this Section 2(d).
-10-
<PAGE>
(vi) Adjustment of Initial Fixed Price
Upon Major Corporate Event Announcement. In the event (A) the Company makes a
public announcement that it intends to consolidate or merge with or into another
Person or engage in a business combination involving the issuance or exchange of
more than the Trigger Percentage (as defined below) of the Company's outstanding
Common Stock,(B) the Company makes a public announcement that it intends to sell
or transfer all or substantially all of the Company's assets, or (C) any Person
(including the Company) publicly announces a purchase, tender or exchange offer
for more than the Trigger Percentage of the Company's outstanding Common Stock
(the transactions described in clauses (A), (B) and (C) above are hereinafter
referred to as "Major Corporate Events" and the date of the announcement
referred to in clause (A), (B) or (C) is hereinafter referred to as the
"Announcement Date"), then the Initial Fixed Prices shall, effective upon the
Announcement Date and continuing through and including the Adjusted Conversion
Price Termination Date (as defined below), be equal to the Conversion Price
which would have been applicable for a conversion by the holder on the
Announcement Date. From and after the Adjusted Conversion Price Termination
Date, the Conversion Price shall be determined as set forth in Section 2(b). For
purposes hereof, "Adjusted Conversion Price Termination Date" shall mean, with
respect to any proposed Major Corporate Event for which a public announcement as
contemplated by this Section 2(c)(vi) has been made, the date upon which the
Company or other Person (in the case of clause (C) above) consummates or
publicly announces the termination or abandonment of the proposed Major
Corporate Event which was the subject of the previous public announcement. The
"Trigger Percentage" means the lesser of (I) 50% and (II) the greater of (y) 30%
and (z) the percentage of shares outstanding held by David M. Goldenberg or his
spouse, their children and grandchildren or any trust which has as the sole
beneficiary any or all of the above individuals.
(vii) Notices.
(A) As soon as practicable, but in
no event later than one (1) day after any adjustment of the Conversion
Price, the Company will give written notice thereof to each holder of
the Preferred Shares, setting forth in reasonable detail and
certifying the calculation of such adjustment.
(B) The Company will give written
notice to each holder of the Preferred Shares at least ten (10) days
prior to the date on which the Company closes its books or takes a
record (I) with respect to any dividend or distribution upon the
Common Stock, (II) with respect to any pro rata subscription offer to
holders of Common Stock, or (III) for determining rights to vote with
respect to any Organic Change, dissolution or liquidation and in no
event shall such notice be provided to such holder prior to such
information being made known to the public.
(C) The Company will also give
written notice to each holder of the Preferred Shares at least ten
(10) days prior to the date on which any Organic Change, dissolution
or liquidation will take place and in no event shall such notice be
provided to such holder prior to such information being made known to
the public.
-11-
<PAGE>
(e) Purchase Rights. In addition to any
adjustments of the Conversion Price pursuant to Section 2(d), if at any time
after the Initial Issuance Date the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then the holders of the Preferred Shares will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete conversion of the
Preferred Shares (without taking into account any limitations or restrictions on
the timing or amount of conversions) immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if
no such record is taken, the date as of which the record holders of the Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(f) Mechanics of Conversion. Subject to the
Company's inability to fully satisfy its obligations under a Conversion Notice
(as defined below) as provided for in Section 4:
(i) Holder's Delivery Requirements.
To convert Preferred Shares into full shares of Common Stock on any date (the
"Conversion Date"), the holder thereof shall (A) transmit by facsimile (or
otherwise deliver), for receipt on or prior to 6:00 p.m. Eastern Time, on such
date, a copy of a fully executed notice of conversion in the form attached
hereto as Exhibit I (the "Conversion Notice") to the Company or its designated
transfer agent (the "Transfer Agent"), and (B) if required by Section 2(f)(vii),
surrender to a common carrier, for delivery to the Company as soon as
practicable following such date, the original certificate(s) representing the
Preferred Shares being converted (or an indemnification undertaking with respect
to such shares in the case of their loss, theft or destruction) (the "Preferred
Stock Certificate(s)"). Such holders of the Preferred Shares shall use their
best efforts to provide a copy of the Conversion Notice to Company counsel on
the Conversion Date and verify by telephone that the Company has received the
Conversion Notice on the Conversion Date, but the Company's obligations pursuant
to this Certificate of Designations and the Transaction Documents (as defined in
the Securities Purchase Agreement) including, but not limited to this Section
2(f), shall remain in full force and effect regardless of such holder's
compliance with the requirements of this sentence.
(ii) Company's Response. Upon receipt by
the Company of a facsimile copy of a Conversion Notice, the Company shall (A)
promptly, but in no event later than 24 hours after such receipt, send, via
facsimile, a confirmation of receipt of such Conversion Notice to such holder
and (B) on or before the second Business Day following the date of receipt,
credit such aggregate number of shares of Common Stock to which the holder shall
-12-
<PAGE>
be entitled to the holder's or its designee's balance account with The
Depository Trust Company; provided, however, if the holder who submitted the
Conversion Notice requested physical delivery of any or all of the Conversion
Shares, then the Company shall, on or before the third Business Day following
receipt of the Conversion Notice, issue and surrender to a common carrier for
overnight delivery to the address specified in the Conversion Notice, a
certificate, registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be entitled pursuant
to such request. If the number of Preferred Shares represented by the Preferred
Stock Certificate(s) submitted for conversion is greater than the number of
Preferred Shares being converted, then the Company shall, as soon as practicable
and in no event later than two Business Days after receipt of the Preferred
Stock Certificate(s) and at its own expense, issue and deliver to the holder a
new Preferred Stock Certificate representing the number of Preferred Shares not
converted.
(iii) Dispute Resolution. In the case of
a dispute as to the determination of the Closing Bid Price or the arithmetic
calculation of the Conversion Rate, the Company shall promptly issue to the
holder the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the holder via
facsimile within two (2) Business Day of receipt of such holder's Conversion
Notice. If such holder and the Company are unable to agree upon the
determination of the Closing Bid Price or arithmetic calculation of the
Conversion Rate within one (1) Business Day of such disputed determination or
arithmetic calculation being submitted to the holder, then the Company shall
within one (1) Business Day submit via facsimile (A) the disputed determination
of the Closing Bid Price to an independent, reputable investment bank, or (B)
the disputed arithmetic calculation of the Conversion Rate to its independent,
outside accountant. The Company shall use its best efforts to cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of the
results no later than forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent manifest error.
(iv) Record Holder. The person or persons
entitled to receive the shares of Common Stock issuable upon a conversion of
Preferred Shares shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert.
If within five Business Days after the Company's or the Transfer Agent's (as
applicable) receipt of a facsimile copy of a Conversion Notice, the Company
shall fail to issue a certificate for the number of shares of Common Stock to
which a holder is entitled or to credit the holder's balance account with The
Depository Trust Company for such number of shares of Common Stock to which the
holder is entitled upon such holder's conversion of the Preferred Shares,
pursuant to Section 2(f)(ii), in addition to all other available remedies which
such holder may pursue hereunder and under the Securities Purchase Agreement
(including indemnification pursuant to Section 8 thereof), the Company shall pay
additional damages to such holder on each date after such fifth (5th) Business
Day that such conversion is not timely effected in an amount equal to 0.5% of
the product of (A) the sum of the number of shares of Common Stock not issued to
the holder on a timely basis pursuant to Section 2(f)(ii) and to which such
holder is entitled and (B) the Closing Bid Price of the Common Stock on the last
possible date which the Company could have issued such Common Stock to such
holder without violating Section 2(f)(ii).
-13-
<PAGE>
(vi) Company's Failure to Issue
Certificates. If within ten Business Days after the Company's receipt of the
Preferred Stock Certificates to be converted and the Conversion Notice the
Company shall fail to issue a new Preferred Stock Certificate representing the
number of Preferred Shares to which such holder is entitled, pursuant to Section
2(f)(ii), in addition to all other available remedies which such holder may
pursue hereunder and under the Securities Purchase Agreement (including
indemnification pursuant to Section 8 thereof), the Company shall pay additional
damages to such holder on each date after such tenth (10th) Business Day that
such delivery of such Preferred Stock Certificates is not timely effected in an
amount equal to 0.5% of the product of (A) the number of shares of Common Stock
issuable upon conversion of the Preferred Shares represented by such Preferred
Stock Certificate as of the last possible date which the Company could have
issued such Preferred Stock Certificate to such holder without violating Section
2(f)(ii) and (B) the Closing Bid Price of the Common Stock on the last possible
date which the Company could have issued such Preferred Stock Certificate to
such holder without violating Section 2(f)(ii).
-14-
<PAGE>
(vii) Book-Entry. Notwithstanding anything
to the contrary set forth herein, upon conversion of Preferred Shares in
accordance with the terms hereof, the holder thereof shall not be required to
physically surrender the certificate representing the Preferred Shares to the
Company unless the full number of Preferred Shares represented by the
certificate are being converted. The holder and the Company shall maintain
records showing the number of Preferred Shares so converted and the dates of
such conversions or shall use such other method, reasonably satisfactory to the
holder and the Company, so as not to require physical surrender of the
certificate representing the Preferred Shares upon each such conversion. In the
event of any dispute or discrepancy, such records of the Company shall be
controlling and determinative in the absence of manifest error. Notwithstanding
the foregoing, if Preferred Shares represented by a certificate are converted as
aforesaid, the holder may not transfer the certificate representing the
Preferred Shares unless the holder first physically surrenders the certificate
representing the Preferred Shares to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the holder a new certificate of
like tenor, registered as the holder may request, representing in the aggregate
the remaining number of Preferred Shares represented by such certificate. The
holder and any assignee, by acceptance of a certificate, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion of any
Preferred Shares, the number of Preferred Shares represented by such certificate
may be less than the number of Preferred Shares stated of the face thereof. Each
certificate for Preferred Shares shall bear the following legend:
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE
TERMS OF THE COMPANY'S CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE PREFERRED SHARES REPRESENTED BY
THIS CERTIFICATE, INCLUDING SECTION 2(f)(vii) THEREOF. THE
NUMBER OF PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE MAY
BE LESS THAN THE NUMBER OF PREFERRED SHARES STATED ON THE FACE
HEREOF PURSUANT TO SECTION 2(f)(vii) OF THE CERTIFICATE OF
DESIGNATIONS, PREFERENCES AND RIGHTS.
(g) Mandatory Conversion. If any Preferred
Shares remain outstanding on the Maturity Date (as defined below), then all such
Preferred Shares shall be converted as of such date in accordance with this
Section 2 as if the holders of such Preferred Shares had given the Conversion
Notice on the Maturity Date; provided, however, that if a Triggering Event has
occurred and is continuing on the Maturity Date, then the Company shall, within
five Business Days following the Maturity Date (unless otherwise notified in
writing by the holder of such holder's request to have the Preferred Shares
converted into Common Stock), pay to each holder of Preferred Shares then
outstanding, in immediately available funds, an amount equal to the Triggering
Event Redemption Price. All holders of Preferred Shares shall, on the Maturity
Date, surrender all Preferred Stock Certificates, duly endorsed for
cancellation, to the Company, provided that the Company has complied with its
obligations under this Section 2(g) and 2(f). Notwithstanding the foregoing, if
-15-
<PAGE>
the Common Stock is not designated for quotation on The Nasdaq National Market
or listed on The New York Stock Exchange, Inc. but such events do not constitute
a Triggering Event, then the Maturity Date shall be extended until the Common
Stock is so designated or listed. "Maturity Date" means the date which is five
years after the applicable Issuance Date unless extended (i) as described in the
immediately preceding sentence, (ii) pursuant to Section 3(v) of the
Registration Rights Agreement, which extension shall equal two (2) days for each
day of any Grace Period (as defined in the Registration Rights Agreement) or
(iii) pursuant to Section 4(n) of the Securities Purchase Agreement, which
extension shall equal two (2) days for each day of any Underwriting Back-Up
Period (as defined in the Securities Purchase Agreement).
(h) Fractional Shares. The Company shall not
issue any fraction of a share of Common Stock upon any conversion. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one Preferred Share by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a fraction of
a share of Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock up or down to the
nearest whole share.
(i) Taxes. The Company shall pay any and all
taxes which may be imposed upon it with respect to the issuance and delivery of
shares of Common Stock upon the conversion of the Preferred Shares.
(j) Conversion Restrictions. The right of a
holder of Preferred Shares to convert Preferred Shares pursuant to this Section
2 shall be limited as set forth below. Without the prior consent of the Company,
a holder of Preferred Shares shall not be entitled to (i) convert any Preferred
Shares during the period beginning on and including the Initial Issuance Date
and ending on and including the Fixed Conversion Price Trigger Date and (ii)
with respect to the Preferred Shares issued on the Initial Issuance Date (a) if
the Initial Fixed Price of such Preferred Shares is greater than or equal to
$4.00 (subject to adjustment for any stock split, stock dividend,
recapitalization or other equitable adjustment), convert more than 25% of such
Preferred Shares issued to such holder, during any calendar month (starting with
the first calendar month which ends after the Fixed Conversion Price Trigger
Date), at a Conversion Price less than 90% of such Initial Fixed Price or (b) if
the Initial Fixed Price of such Preferred Shares is less than $4.00 (subject to
adjustment for any stock split, stock dividend, recapitalization or other
equitable adjustment), convert more than 33% of such Preferred Shares issued to
such holder, during any calendar month (starting with the first calendar month
which ends after the Fixed Conversion Price Trigger Date), at a Conversion Price
less than 90% of such Initial Fixed Price or (iii) if the Initial Fixed Price is
equal to or greater than $4.00, then the holders of the Preferred Shares shall
not convert the Preferred Shares at a Conversion Price which is less than 50% of
the Initial Fixed Price unless the Closing Bid Price for any twenty (20)
consecutive day period is less than 50% of the Initial Fixed Price; provided the
number of Preferred Shares permitted to be converted each calendar month
pursuant to (i) and (ii) above shall be cumulative in that any shares permitted
to be converted in any calendar month and not so converted shall be carried over
into successive calendar months until so converted. Notwithstanding the
foregoing, the conversion restrictions set forth in this Section 2(j) shall not
apply (A) on and after any date on which the Common Stock is not listed on The
Nasdaq National Market or The New York Stock Exchange, Inc. or has been
-16-
<PAGE>
suspended from trading (excluding suspensions of not more than one day resulting
from business announcements), or any such delisting or suspension is threatened
or pending (including, without limitation, the Company is not in compliance with
published listing requirements), (B) on or after any date on which there shall
have occurred an event constituting a Major Transaction (as defined in Section
3(c)), Triggering Event (as defined in Section 3(d)) or a Material Adverse
Change (as defined below), (C) on or after any date on which there shall have
been an announcement of a pending Major Transaction, (D) on or after any date on
which the Company issues or sells or is deemed to have issued or sold (I)
securities which result in a reduction of any Initial Fixed Price pursuant to
Section 2(d)(i) or (II) Convertible Securities that are convertible into or
exercisable or exchangeable for Common Stock at a Variable Price, or (E) on or
after the date the Company delivers a Lock-Up Request Notice (as defined in the
Securities Purchase Agreement), a Notice of Conversion at Company's Election (as
defined in Section 5) or a Notice of Redemption at Company's Election (as
defined in Section 7). "Material Adverse Change" means any change, event, result
or happening not in the normal course of the Company's business or operations
involving, directly or indirectly, the Company or any of its subsidiaries
resulting in a material adverse effect on the business, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole.
(k) Adjustment of Conversion Restrictions
upon Issuance of Convertible Securities. Except as provided below, if the
Company in any manner issues or sells Convertible Securities that are
convertible into Common Stock (other than Excluded Securities or any Convertible
Securities issued in an offering with respect to which the holders of the
Preferred Shares purchased Convertible Securities pursuant to their right to
participate in such offering pursuant to Section 4(g) of the Securities Purchase
Agreement) and are subject to (i) restrictions on the amount of shares that can
be converted, or (ii) no restrictions on the amount of shares that can be
converted (the restriction on conversions or lack thereof being herein referred
to as the "Conversion Restriction"), and such Conversion Restriction is not
formulated using the same time periods and percentages used in Section 2(j),
then the Company shall provide written notice thereof via facsimile and
overnight courier to each holder of the Preferred Shares ("Conversion
Restriction Notice") on the date of issuance of such Convertible Securities. If
the holders of Preferred Shares representing at least two-thirds of the
Preferred Shares then outstanding which remain subject to the restrictions in
Section 2(j) provide written notice via facsimile and overnight courier (the
"Conversion Restriction Election Notice") to the Company within five (5)
Business Days of receiving a Conversion Restriction Notice that such holders
desire to replace the conversion restrictions set forth in Section 2(j) then in
effect with the Conversion Restriction described in such Conversion Restriction
Notice, then from and after the date of the Company's receipt of the Conversion
Restriction Election Notice the conversion restrictions set forth in Section
2(j) automatically will be replaced with the Conversion Restrictions (together
with such modifications to this Certificate of Designations as may be required
to give full effect to the substitution of the Conversion Restrictions for the
conversion restrictions set forth in Section 2(j)).
(3) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction.
In addition to all other rights of the holders of Preferred Shares contained
herein, simultaneous with or after the occurrence of a Major Transaction (as
-17-
<PAGE>
defined below), each holder of Preferred Shares shall have the right, at such
holder's option, to require the Company to redeem all or a portion of such
holder's Preferred Shares at a price per Preferred Share equal to the greater of
(i) 125% of the Liquidation Value (as defined in Section 11); and (ii) the
product of (A) the Conversion Rate at such time, and (B) the Closing Bid Price
on the date of the public announcement of such Major Transaction or the next
date on which the exchange or market on which the Common Stock is traded is open
if such public announcement is made (X) after 12:00 p.m. Eastern Time, on such
date or (Y) on a date on which the exchange or market on which the Common Stock
is traded is closed (the "Major Transaction Redemption Price").
(b) Redemption Option Upon Triggering Event.
In addition to all other rights of the holders of Preferred Shares contained
herein, simultaneous with or after the occurrence of a Triggering Event (as
defined below), each holder of Preferred Shares shall have the right, at such
holder's option, to require the Company to redeem all or a portion of such
holder's Preferred Shares at a price per Preferred Share equal to the greater of
(i) 125% of the Liquidation Value; and (ii) the product of (A) the Conversion
Rate at such time, and (B) the greater of (I) the Closing Bid Price on the
trading day immediately preceding such Triggering Event or (II) the Closing Bid
Price on the date of the holder's delivery to the Company of a Notice of
Redemption at Option of Buyer Upon Triggering Event (as defined below) or, if
such date of delivery is not a trading day, the next date on which the exchange
or market on which the Common Stock is traded is open (the "Triggering Event
Redemption Price" and, collectively with the Major Transaction Redemption Price,
the "Redemption Price").
(c) "Major Transaction". Subject to the Excluded
Redemption Events (as defined below) pursuant to Section 3(h), a "Major
Transaction" shall be deemed to have occurred at such time as any of the
following events:
(i) the consolidation, merger or other
business combination of the Company with or into another Person (other than (A)
a consolidation, merger or other business combination in which holders of the
Company's voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (B) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company) (a "Change of
Control Transaction");
(ii) the sale or transfer of all or
substantially all of the Company's assets; or
(iii) a purchase, tender or exchange
offer made to and accepted by the holders of more than the Trigger Percentage
of the outstanding shares of Common Stock.
(d) "Triggering Event". Subject to the
Excluded Redemption Events pursuant to Section 3(h), a "Triggering Event" shall
be deemed to have occurred at such time as any of the following events:
-18-
<PAGE>
(i) the failure of the Registration
Statement (as defined in the Registration Rights Agreement) to be declared
effective by the SEC on or prior to the date that is 150 days after the Initial
Issuance Date;
(ii) while the Registration Statement
is required to be maintained effective pursuant to the terms of the Registration
Rights Agreement, except for any Allowable Grace Period (as defined in the
Registration Rights Agreement), the effectiveness of the Registration Statement
lapses for any reason (including, without limitation, the issuance of a stop
order) or is unavailable to the holder of the Preferred Shares for sale of the
Registrable Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and such lapse
or unavailability continues for a period of ten consecutive trading days;
(iii) suspension from listing or delisting
of the Common Stock from The Nasdaq National Market or The New York Stock
Exchange, Inc. for a period of five consecutive days;
(iv) the Company's notice to any holder
of Preferred Shares, including by way of public announcement, at any time, of
its intention not to comply with proper requests for conversion of any Preferred
Shares into shares of Common Stock, including due to any of the reasons set
forth in Section 4(a) below;
(v) the Company shall have failed to
make any Excluded Redemption Event Daily Payment (as defined below) in a timely
manner in accordance with Section 3(i) or the Company shall have failed to give
an Excluded Redemption Option Election Notice (as defined below) within one (1)
day of receipt of the Holders' Excluded Redemption Event Notice (as defined
below); or
(vi) the Company breaches any
representation, warranty, covenant or other term or condition of the Securities
Purchase Agreement, the Registration Rights Agreement, this Certificate of
Designations or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated thereby or hereby,
except to the extent that such breach would not have a Material Adverse Effect
(as defined in Section 3(a) of the Securities Purchase Agreement) and except, in
the case of a breach of a covenant which is curable, only if such breach
continues for a period of at least ten days.
(e) Mechanics of Redemption at Option of Buyer
Upon Major Transaction. No sooner than 15 days nor later than 10 days prior to
the consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written notice
thereof via facsimile and overnight courier (a "Notice of Major Transaction") to
each holder of Preferred Shares. At any time during the period beginning after
receipt of a Notice of Major Transaction (or, in the event a Notice of Major
Transaction is not delivered at least 10 days prior to a Major Transaction, at
any time on or after the date which is 10 days prior to a Major Transaction) and
ending on the date of such Major Transaction, any holder of the Preferred Shares
then outstanding may require the Company to redeem all or a portion of the
-19-
<PAGE>
holder's Preferred Shares then outstanding by delivering written notice thereof
via facsimile and overnight courier (a "Notice of Redemption at Option of Buyer
Upon Major Transaction") to the Company, which Notice of Redemption at Option of
Buyer Upon Major Transaction shall indicate (i) the number of Preferred Shares
that such holder is submitting for redemption, and (ii) the applicable Major
Transaction Redemption Price, as calculated pursuant to Section 3(a).
(f) Mechanics of Redemption at Option of Buyer
Upon Triggering Event. Within one (1) day after the occurrence of a Triggering
Event, the Company shall deliver written notice thereof via facsimile and
overnight courier (a "Notice of Triggering Event") to each holder of Preferred
Shares. At any time during the period beginning after the earlier of a holder's
receipt of a Notice of Triggering Event and such holder becoming aware of a
Triggering Event and ending on the date which is thirty (30) days after a
holder's receipt of a Notice of Triggering Event, any holder of Preferred Shares
then outstanding may require the Company to redeem all or a portion of the
holder's Preferred Shares then outstanding by delivering written notice thereof
via facsimile and overnight courier (a "Notice of Redemption at Option of Buyer
Upon Triggering Event") to the Company, which Notice of Redemption at Option of
Buyer Upon Triggering Event shall indicate (i) the number of Preferred Shares
that such holder is submitting for redemption, and (ii) the applicable
Triggering Event Redemption Price, as calculated pursuant to Section 3(b).
(g) Payment of Redemption Price. Upon the
Company's receipt of a Notice(s) of Redemption at Option of Buyer Upon
Triggering Event or a Notice(s) of Redemption at Option of Buyer Upon Major
Transaction from any holder of Preferred Shares, the Company shall promptly, but
in no event later than one (1) day following such receipt, notify each holder of
Preferred Shares by facsimile of the Company's receipt of such Notice(s) of
Redemption at Option of Buyer Upon Triggering Event or Notice(s) of Redemption
at Option of Buyer Upon Major Transaction and each holder which has sent such a
notice shall promptly submit, if required by Section(2)(f)(vii), to the Company
or its Transfer Agent such holder's Preferred Stock Certificates which such
holder has elected to have redeemed. The Company shall deliver the applicable
Triggering Event Redemption Price, in the case of a redemption pursuant to
Section 3(f), to such holder within five (5) Business Days after the Company's
receipt of a Notice of Redemption at Option of Buyer Upon Triggering Event and,
in the case of a redemption pursuant to Section 3(e), the Company shall deliver
the applicable Major Transaction Redemption Price simultaneous with the
consummation of the Major Transaction; provided that, if required by Section
2(f)(vii), a holder's Preferred Stock Certificates shall have been so delivered
to the Company; provided further that if the Company is unable to redeem all of
the Preferred Shares to be redeemed, the Company shall redeem an amount from
each holder of Preferred Shares being redeemed equal to such holder's pro-rata
amount (based on the number of Preferred Shares held by such holder relative to
the number of Preferred Shares outstanding) of all Preferred Shares being
redeemed. If the Company shall fail to redeem all of the Preferred Shares
submitted for redemption (other than pursuant to a dispute as to the arithmetic
calculation of the Redemption Price), in addition to any remedy such holder of
Preferred Shares may have under this Certificate of Designation, the Securities
Purchase Agreement and the Registration Rights Agreement, the applicable
Redemption Price payable in respect of such unredeemed Preferred Shares shall
bear interest at the rate of 1.5% per month (prorated for partial months) until
-20-
<PAGE>
paid in full. Until the Company pays such unpaid applicable Redemption Price in
full to a holder of Preferred Shares submitted for redemption, such holder shall
have the option (the "Void Optional Redemption Option") to, in lieu of
redemption, require the Company to promptly return to such holder(s) all of the
Preferred Shares that were submitted for redemption by such holder(s) under this
Section 3 and for which the applicable Redemption Price has not been paid, by
sending written notice thereof to the Company via facsimile (the "Void Optional
Redemption Notice"). Upon the Company's receipt of such Void Optional Redemption
Notice(s) prior to payment of the full applicable Redemption Price to such
holder, (i) the Notice(s) of Redemption at Option of Buyer Upon Triggering Event
or the Notice(s) of Redemption at Option of Buyer Upon Major Transaction, as the
case may be, shall be null and void with respect to those Preferred Shares
submitted for redemption and for which the applicable Redemption Price has not
been paid, (ii) the Company shall promptly, but in no event later than one (1)
day following such receipt, return any Preferred Shares submitted to the Company
by each holder for redemption under this Section 3(g) and for which the
applicable Redemption Price has not been paid and (iii) the Initial Fixed Price
of such returned Preferred Shares shall be adjusted to the lesser of (A) the
Initial Fixed Price as in effect on the date on which the Void Optional
Redemption Notice(s) is delivered to the Company and (B) the lowest Closing Bid
Price during the period beginning on the date on which the Notice(s) of
Redemption of Option of Buyer Upon Major Transaction or the Notice(s) of
Redemption at Option of Buyer Upon Triggering event, as the case may be, is
delivered to the Company and ending on the date on which the Void Optional
Redemption Notice(s) is delivered to the Company; provided that no adjustment
shall be made if such adjustment would result in an increase of the Initial
Fixed Price then in effect. Notwithstanding the foregoing, in the event of a
dispute as to the determination of the Closing Bid Price or the arithmetic
calculation of the Redemption Price, such dispute shall be resolved pursuant to
Section 2(f)(iii) above with the term "Redemption Price" being substituted for
the term "Conversion Rate". A holder's delivery of a Void Optional Redemption
Notice and exercise of its rights following such notice shall not effect the
Company's obligations to make any payments which have accrued prior to the date
of such notice. Payments provided for in this Section 3 shall have priority to
payments to other stockholders in connection with a Major Transaction.
(h) Events Excluded from Redemption Provisions.
Notwithstanding anything to the contrary set forth in Section 3, Section 4(a)(I)
or Section 4(a)(II), the following events shall be excluded from the definitions
of Major Transaction and Triggering Event (individually, an "Excluded Redemption
Event" and, collectively, the "Excluded Redemption Events"):
(i) the failure of the Registration
Statement to be declared effective by the SEC on or prior to the date that is
150 days after the Initial Issuance Date, provided that the Company has used its
best efforts to have such Registration Statement declared effective by the SEC;
(ii) while the Registration Statement
is required to be maintained effective pursuant to the terms of the Registration
Rights Agreement, except for any Allowable Grace Period, the effectiveness of
the Registration Statement lapses for any reason (including, without limitation,
-21-
<PAGE>
the issuance of a stop order) or is unavailable to the holder of the Preferred
Shares for sale of the Registrable Securities in accordance with the terms of
the Registration Rights Agreement, and such lapse or unavailability continues
for a period of ten consecutive trading days, provided that the Company has used
its best efforts to maintain the effectiveness of such Registration Statement
and has not taken voluntary action or voluntarily failed to take any action
which has directly or indirectly caused the Registration Statement to lapse or
become unavailable for the sale of all the Registrable Securities pursuant to
the terms of the Registration Rights Agreement;
(iii) suspension from listing or delisting
of the Common Stock from The Nasdaq National Market or The New York Stock
Exchange, Inc. for a period of five or more consecutive days, provided that the
Company (A) has used its best efforts to maintain the listing of the Common
Stock on such exchange and has not taken any voluntary action or has voluntarily
failed to take any action which has resulted in the delisting of the Common
Stock or the suspension of the Common Stock from trading or (B) has voluntarily
delisted or suspended trading of the Common Stock because either (I) the holders
of the Preferred Shares have exercised their rights under Section 4(e) to have
the Common Stock delisted or (II) the Company is not permitted to issue shares
of Common Stock to a holder of Preferred Shares upon conversion of such
Preferred Shares due to the Exchange Cap and the Company delists the Common
Stock so that the Exchange Cap limitations no longer apply; and
(iv) a purchase, tender or exchange offer
made to and accepted by the holders of more than the Trigger Percentage of the
outstanding shares of Common Stock which is not approved or recommended by the
Company's Board of Directors or a proxy or consent solicitation (other than by
or on behalf of the Company) which results in a Change of Control Transaction
where such proxy or consent solicitation is not approved or recommended by the
Company's Board of Directors.
As soon as practicable but in no event later than one (1) day after the
occurrence of an Excluded Redemption Event, the Company shall deliver written
notice thereof via facsimile and overnight courier (a "Company's Excluded
Redemption Event Notice") to each holder of Preferred Shares. At any time during
the period beginning after the earlier of the holders' receipt of a Company's
Excluded Redemption Event Notice and such holders becoming aware of an Excluded
Redemption Event and ending on the date which is thirty (30) days after the
holders' receipt of a Company's Excluded Redemption Event Notice, the holders of
at least two-thirds of the Preferred Shares then outstanding may require the
Company to satisfy its obligations under Section 3(i) by delivering written
notice thereof via facsimile and overnight courier (a "Holders' Excluded
Redemption Event Notice") to the Company. The Company shall within one (1) day
of its receipt of the Holders' Excluded Redemption Event Notice provide each
holder with written notice via facsimile and overnight courier (a "Excluded
Redemption Option Election Notice") which notice shall specify the option which
the Company has elected to exercise pursuant to and in accordance with Section
3(i).
(i) Rights of the Holders of the Preferred
Shares upon the Occurrence of an Excluded Redemption Event. In addition to any
-22-
<PAGE>
other remedies the holders of the Preferred Shares may have at law or in equity,
if an Excluded Redemption Event occurs and the holders of the Preferred Shares
have provided the Company with a Holders' Excluded Redemption Event Notice, then
the Company, at its option, shall either (A) pay to each holder of Preferred
Shares the Trigger Event Redemption Price for each outstanding share of
Preferred Stock held by such holder pursuant to and in accordance with Section
3(g) or (B) if:
(i) the Excluded Redemption Event is
pursuant to Section 3(h)(i), then (I) beginning on and including the first day
following the receipt by the Company of a Holders' Excluded Redemption Event
Notice, the Company shall pay to each holder of Preferred Shares an Excluded
Redemption Event Daily Payment (as defined below) on each day that such Excluded
Redemption Event continues, provided, however, that the Company shall not be
obligated to make an Excluded Redemption Event Daily Payment for more than 15
days in any 365 day period and (II) immediately upon the occurrence of such an
Excluded Redemption Event (and from time to time as applicable), the Initial
Fixed Price of the Preferred Shares shall be adjusted to equal the lesser of (y)
the Initial Fixed Price in effect for such Preferred Shares on the date which is
150 days after the Initial Issuance Date or (z) the product of ((alpha)) the
Payment Limitation Reduction Percentage (as defined below) multiplied by
((beta)) .80 multiplied by ((gamma)) the lowest Variable Conversion Price during
the period beginning on and including the date which is 150 days after the
Initial Issuance Date and ending on and including the date the Registration
Statement is declared effective by the SEC;
(ii) the Excluded Redemption Event is
pursuant to Section 3(h)(ii), then (I) beginning on and including the first day
following the receipt by the Company of a Holders' Excluded Redemption Event
Notice, the Company shall pay to each holder of Preferred Shares an Excluded
Redemption Event Daily Payment on each day that such Excluded Redemption Event
continues, provided, however, that the Company shall not be obligated to make an
Excluded Redemption Event Daily Payment for more than 15 days in any 365 day
period and (II) immediately upon the occurrence of such an Excluded Redemption
Event (and from time to time as applicable), the Initial Fixed Price of the
Preferred Shares shall be adjusted to equal the lesser of (y) the Initial Fixed
Price in effect for such Preferred Shares on the date of the initial occurrence
of the Excluded Redemption Event (the "Occurrence Date") or (z) the product of
((alpha)) the Payment Limitation Reduction Percentage multiplied by ((beta)) .80
multiplied by ((gamma)) the lowest Variable Conversion Price during the period
beginning on and including the Occurrence Date and ending on and including the
date that the Company cures such Excluded Redemption Event;
(iii) the Excluded Redemption Event is
pursuant to Section 3(h)(iii), then beginning on and including the first day
following the receipt by the Company of a Holders' Excluded Redemption Event
Notice, the Company shall pay to each holder of Preferred Shares an Excluded
Redemption Event Daily Payment on each day that such Excluded Redemption Event
continues, provided, however, that the Company shall not be obligated to make an
Excluded Redemption Event Daily Payment for more than 15 days in any 365 day
period, and further provided, the Company may elect, in lieu of the forgoing, by
providing each holder of Preferred Shares with written notice of its election
pursuant to this Section 3(i)(iii) via facsimile on the Occurrence Date to
adjust the Initial Fixed Price of the Preferred Shares, effective immediately
upon the occurrence of such Excluded Redemption Event (and from time to time as
applicable), to equal the product of (y) .80 multiplied by (z) 85% of the lesser
-23-
<PAGE>
of (A) the Initial Fixed Price of the Preferred Shares as in effect on the
Occurrence Date and (B) the lowest Variable Conversion Price during the period
beginning on and including the Occurrence Date and ending on the 45th trading
day following the Occurrence Date (provided that such 45 trading day period will
be extended by one trading day for each day on which there is no closing sales
price or closing trade price reported by Bloomberg or no bid prices of any
market makers reported by the National Quotation Bureau, Inc. in the "pink
sheets" for the Company's securities);
(iv) the Excluded Redemption Event is
pursuant to Section 3(h)(iv), then (I) then beginning on and including the first
day following the receipt by the Company of a Holders' Excluded Redemption Event
Notice, the Company shall pay to each holder of Preferred Shares an Excluded
Redemption Event Daily Payment on each day that such Excluded Redemption Event
continues, provided, however, that the Company shall not be obligated to make an
Excluded Redemption Event Daily Payment for more than 10 days in any 365 day
period and (II) immediately upon the occurrence of such an Excluded Redemption
Event (and from time to time as applicable), the Initial Fixed Price of the
Preferred Shares shall be adjusted to equal the lesser of (y) the Initial Fixed
Price in effect for such Preferred Shares on the Occurrence Date or (z) the
product of ((alpha)) the Payment Limitation Reduction Percentage multiplied by
((beta)) .80 multiplied by ((gamma)) the lowest Variable Conversion Price during
the period beginning on and including the date on which the purchase, tender or
exchange offer or a proxy or consent solicitation (referred to in Section
3(h)(vi)) was first publically announced and ending on and including the date
such purchase, tender or exchange offer or proxy or consent solicitation was
publicly announced as being consummated, abandoned or terminated.
"Excluded Redemption Event Daily Payment" shall mean the payment to each holder
of Preferred Shares, by the Company, of an amount in cash per Preferred Share
equal to one percent (1%) of the Liquidation Value. "Payment Limitation
Reduction Percentage" shall mean (I) 85%, with respect to any Excluded
Redemption Event other than the first Excluded Redemption Event to occur during
any 365 day period, provided that the Company shall have made an Excluded
Redemption Event Daily Payment on at least 15 days in such 365 day period or
(II) 100%, otherwise.
-24-
<PAGE>
(4) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully
Convert. If, upon the Company's receipt of a Conversion Notice or on the
Maturity Date, the Company can not issue shares of Common Stock registered for
resale under the Registration Statement for any reason, including, without
limitation, because the Company (I) does not have a sufficient number of shares
of Common Stock authorized and available, (II) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Company or its Securities, including without limitation the Exchange Cap (as
defined in Section 14 below), from issuing all of the Common Stock which is to
be issued to a holder of Preferred Shares pursuant to a Conversion Notice or
(III) fails to have a sufficient number of shares of Common Stock registered for
resale under the Registration Statement, then the Company shall issue as many
shares of Common Stock as it is able to issue in accordance with such holder's
Conversion Notice and pursuant to Section 2(f) and, with respect to the
unconverted Preferred Shares, the holder, solely at such holder's option, can
elect to:
(i) require the Company to redeem from
such holder those Preferred Shares for which the Company is unable to issue
Common Stock in accordance with such holder's Conversion Notice ("Mandatory
Redemption") at a price per Preferred Share (the "Mandatory Redemption Price")
equal to the product of (A) the Conversion Rate and (B) the Closing Bid Price as
of such Conversion Date;
(ii) if the Company's inability to fully
convert Preferred Shares is pursuant to Section 4(a)(III), require the Company
to issue restricted shares of Common Stock in accordance with such holder's
Conversion Notice and pursuant to Section 2(f);
(iii) void its Conversion Notice and retain
or have returned, as the case may be, the nonconverted Preferred Shares that
were to be converted pursuant to such holder's Conversion Notice (provided that
a holder's voiding its Conversion Notice shall not effect the Company's
obligations to make any payments which have accrued prior to the date of such
notice); or
(iv) if the Company's inability to fully
convert Preferred Shares is pursuant to the Exchange Cap described in Section
4(a)(II), require the Company to issue shares of Common Stock in accordance with
such holder's Conversion Notice and pursuant to Section 2(f) at a Conversion
Price equal to the average of Closing Bid Prices of the Common Stock for the
five consecutive trading days preceding such holder's Notice in Response to
Inability to Convert (as defined below) or such other market price that
satisfies the applicable exchange or trading market.
(b) Mechanics of Fulfilling Holder's Election.
Upon receipt of a facsimile copy of a Conversion Notice from such holder which
cannot be fully satisfied as described in Section 4(a), the Company shall
promptly but in no event later than one (1) day following such receipt send via
-25-
<PAGE>
facsimile to a holder of Preferred Shares, a notice of the Company's inability
to fully satisfy such holder's Conversion Notice (the "Inability to Fully
Convert Notice"). Such Inability to Fully Convert Notice shall indicate (i) the
reason why the Company is unable to fully satisfy such holder's Conversion
Notice, (ii) the number of Preferred Shares which cannot be converted and (iii)
the applicable Mandatory Redemption Price. Such holder shall notify the Company
of its election pursuant to Section 4(a) above by delivering written notice via
facsimile to the Company ("Notice in Response to Inability to Convert") by the
later of (A) the date which is 30 days after such holder's receipt of the
Inability to Fully Convert Notice and (B) the second (2nd) Business Day
following the date on which the Company provides such holder written notice it
has cured its inability to fully convert.
(c) Payment of Redemption Price. If such holder
shall elect to have its shares redeemed pursuant to Section 4(a)(i), the Company
shall pay the Mandatory Redemption Price in cash to such holder within ten days
of the Company's receipt of the holder's Notice in Response to Inability to
Convert. If the Company shall fail to pay the applicable Mandatory Redemption
Price to such holder on a timely basis as described in this Section 4(c) (other
than pursuant to a dispute as to the determination of the arithmetic calculation
of the Redemption Price), in addition to any remedy such holder of Preferred
Shares may have under this Certificate of Designations, the Securities Purchase
Agreement and the Registration Rights Agreement, such unpaid amount shall bear
interest at the rate of 1.5% per month (prorated for partial months) until paid
in full. Until the full Mandatory Redemption Price is paid in full to such
holder, such holder may void the Mandatory Redemption with respect to those
Preferred Shares for which the full Mandatory Redemption Price has not been paid
and (i) receive back such Preferred Shares and (ii) the Initial Fixed Price of
such returned Preferred Shares shall be adjusted to the lesser of (A) the
Initial Fixed Price in effect on the date on which the holder voided the
Mandatory Redemption and (B) the lowest Closing Bid Price during the Period
beginning on the Conversion Date and ending on the date the holder voided the
Mandatory Redemption. Notwithstanding the foregoing, if the Company fails to pay
the applicable Mandatory Redemption Price within such ten-day period due to a
dispute as to the determination of the arithmetic calculation of the Redemption
Price, such dispute shall be resolved pursuant to Section 2(f)(iii) with the
term "Redemption Price" being substituted for the term "Conversion Rate".
(d) Pro-rata Conversion and Redemption. In the
event the Company receives a Conversion Notice, Notice of Redemption at Option
of Buyer Upon Major Transaction or Notice of Redemption at Option of Buyer Upon
Triggering Event from more than one holder of Preferred Shares on the same day
and the Company can convert and/or redeem some, but not all, of the Preferred
Shares pursuant to this Section 4, the Company shall convert and redeem from
each holder of Preferred Shares electing to have Preferred Shares converted and
redeemed at such time an amount equal to such holder's pro-rata amount (based on
the number of Preferred Shares held by such holder relative to the number of
Preferred Shares outstanding) of all Preferred Shares being converted and
redeemed at such time.
(e) Forced Delisting. If the Company's inability
to fully convert Preferred Shares is pursuant to the Exchange Cap and the
stockholders have not voted to approve issuances in excess of the Exchange Cap,
and if so directed by the holders of at least two-thirds of the Preferred Shares
then outstanding, the Company shall promptly, but in no event later than three
(3) Business Days after receiving such directions, delist the Common Stock from
-26-
<PAGE>
the exchange or automated quotation system on which the Common Stock is traded
and have the Common Stock, at such holders' option, traded on the electronic
bulletin board or the "pink sheets."
(5) Conversion at the Company's Election. During the three (3)
Business Days (a "Conversion Election Period") which immediately follow at least
twenty (20) consecutive trading days during which the Closing Bid Price of the
Common Stock on each trading day during such twenty (20) consecutive trading
days is not less than 200% of the Trigger Price, the Company shall have the
right, in its sole discretion, to require that any or all of such outstanding
Preferred Shares be converted ("Conversion at Company's Election") at the
Conversion Rate; provided that the Conditions to Conversion at the Company's
Election (as set forth below) are satisfied. The Company shall exercise its
right to Conversion at Company's Election by providing each holder of Preferred
Shares written notice ("Notice of Conversion at Company's Election") during a
Conversion Election Period and at least 15 trading days prior to the date
selected by the Company for conversion ("Company's Election Conversion Date").
If the Company elects to require conversion of some, but not all, of such
Preferred Shares, the Company shall convert an amount from each holder of
Preferred Shares equal to such holder's pro rata amount (based on the number of
such Preferred Shares held by such holder relative to the number of such
Preferred Shares outstanding on date of the Company's delivery of the Notice of
Conversion at Company's Election) of all Preferred Shares the Company is
requiring to be converted. The Notice of Conversion at Company's Election shall
indicate (x) the number of Preferred Shares the Company has selected for
conversion, (y) the Company's Election Conversion Date, which date shall be not
less than 15 or more than 30 trading days after each holder's receipt of such
notice, and (z) each holder's pro rata share of outstanding Preferred Shares the
Company is requiring to be converted. All Preferred Shares selected for
conversion in accordance with the provision of this Section 5 shall be converted
as of the Company's Election Conversion Date in accordance with Section 2 as if
the holders of such Preferred Shares selected by the Company to be converted had
given the Conversion Notice on the Company's Election Conversion Date. If
required by Section 2(f)(vii), all holders of Preferred Shares shall thereupon
and within two Business Days after the Company's Election Conversion Date
surrender all Preferred Stock Certificates selected for conversion, duly
endorsed for cancellation, to the Company. "Conditions to Conversion at the
Company's Election" means the following conditions: (i) on each day during the
period beginning 30 days prior to the date of the Company's Notice of Conversion
at Company's Election and ending on and including the Company's Election
Conversion Date, the Registration Statement shall be effective and available for
the sale of no less than 125% of the sum of (A) the number of Conversion Shares
then issuable upon the conversion of all outstanding Preferred Shares (without
regard to any limitations on conversion herein or elsewhere), including the
Conversion Shares to be issued pursuant to this Conversion at the Company's
Election, and (B) the number of Conversion Shares that are then held by the
holders of the Preferred Shares; (ii) on each day during the period beginning 30
days prior to the date of the Company's Notice of Conversion at Company's
Election and ending on and including the Company's Election Conversion Date, the
Common Stock is designated for quotation on The Nasdaq National Market or listed
on The New York Stock Exchange, Inc. and is not suspended from trading
(excluding suspensions of not more than one day resulting from business
announcements); (iii) on each day during the 20 consecutive trading days
immediately preceding the date of the receipt by the holders of Preferred Shares
of the Notice of Conversion at Company's Election, the Closing Bid Price of the
-27-
<PAGE>
Common Stock is at least 200% of the Trigger Price; (iv) on each day during the
period beginning on and including the date of the receipt by the holders of
Preferred Shares of the Notice of Conversion at Company's Election and ending on
and including the Company's Election Conversion Date, the Closing Bid Price of
the Common Stock is at least 200% of the Trigger Price; (v) during the period
beginning on the Initial Issuance Date and ending on and including the Company's
Election Conversion Date, the Company shall have delivered all Conversion Shares
upon conversion of the Preferred Shares to the holders of Preferred Shares on a
timely basis as set forth in Section 2(f)(ii) of this Certificate of
Designations; provided, however, that for purposes of this Section 5 only, the
Company shall be deemed to have satisfied the condition set forth in this clause
(v) if on not more than two occasions the Company failed to meet the
requirements of Section 2(g)(ii) by no more than three days; (vi) neither a
Triggering Event nor any event that with the passage of time would constitute a
Triggering Event (assuming it was not cured) shall have occurred; (vii) the
Company shall not give a Notice of Conversion at Company's Election prior to the
date which is the Fixed Conversion Price Trigger Date; and (viii) the Company
otherwise has satisfied its obligations in all material respects and is not in
default in any material respect under this Certificate of Designations, the
Securities Purchase Agreement and the Registration Rights Agreement.
Notwithstanding the above, any holder of Preferred Shares may convert such
shares (including Preferred Shares selected for conversion) into Common Stock
pursuant to Section 2(a) on or prior to the date immediately preceding the
Company's Election Conversion Date.
(6) Company's Right to Redeem in Lieu of Conversion. Subject to
the terms and conditions of this Section 6 below, at any time after the Initial
Issuance Date, and so long as the Company has provided appropriate notice as
described below, the Company may elect to redeem Preferred Shares submitted for
conversion in lieu of converting such Preferred Shares, provided that the
Conversion Price for such Preferred Shares on the Conversion Date is less than a
price (the "Redemption in Lieu of Conversion Trigger Price") equal to 90% of the
Initial Fixed Price, which relates to such Preferred Shares, (appropriately
adjusted for any stock split, stock dividend, combination or other similar
transaction) (a "Company Redemption in Lieu of Conversion"). If the Company
elects to redeem some, but not all, of the Preferred Shares submitted for
conversion, the Company shall redeem a number of Preferred Shares from each
holder of Preferred Shares submitted for conversion on the applicable date equal
to such holder's pro-rata amount (based on the number of Preferred Shares held
by such holder relative to the number of Preferred Shares outstanding) of all
Preferred Shares submitted for conversion which the Company elects to redeem.
(a) Redemption Price of Company Redemption in
Lieu of Conversion. The "Redemption Price of Company Redemption in Lieu of
Conversion" shall be an amount per Preferred Share equal to 105% of the
Liquidation Value of such Preferred Shares.
(b) Mechanics of Company Redemption in Lieu of
Conversion. The Company shall exercise its right to redeem by delivering written
notice by facsimile and overnight courier ("Notice of Company Redemption in Lieu
of Conversion") to (i) each holder of the Preferred Shares and (ii) the Transfer
Agent. Such Notice of Company Redemption in Lieu of Conversion shall indicate
(A) the maximum, if any, aggregate number of Preferred Shares which the Company
-28-
<PAGE>
will redeem for Company Redemption in Lieu of Conversion and (B) confirm the
time period during which the Company may effect Company Redemption in Lieu of
Conversion, which period shall begin on and include the date which is five
Business Days after the date of receipt by all of the holders' of the Notice of
Redemption in Lieu of Conversion and shall end on the date set forth in the
Notice of Company Redemption in Lieu of Conversion (the "Redemption in Lieu of
Conversion Period"). If the Company elects to limit the number of Preferred
Shares which it will redeem during the Redemption in Lieu of Conversion Period,
the Company shall allocate for redemption from each holder of Preferred Shares a
number of Preferred Shares equal to such holder's pro-rata amount (based on the
number of Preferred Shares held by such holder on the date of the Notice of
Company Redemption in Lieu of Conversion relative to the total number of
Preferred Shares outstanding on such date). The Company may terminate a
Redemption in Lieu of Conversion Period at any time with respect to Preferred
Shares which have not been submitted for conversion by delivering written notice
of such termination to each holder of Preferred Shares by facsimile and
overnight courier at least five Business Days prior to the effective date of
such termination. Notwithstanding anything to the contrary in this Section 6,
the Company shall convert Preferred Shares pursuant to Section 2 if such
Preferred Shares are submitted for conversion (i) before the beginning, or after
the effective date of the termination, of the Redemption in Lieu of Conversion
Period, (ii) for a Conversion Price greater than or equal to the Redemption in
Lieu of Conversion Trigger Price or (iii) are in excess of such holder's pro
rata allocation of the maximum number of Preferred Shares the Company indicated
that it would redeem in its Notice of Company Redemption in Lieu of Conversion.
(c) Payment of Redemption Price. The Company
shall pay the applicable Redemption Price of Company Redemption in Lieu of
Conversion to the holder of the Preferred Shares being redeemed in cash by wire
transfer within five Business Days after the applicable Conversion Date on which
such Preferred Shares are submitted for conversion. If the Company shall fail to
pay the applicable Redemption Price of Company Redemption in Lieu of Conversion
to such holder on a timely basis as described in this Section 6(c), in addition
to any remedy such holder of Preferred Shares may have under this Certificate of
Designations and the Securities Purchase Agreement, such unpaid amount shall
bear interest at the rate of 1.5% per month until paid in full. Until the
Company pays such unpaid applicable Redemption Price of Company Redemption in
Lieu of Conversion full to each holder, each holder of Preferred Shares
submitted for redemption pursuant to this Section 6 and for which the applicable
Redemption Price of Company Redemption in Lieu of Conversion has not been paid,
shall have the option to, in lieu of redemption, (A) to require the Company to
promptly return to each holder all of the Preferred Shares that were submitted
for redemption by such holder under this Section 6 and for which the applicable
Redemption Price of Company Redemption in Lieu of Conversion has not been paid
or (B) to convert those Preferred Shares for which the applicable Redemption
Price of the Company Redemption in Lieu of Conversion has not been paid at a
Conversion Price equal to the lesser of (I) the Conversion Price applicable to
such conversion on the date on which such Preferred Shares were originally
presented for conversion and (II) the Conversion Price which would have been in
effect if such Preferred Shares were presented for conversion on the Business
Day immediately following the last day on which the Company could have effected
a timely Company Redemption in Lieu of Conversion, by sending written notice
thereof to the Company via facsimile (the "Void Company Redemption Notice").
Upon the Company's receipt of such Void Company Redemption Notice(s), requesting
-29-
<PAGE>
the return of the Preferred Shares, prior to payment of the full applicable
redemption price to each holder, (i) the Company's Redemption in Lieu of
Conversion shall be null and void with respect to those Preferred Shares
submitted for redemption and for which the applicable redemption price has not
been paid and with respect to any Preferred Shares submitted in the future for
conversion in the same Redemption in Lieu of Conversion Period, (ii) the Company
shall promptly, but in no event later than one (1) day following such receipt,
return any Preferred Shares submitted to the Company by each holder for
redemption under this Section 6 and for which the applicable Redemption Price of
Company Redemption in Lieu of Conversion has not been paid and (iii) the Fixed
Conversion Price of such returned Preferred Shares shall be adjusted to the
lesser of (I) the Conversion Price applicable to such conversion on the date on
which such Preferred Shares were originally presented for conversion and (II)
the lowest Conversion Price which would have been in effect if such Preferred
Shares were presented for conversion on any Business Day during the period
beginning on the Business Day immediately following the last day on which the
Company could have effected a timely Company Redemption in Lieu of Conversion
and ending on the date of the Company's receipt of the applicable Void Company
Redemption Notice. Notwithstanding the foregoing, if the Company fails to pay
the applicable Redemption Price of Company Redemption in Lieu of Conversion to a
holder within the time period described in this Section 6(d) due to a dispute as
to the arithmetic calculation of the Redemption Price of Company Redemption in
Lieu of Conversion, such dispute shall be resolved pursuant to Section 2(f)(iii)
above with the term "Redemption Price of Company Redemption in Lieu of
Conversion" being substituted for the term "Conversion Rate." If the Company
fails to timely effect a Company Redemption in Lieu of Conversion in accordance
with this Section 6, the Company shall not be allowed to submit another Notice
of Company Redemption in Lieu of Conversion without the prior written consent of
the holders of at least two-thirds of the Preferred Shares then outstanding.
(d) Company Must Have Immediately Available Funds
or Credit Facilities. The Company shall not be entitled to send any Notice of
Company Redemption in Lieu of Conversion pursuant to Section 6(b) above and
begin the redemption procedure under this Section 6, unless it has:
(i) the full amount of the Redemption Price
of Company Redemption in Lieu of Conversion in cash, available in a demand or
other immediately available account in a bank or similar financial institution;
(ii) credit facilities, with a bank or
similar financial institutions that are immediately available and unrestricted
for use in redeeming the Preferred Shares, in the full amount of the Redemption
Price of Company Redemption in Lieu of Conversion;
(iii) a written agreement with a standby
underwriter or qualified buyer ready, willing and able to purchase from the
Company a sufficient number of shares of stock to provide proceeds necessary to
redeem any Preferred Shares that are not converted prior to a Company Redemption
in Lieu of Conversion; or
-30-
<PAGE>
(iv) a combination of the items set forth in
the preceding clauses (i), (ii)
and (iii), aggregating the full amount of the Redemption Price of Company
Redemption in Lieu of Conversion.
(7) Redemption at the Company's Election. At any time or times
on or after the Initial Issuance Date the Company shall have the right, in its
sole discretion, to require that all, but not less than all, of the outstanding
Preferred Shares be redeemed ("Redemption at Company's Election") at a price per
share which would provide a 20% annualized return on the Liquidation Value
("Company's Election Redemption Price"); provided that the Conditions to
Redemption at the Company's Election (as set forth below) are satisfied. The
Company shall exercise its right to Redemption at Company's Election by
providing each holder of Preferred Shares written notice ("Notice of Redemption
at Company's Election") at least 20 trading days prior to the date of
consummation of such redemption ("Company's Election Redemption Date"). The
Notice of Redemption at Company's Election shall indicate the Company's Election
Redemption Date. If the Company has exercised its right of Redemption at
Company's Election and the conditions to such Redemption at Company's Election
have been satisfied, then all Preferred Shares outstanding at the Company's
Election Redemption Date shall be redeemed as of the Company's Election
Redemption Date by payment by the Company to each holder of Preferred Shares of
the Company's Election Redemption Price. If required by Section 2(f)(vii), all
holders of Preferred Shares shall thereupon and within two Business Days after
the Company's Election Redemption Date, or such earlier date as the Company and
each holder of Preferred Shares mutually agree, surrender all outstanding
Preferred Stock Certificates, duly endorsed for cancellation, to the Company. If
the Company fails to pay the full Company's Election Redemption Price with
respect to any Preferred Shares then the Redemption at Company's Election shall
be null and void with respect to such Preferred Shares and the holder of such
Preferred Shares shall be entitled to all the rights of a holder of outstanding
Preferred Shares set forth in this Certificate of Designations. "Conditions to
Redemption at the Company's Election" means the following conditions: (i) during
the period beginning on the Initial Issuance Date and ending on and including
the Company's Election Redemption Date, the Company shall have delivered
Conversion Shares upon conversion of the Preferred Shares to the holders of the
Preferred Shares on a timely basis as set forth in Section 2(f)(ii) of this
Certificate of Designations; provided, however, that for purposes of this
Section 6 only, the Company shall be deemed to have satisfied the condition set
forth in this clause (i) if on not more than two occasions the Company failed to
meet the requirements of Section 2(g)(ii) by no more than three days; (ii) on
each day during the period beginning 30 days prior to the date of Notice of
Redemption at Company's Election and ending on and including the Company's
Election Redemption Date, the Registration Statement shall be effective and
available for the sale of no less than 125% of the sum of (A) the number of
Conversion Shares then issuable upon the conversion of all outstanding Preferred
Shares (without regard to any limitations on conversion herein or elsewhere),
including the Conversion Shares to be issued pursuant to this Redemption at the
Company's Election, and (B) the number of Conversion Shares that are then held
by the holders of the Preferred Shares; (iii) on each day during the period
beginning 30 days prior to the date of Notice of Redemption at Company's
Election and ending on and including the Company's Election Redemption Date, the
Common Stock is designated for quotation on The Nasdaq National Market or listed
on The New York Stock Exchange, Inc. and is not suspended from trading
(excluding suspensions of not more than one day resulting from business
-31-
<PAGE>
announcements); (iv) during the period beginning on the Initial Issuance Date
and ending on and including the Company's Election Redemption Date, there shall
not have occurred either (A) the consummation of a Major Transaction or a public
announcement of a pending Major Transaction which has not been abandoned or
terminated or (B) a Triggering Event; and (v) the Company otherwise has
satisfied its obligations in all material respects and is not in default in any
material respect under this Certificate of Designations, the Securities Purchase
Agreement and the Registration Rights Agreement. Notwithstanding the above, any
holder of Preferred Shares may convert such shares (including Preferred Shares
selected for redemption) into Common Stock pursuant to Section 2(a) on or prior
to the date immediately preceding the Company's Election Redemption Date.
(8) Reissuance of Certificates. Subject to Section 2(f)(vii),
in the event of a conversion or redemption pursuant to this Certificate of
Designations of less than all of the Preferred Shares represented by a
particular Preferred Stock Certificate, the Company shall promptly cause to be
issued and delivered to the holder of such Preferred Shares a preferred stock
certificate representing the remaining Preferred Shares which have not been so
converted or redeemed.
(9) Reservation of Shares. The Company shall, so long as any
of the Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Shares, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Shares then outstanding (without regard to any limitations on
conversions); provided that the number of shares of Common Stock so reserved
shall at no time be less than 200% of the number of shares of Common Stock for
which the Preferred Shares are at any time convertible. The initial number of
shares of Common Stock reserved for conversions of the Preferred Shares and each
increase in the number of shares so reserved shall be allocated pro rata among
the holders of the Preferred Shares based on the number of Preferred Shares held
by each holder at the time of issuance of the Preferred Shares or increase in
the number of reserved shares, as the case may be. In the event a holder shall
sell or otherwise transfer any of such holder's Preferred Shares, each
transferee shall be allocated a pro rata portion of the number of reserved
shares of Common Stock reserved for such transferor. Any shares of Common Stock
reserved and which remain allocated to any person or entity which does not hold
any Preferred Shares shall be allocated to the remaining holders of Preferred
Shares, pro rata based on the number of Preferred Shares then held by such
holder.
(10) Voting Rights. Holders of Preferred Shares shall have no
voting rights, except as required by law, including but not limited to the
General Corporation Law of the State of Delaware, and as expressly provided in
this Certificate of Designations.
(11) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of the Preferred Shares shall be entitled to receive in cash out of
the assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "Preferred Funds"), before any amount
-32-
<PAGE>
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the sum of (i) $10,000 and
(ii) the Additional Amount (such sum being referred to as the "Liquidation
Value"); provided that, if the Preferred Funds are insufficient to pay the full
amount due to the holders of Preferred Shares and holders of shares of other
classes or series of preferred stock of the Company that are of equal rank with
the Preferred Shares as to payments of Preferred Funds (the "Pari Passu
Shares"), then each holder of Preferred Shares and Pari Passu Shares shall
receive a percentage of the Preferred Funds equal to the full amount of
Preferred Funds payable to such holder as a liquidation preference, in
accordance with their respective Certificate of Designations, Preferences and
Rights, as a percentage of the full amount of Preferred Funds payable to all
holders of Preferred Shares and Pari Passu Shares. The purchase or redemption by
the Company of stock of any class, in any manner permitted by law, shall not,
for the purposes hereof, be regarded as a liquidation, dissolution or winding up
of the Company. Neither the consolidation or merger of the Company with or into
any other Person, nor the sale or transfer by the Company of less than
substantially all of its assets, shall, for the purposes hereof, be deemed to be
a liquidation, dissolution or winding up of the Company. No holder of Preferred
Shares shall be entitled to receive any amounts with respect thereto upon any
liquidation, dissolution or winding up of the Company other than the amounts
provided for herein; provided that a holder of Preferred Shares shall be
entitled to all amounts previously accrued with respect to amounts owed
hereunder.
(12) Preferred Rank; Participation. All shares of Common Stock
shall be of junior rank to all Preferred Shares in respect to the preferences as
to distributions and payments upon the liquidation, dissolution and winding up
of the Company. The rights of the shares of Common Stock shall be subject to the
preferences and relative rights of the Preferred Shares. Without the prior
express written consent of the holders of not less than two-thirds of the then
outstanding Preferred Shares, the Company shall not hereafter authorize or issue
additional Preferred Shares or other capital stock that is of rank senior to or
pari passu with the Preferred Shares in respect of the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Company. Without the prior express written consent of the holders of not
less than two-thirds of the then outstanding Preferred Shares, the Company shall
not hereafter authorize or make any amendment to the Company's Certificate of
Incorporation or bylaws, or file any resolution of the board of directors of the
Company with the Secretary of State of the State of Delaware containing any
provisions, which would adversely affect or otherwise impair the rights or
relative priority of the holders of the Preferred Shares relative to the holders
of the Common Stock or the holders of any other class of capital stock. In the
event of the merger or consolidation of the Company with or into another
corporation, the Preferred Shares shall maintain their relative powers,
designations and preferences provided for herein and no merger shall result
inconsistent therewith.
(13) Restriction on Redemption and Cash Dividends with respect
to Other Capital Stock. Until all of the Preferred Shares have been converted or
redeemed as provided herein, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, its Common Stock
without the prior express written consent of the holders of not less than
two-thirds of the then outstanding Preferred Shares.
-33-
<PAGE>
(14) Limitation on Number of Conversion Shares.
Notwithstanding any other provision herein, the Company shall not be obligated
to issue any shares of Common Stock upon conversion of the Preferred Shares if
the issuance of such shares of Common Stock would exceed that number of shares
of Common Stock which the Company may issue upon Conversion of the Preferred
Shares (the "Exchange Cap") without breaching the Company's obligations, if any,
under the rules or regulations of The Nasdaq Stock Market or such exchange on
which the stock is then traded, except that such limitation shall not apply in
the event that the Company (a) obtains the approval of its stockholders as
required by applicable rules and regulations of The Nasdaq Stock Market or such
other exchange on which the stock is then traded for issuances of Common Stock
in excess of such amount, (ii) obtains a written opinion from outside counsel to
the Company that such approval is not required, which opinion shall be
reasonably satisfactory to the holders of a majority of the Preferred Shares
then outstanding or (iii) the required number of holders of the Preferred Shares
exercised their rights pursuant to Section 4(e) to have the Company remove the
Common Stock from quotation in the Nasdaq National Market or such other exchange
on which the stock is then traded. Until such approval or written opinion is
obtained or such action has been taken by the required number of holders, no
purchaser of Preferred Shares pursuant to the Securities Purchase Agreement (the
"Purchasers") shall be issued, upon conversion of Preferred Shares, shares of
Common Stock in an amount greater than the product of (i) the Exchange Cap
amount multiplied by (ii) a fraction, the numerator of which is the number of
Preferred Shares issued to such Purchaser pursuant to the Securities Purchase
Agreement and the denominator of which is the aggregate amount of all the
Preferred Shares issued to the Purchasers pursuant to the Securities Purchase
Agreement (the "Cap Allocation Amount"). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's Preferred Shares, the
transferee shall be allocated a pro rata portion of such Purchaser's Cap
Allocation Amount. In the event that any holder of Preferred Shares shall
convert all of such holder's Preferred Shares into a number of shares of Common
Stock which, in the aggregate, is less than such holder's Cap Allocation Amount,
then the difference between such holder's Cap Allocation Amount and the number
of shares of Common Stock actually issued to such holder shall be allocated to
the respective Cap Allocation Amounts of the remaining holders of Preferred
Shares on a pro rata basis in proportion to the number of Preferred Shares then
held by each such holder.
(15) Vote to Change the Terms of or Issue Preferred Shares.
The affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds of the
then outstanding Preferred Shares, shall be required for (a) any change to this
Certificate of Designations or the Company's Certificate of Incorporation which
would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares, or (b) any issuance of Preferred
Shares other than pursuant to the Securities Purchase Agreement.
(16) Lost or Stolen Certificates. Upon receipt by the Company
of evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of an indemnification
undertaking by the holder to the Company and, in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the Company
-34-
<PAGE>
shall execute and deliver new preferred stock certificate(s) of like tenor and
date; provided, however, the Company shall not be obligated to re-issue
preferred stock certificates if the holder contemporaneously requests the
Company to convert such Preferred Shares into Common Stock.
(17) Remedies, Characterizations, Other Obligations, Breaches
and Injunctive Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly described herein. Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the holder thereof and shall not, except as
expressly provided herein, be subject to any other obligation of the Company (or
the performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(18) Specific Shall Not Limit General; Construction. No
specific provision contained in this Certificate of Designations shall limit or
modify any more general provision contained herein. This Certificate of
Designations shall be deemed to be jointly drafted by the Company and all
holders of Preferred Shares and shall not be construed against any person as the
drafter hereof.
(19) Failure or Indulgence Not Waiver. No failure or delay on
the part of a holder of Preferred Shares in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
(20) Whenever notice is required to be given, it shall be
given in accordance with Section 9(f) of the Securities Purchase Agreement.
* * * * * *
-35-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Robert J. DeLuccia, its President and Chief
Executive Officer as of December __, 1998.
IMMUNOMEDICS, INC.
By:
Name: Robert J. DeLuccia
Title: President and Chief
Executive Officer
<PAGE>
EXHIBIT I
IMMUNOMEDICS, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Series F Convertible Preferred Stock (the "Certificate of Designations"). In
accordance with and pursuant to the Certificate of Designations, the undersigned
hereby elects to convert the number of shares of Series G Convertible Preferred
Stock, par value $.01 per share (the "Preferred Shares"), of Immunomedics, Inc.,
a Delaware corporation (the "Company"), indicated below into shares of Common
Stock, par value $.01 per share (the "Common Stock"), of the Company, by
tendering the stock certificate(s) representing the Preferred Shares specified
below as of the date specified below.
Date of Conversion:____________________________________________________
Number of Preferred Shares to be converted:____________________________
Stock certificate no(s). of Preferred Shares to be converted:__________
Please confirm the following information:
Conversion Price:______________________________________________________
Number of shares of Common Stock
to be issued:__________________________________________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
Facsimile Number:______________________________________________________
Authorization:_________________________________________________________
By:________________________
Title:_____________________
Dated:_________________________________________________________________
Account Number:
(if electronic book entry transfer):_________________________________
Transaction Code Number
(if electronic book entry transfer):_________________________________
THIS FORM MUST BE SENT CONCURRENTLY TO COMPANY COUNSEL
<PAGE>
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby
directs American Stock Transfer & Trust Company to issue the above indicated
number of shares of Common Stock in accordance with the Transfer Agent
Instructions dated December ___, 1998 from the Company and acknowledged and
agreed to by American Stock Transfer & Trust Company.
IMMUNOMEDICS, INC.
By:
Name: Robert J. DeLuccia
Title: President and Chief
Executive Officer
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of December
9, 1998, by and among Immunomedics, Inc., a Delaware corporation, with
headquarters located at 300 American Road, Morris Plains, New Jersey 07950 (the
"Company"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. The Company has authorized the following new series of its Preferred
Stock, par value $.01 per share (the "Preferred Stock"): the Company's Series F
Convertible Preferred Stock (the "Preferred Shares"), which shall be convertible
into shares of the Company's Common Stock, par value $.01 per share (the "Common
Stock") (as converted, the "Conversion Shares"), in accordance with the terms of
the Company's Certificate of Designations, Preferences and Rights of the
Preferred Shares, substantially in the form attached hereto as Exhibit A (the
"Certificate of Designations");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, initially an aggregate of 1,250 of the Preferred Shares (the
"Initial Preferred Shares") in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers;
D. Subject to the terms and conditions set forth in this Agreement, the
Company may have the right to cause the Buyers to purchase up to an aggregate of
750 Preferred Shares (pro rata based on the number of Initial Preferred Shares
each Buyer purchased in relation to the total number of Initial Preferred
Shares) (the "Put Preferred Shares") (the Initial Preferred Shares and the Put
Preferred Shares collectively are referred to in this Agreement as the
"Preferred Shares");
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit B (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
<PAGE>
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. Purchase of Preferred Shares. Subject to satisfaction (or
waiver) of the conditions set forth in Sections 6(a) and 7(a), the Company shall
issue and sell to the Buyers and the Buyers severally shall purchase from the
Company an aggregate of 1,250 Initial Preferred Shares, in the respective
amounts set forth opposite each Buyer's name on the Schedule of Buyers (the
"Initial Closing"). Subject to satisfaction (or waiver) of the conditions set
forth in Sections 1(c), 1(d), 6(b) and 7(b), the Company may require that each
Buyer purchase that number of Put Preferred Shares equal to such Buyer's pro
rata portion of up to an aggregate of 750 Preferred Shares (based on the number
of Initial Preferred Shares each Buyer purchased in relation to the total number
of Initial Preferred Shares purchased by the Buyers) (the "Put Closing"). (The
Initial Closing and the Put Closing collectively are referred to in this
Agreement as the "Closings"). The purchase price (the "Purchase Price") of each
Preferred Share at each of the Closings shall be $10,000.
b. The Initial Closing Date. The date and time of the Initial
Closing (the "Initial Closing Date") shall be 10:00 a.m. Central Time, within
three (3) business days following the date hereof, subject to satisfaction (or
waiver) of the conditions to the Initial Closing set forth in Sections 6(a) and
7(a) (or such later date as is mutually agreed to by the Company and the
Buyers). The Initial Closing shall occur on the Initial Closing Date at the
offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago,
Illinois 60661-3693.
c. The Put Closing Date. The date and time of the Put Closing
(the "Put Closing Date") shall be 10:00 a.m. Central Time, on the fifth business
day after each of the Buyers have received written notice from the Company that
the Registration Statement (as defined in the Registration Rights Agreement)
covering 200% of the Conversion Shares issuable upon conversion of the Put
Preferred Shares (without regard to any limitations on conversions) to be issued
at such Put Closing has been declared effective by the SEC, subject to
satisfaction (or waiver) of the conditions to the Put Closing set forth in
Sections 6(b) and 7(b) and the conditions set forth in Section 1(d) (or such
later date as is mutually agreed to by the Company and the Buyers). During the
period beginning on December 1, 1999 and ending on February 28, 2000 (the "Put
Notice Period") but subject to the requirements of Sections 6(b) and 7(b) and
satisfaction of the Put Notice Conditions (as defined in Section 1(d)), the
Company may require each Buyer to purchase Put Preferred Shares by delivering
written notice to each of the Buyers (a "Put Share Notice") on any date during
the Put Notice Period (the "Put Share Notice Date"). The Put Share Notice shall
set forth (i) each Buyer's pro rata portion (based on the number of Initial
-2-
<PAGE>
Preferred Shares each Buyer purchased in relation to the total number of Initial
Preferred Shares purchased by all the Buyers) of the aggregate number of Put
Preferred Shares (which aggregate number shall not exceed 750 Preferred Shares
which the Company is requiring each Buyer to purchase at such Put Closing, (ii)
the aggregate Purchase Price for each such Buyer's Put Preferred Shares and
(iii) the Company's calculation of the Initial Fixed Price, as of the Put Share
Notice Date, of the Put Preferred Shares. The Put Closing shall occur on the Put
Closing Date at the offices of Katten Muchin & Zavis, 525 West Monroe Street,
Suite 1600, Chicago, Illinois 60661-3693. (The Initial Closing Date and the Put
Closing Date collectively are referred to in this Agreement as the "Closing
Dates").
d. The Put Notice Conditions. Notwithstanding anything in this
agreement to the contrary, the Company shall not be entitled to deliver a Put
Share Notice and require the Buyers to purchase the Put Preferred Shares unless,
in addition to the satisfaction of the requirements of Sections 1(c), 6(b) and
7(b), all of the following conditions (the "Put Notice Conditions") are
satisfied: (i) during the period beginning on the earlier of (A) the date which
is 60 days prior to the Put Share Notice Date and (B) 90 days prior to the Put
Closing Date and ending on and including the Put Closing Date, the registration
statement covering the resale of the Conversion Shares has been declared
effective by the SEC and at all times has been effective and available for the
sale of no less than 125% of the sum of (A) the number of Conversion Shares then
issuable upon the conversion of all outstanding Preferred Shares (as adjusted
for stock splits, stock dividends, reorganization and combinations or other
similar events) and (B) the number of Conversion Shares that are then held by
the Buyers; (ii) during the period beginning on the Initial Closing Date and
ending on and including the Put Closing Date, the Common Stock is listed on The
Nasdaq National Market and The New York Stock Exchange (the "NYSE") and has not
been suspended from trading at any time during such period (except for a
voluntary suspension of not more than one day due to a business announcement by
the Company), has not been voluntarily delisted at any time during such period,
nor is there any pending or threatened delisting or suspension; (iii) no event
constituting a Major Transaction (as defined in Section 3(c) of the Certificate
of Designations), including an agreement to consummate a Major Transaction, or a
Triggering Event (as defined in Section 3(d) of the Certificate of Designations)
shall have occurred nor shall any pending event which would constitute a Major
Transaction have been publicly disclosed from the period beginning on and
including the Initial Issuance Date and ending on and including the Put Closing
Date; (iv) on each day during the period beginning on and including the date
which is 60 days prior to the Put Share Notice Date and ending on and including
the Put Share Notice Date, the Closing Bid Price (as defined in the Certificate
of Designations) of the Common Stock shall not be less than 125% of the Trigger
Price (as defined in the Certificate of Designations) of the Initial Preferred
Shares;(v) the Company shall have obtained shareholder approval for the issuance
of greater than 20% of its outstanding shares of Common Stock; (vi) during the
period beginning on the Initial Closing Date and ending on and including the Put
Closing Date, the Company shall have delivered Conversion Shares upon conversion
of the Preferred Shares to the Buyers on a timely basis as set forth in Section
2(f)(ii) of the Certificate of Designations; provided, however, that for
purposes of this Section 1(d) only, the Company shall be deemed to have
satisfied the condition set forth in this clause (vi) if on not more than two
occasions the Company failed to meet the requirements of Section 2(f)(ii) of the
-3-
<PAGE>
Certificate of Designation by no more than three days; (vii) the Company shall
not have previously completed a Put Closing; and (viii) the number of Put
Preferred Shares to be sold by the Company at such Put Closing is not less than
100 Preferred Shares.
e. Form of Payment. On each of the Closing Dates, (i) each
Buyer shall pay the Purchase Price to the Company for the Preferred Shares to be
issued and sold to such Buyer at the respective Closing, by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, and (ii) the Company shall deliver to each Buyer, stock
certificates (in the denominations as such Buyer shall request) (the "Stock
Certificates") representing such number of the Preferred Shares which such Buyer
is then purchasing (as indicated opposite such Buyer's name on the Schedule of
Buyers), duly executed on behalf of the Company and registered in the name of
such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is acquiring the
Preferred Shares and (ii) upon conversion of the Preferred Shares, will acquire
the Conversion Shares then issuable (the Preferred Shares and the Conversion
Shares, collectively are referred to herein as the "Securities"), for its own
account for investment only and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such Securities.
-4-
<PAGE>
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Sections 3 and 9(m) below. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of the Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such Securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and, until such time as the
sale of the Conversion Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares, except as set forth below, shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
-5-
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for sale under the 1933 Act, (ii)
in connection with a sale transaction, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of such Securities may be made without registration
under the 1933 Act, or (iii) such holder provides the Company with reasonable
assurances that such Securities can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold. Each Buyer acknowledges, covenants and agrees to
sell the Securities represented by a certificate(s) from which the legend has
been removed, only pursuant to (i) a registration statement effective under the
1933 Act, or (ii) advice of counsel that such sale is exempt from registration
required by Section 5 of the 1933 Act.
h. Authorization; Enforcement. This Agreement has been duly
and validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable against such Buyer in
accordance with its terms, subject as to enforceability to general principles of
equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies. Such Buyer has the
requisite corporate or other power and authority to enter into and perform this
Agreement and the Registration Rights Agreement. The execution and delivery of
this Agreement and the Registration Rights Agreement by such Buyer and the
consummation by such Buyer of the transactions contemplated hereby and thereby,
including without limitation the payment of the Purchase Price for each
Preferred Share purchased has been duly authorized by such Buyer's board of
directors or other person or body having the power to authorize such actions by
such Buyer.
-6-
<PAGE>
i. Residency. Such Buyer is a resident of that jurisdiction
specified on the Schedule of Buyers.
j. Organization. Such Buyer is duly organized and validly
existing in good standing under the laws of the jurisdiction in which it is
organized.
k. No Conflicts. The execution, delivery and performance by
such Buyer of this Agreement and the Registration Rights Agreement does not (i)
result in a violation of such Buyer's organizational documents or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Buyer is a party.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest other than dormant or inactive entities which have no assets
and no liabilities and other than investments in marketable securities (a
complete list of which is set forth in Schedule 3(a)) are corporations duly
organized and validly existing in good standing under the laws of the
jurisdiction in which they are incorporated, and have the requisite corporate
power and authorization to own their properties and to carry on their business
as now being conducted. Except as set forth on Schedule 3(a), each of the
Company and its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect. As used in this
Agreement, "Material Adverse Effect" means any material adverse effect on the
business, properties, assets, operations, results of operations, financial
condition or prospects of the Company and its Subsidiaries, if any, taken as a
whole, or on the transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith, or on the authority or
ability of the Company to perform its obligations under the Transaction
Documents (as defined below) or the Certificate of Designations.
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5) and each of
the other agreements entered into by the parties hereto in connection with the
-7-
<PAGE>
transactions contemplated by this Agreement (collectively, the "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof and
thereof, (ii) the execution and delivery of the Transaction Documents and the
Certificate of Designations by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including without limitation the
issuance of the Preferred Shares and the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion thereof and any
shares of Common Stock issued as payment of Registration Delay Payments (as
defined in the Registration Rights Agreement), have been duly authorized by the
Company's Board of Directors and no further consent or authorization is required
by the Company, its Board of Directors or its stockholders, (iii) the
Transaction Documents have been duly executed and delivered by the Company, (iv)
the Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies, and (v) prior to each of the Closing Dates, the Certificate
of Designations will have been filed with the Secretary of State of the State of
Delaware and will be in full force and effect, enforceable against the Company
in accordance with its terms.
c. Capitalization. The authorized capital stock of the Company
consists of (i) 70,000,000 shares of Common Stock, of which as of the date
hereof 37,888,090 shares were issued and outstanding, 2,913,375 shares were
issuable and reserved for issuance pursuant to the Company's stock option and
purchase plans and 175,000 shares are issuable and reserved for issuance
pursuant to securities (other than the Preferred Shares) exercisable or
exchangeable for, or convertible into, shares of Common Stock and (ii)
10,000,000 shares of Preferred Stock, of which as of the date hereof, no shares
were issued and outstanding. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. Except as
disclosed in Schedule 3(c), (i) no shares of the Company's capital stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company; (ii) there are no outstanding
debt securities; (iii) there are no outstanding options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
-8-
<PAGE>
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries; (iv) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement);
(v) there are no outstanding securities of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Agreement; and (vii) the Company
does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement. The Company has furnished to the
Buyers true and correct copies of the Company's Certificate of Incorporation, as
amended and as in effect on the date hereof (the "Certificate of
Incorporation"), and the Company's By-laws, as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issue thereof and (iii) entitled to the rights
and preferences set forth in the Certificate of Designations. At least
10,000,000 shares of Common Stock (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(f) below) have been duly authorized
and reserved for issuance upon conversion of the Preferred Shares. Upon
conversion in accordance with the Certificate of Designations, the Conversion
Shares will be, and any shares of Common Stock issued as payment of Registration
Delay Payments will be, validly issued, duly listed, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. Based in part upon the representations and warranties of
the Buyers in Section 2, the issuance by the Company of the Securities is exempt
from registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designations and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Conversion Shares) will not (i) result in a
violation of the Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of Preferred Stock of the
-9-
<PAGE>
Company or the By-laws; (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party; or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and the rules and regulations of the principal
market or exchange on which the Common Stock is traded or listed) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Except as disclosed in
Schedule 3(e), neither the Company nor its Subsidiaries is in violation of any
term of or in default under (i) its Certificate of Incorporation, any
Certificate of Designations, Preferences and Rights of any outstanding series of
Preferred Stock or By-laws or their organizational charter or by-laws,
respectively, or (ii) any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries. The business of the
Company and its Subsidiaries is not being conducted, and shall not be conducted,
in violation of any law, ordinance or regulation of any governmental entity,
except where such violations have not resulted or would not result, individually
or in the aggregate, in a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required under the 1933 Act or the
securities laws of the State of New York, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents or the Certificate of Designations in
accordance with the terms hereof or thereof. Except as disclosed in Schedule
3(e), all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company is not in violation of the listing
requirements of The Nasdaq National Market as in effect on the date this
representation and warranty is made or deemed to have been made and is not aware
of any facts which would reasonably lead to delisting or suspension of the
Common Stock by The Nasdaq National Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since June 30, 1997,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the "SEC Documents"). The Company has delivered to each Buyer or
its respective representatives true and complete copies of the SEC Documents. As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
-10-
<PAGE>
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstance under which they are or
were made, not misleading. Neither the Company nor any of its Subsidiaries or
any of their officers, directors, employees or agents have provided the Buyers
with any material, nonpublic information.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g) or the SEC Documents filed at least 10 days prior to the date hereof and
available through Edgar, since June 30, 1998, there has been no material adverse
change and no material adverse development in the business, properties,
operations, financial condition, liabilities, results of operations or prospects
of the Company or its Subsidiaries. The Company has not taken any steps, and
does not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or the Company's Subsidiaries' officers or directors in
their capacities as such, except as expressly set forth in Schedule 3(h).
i. Acknowledgment Regarding Buyers' Purchase of Preferred
Shares. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of arm's length purchaser with respect to the Transaction
Documents and the Certificate of Designation and the transactions contemplated
thereby. The Company further acknowledges that each Buyer is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the Certificate of Designations and the
transactions contemplated thereby and any advice given by any of the Buyers or
any of their respective representatives or agents in connection with the
Transaction Documents and the Certificate of Designations and the transactions
contemplated thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred or
-11-
<PAGE>
exists, with respect to the Company or its Subsidiaries or their respective
business, properties, prospects, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws on a
registration statement (including by way of incorporation by reference) filed
with the SEC on the date this representation is made or deemed to be made
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly disclosed.
k. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of The Nasdaq Stock Market, Inc., nor will the
Company or any of its Subsidiaries take any action or steps that would require
registration of the Securities under the 1933 Act or cause the offering of the
Securities to be integrated with other offerings.
m. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. Neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with
their employees are good. No executive officer (as defined in Rule 501(f) of the
1933 Act) has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer's employment with the Company.
n. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(n), none of the
Company's trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights have expired or terminated, or are expected to expire or
terminate within two years from the date of this Agreement. The Company and its
Subsidiaries do not have any knowledge of any infringement by the Company or its
Subsidiaries of trademarks, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark
registrations, trade secrets or other similar rights of others, or of any such
-12-
<PAGE>
development of similar or identical trade secrets or technical information by
others and, except as set forth on Schedule 3(n), there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its Subsidiaries regarding trademarks, trade
name rights, patents, patent rights, inventions, copyrights, licenses, service
names, service marks, service mark registrations, trade secrets or other
infringement; and the Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
o. Environmental Laws. The Company and its Subsidiaries (i)
are in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where the
non-compliance or failure to receive such permits, licenses or other approvals
would not result in a Material Adverse Effect.
p. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(p) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company or any of
its Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
q. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole.
-13-
<PAGE>
r. Regulatory Permits. The Company and its Subsidiaries
possess, except where the lack of such possession will not have a Material
Adverse Effect on the Company, all certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory authorities
necessary to conduct their respective businesses as conducted on the date this
representation is made or deemed to be made, and neither the Company nor any
such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit.
s. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
t. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
u. Tax Status. Except as set forth on Schedule 3(u), the
Company and each of its Subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
v. Certain Transactions. Except as set forth on Schedule 3(v)
or in the SEC Documents filed at least ten days prior to the date hereof and
except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed on Schedule 3(c), none of the officers, directors, or
-14-
<PAGE>
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
w. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares will increase in certain circumstances. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Certificate of Designations is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
x. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
y. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the Buyers
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and the Buyer's
ownership of the Securities.
z. Rights Agreement. The Company specifically represents,
warrants and agrees that, in accordance with the Rights Agreement (the "Rights
Agreement"), dated as of January 23, 1998, between the Company and American
Stock Transfer and Trust Company, as rights agent, regardless of the number of
Conversion Shares of which each Buyer is deemed the Beneficial Owner (as defined
in the Rights Plan, none of the Buyers is intended to be or will be deemed to be
an Acquiring Person within the meaning of the Rights Plan because of the
acquisition of the Securities (including the Conversion Shares) pursuant to this
Agreement, and the acquisition of the Securities (including the Conversion
Shares) pursuant to this Agreement, shall not, under any circumstances, trigger
a Distribution Date within the meaning of the Rights Plan; provided, however,
that only Securities (including the Conversion Shares) acquired pursuant to this
Agreement shall be deemed excluded from the number of shares of Common Stock
deemed beneficially owned by each Buyer in determining whether such Buyer is an
Acquiring Person within the meaning of the Rights Plan.
-15-
<PAGE>
aa. Foreign Corrupt Practices. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any of its Subsidiaries has, in the course of
its actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
bb. Foreign Qualification. With respect to the Company's
certificate of authority to transact business in the state of New Jersey, the
Company owes no more than $25,000 in fees, expenses, back taxes or penalties to
the State of New Jersey or its affiliates.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Sections
6 and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
each Buyer promptly after such filing. The Company shall, on or before each of
the Closing Dates, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Buyers at each of the Closings pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyers on or prior to
the Closing Date. The Company shall make all filings and reports relating to the
offer and sale of the Securities required under applicable securities or "Blue
Sky" laws of the states of the United States following each of the Closing
Dates.
c. Reporting Status. Until the earlier of (i) the date which
is one year after the date as of which the Investors (as that term is defined in
the Registration Rights Agreement) may sell all of the Conversion Shares without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto), or (ii) the date on which (A) the Investors shall have sold all the
Conversion Shares and any shares of Common Stock issued as payment of the
Registration Delay Payments, if any, and (B) none of the Preferred Shares is
outstanding (the "Registration Period"), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
otherwise permit such termination.
-16-
<PAGE>
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Shares for substantially the same purposes and in
substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send the
following to each Investor (as defined in the Registration Rights Agreement)
during the Registration Period: (i) within two (2) days after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports
on Form 10-Q, any Current Reports on Form 8-K and any registration statements or
amendments (other than on Form S-8) filed pursuant to the 1933 Act; (ii) on the
same day as the release thereof, facsimile copies of all press releases issued
by the Company or any of its Subsidiaries and (iii) copies of any notices and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 200% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares (without regard to any
limitations on conversions).
g. Additional Financing; Right of Participation. Subject to
the exceptions described below, the Company agrees that during the period
beginning on the date hereof and ending on the date which is 180 days after the
Initial Closing Date neither the Company nor its Subsidiaries (which term
"Subsidiaries" for the purpose of this Section (g) shall exclude IBC
Pharmaceuticals L.L.C. ("IBC")) will, without the prior written consent of the
holders of the Preferred Shares representing at least two-thirds of the
Preferred Shares then outstanding, consummate any equity financing (including
any debt financing with an equity component) or issue any equity securities of
the Company or any Subsidiary or securities convertible or exchangeable into or
for equity securities of the Company or any Subsidiary (including debt
securities with an equity component) in any form. Subject to the exceptions
described below, the Company agrees that during the period beginning on the date
hereof and ending on the Put Closing Date, neither the Company nor its
Subsidiaries will, without the prior written consent of the holders of the
Preferred Shares representing at least two-thirds of the Preferred Shares then
outstanding, consummate any equity financing (including any debt financing with
an equity component) of any Convertible Security (as defined in the Certificate
of Designation) which has a Variable Price (as defined in the Certificate of
Designation) component ("Future Offering"), unless it shall have first delivered
to each Buyer or a designee appointed by such Buyer written notice (the "Future
Offering Notice") describing the proposed Future Offering, including the terms
and conditions thereof, and providing each Buyer an option to purchase up to of
its Aggregate Percentage (as defined below), as of the date of delivery of the
Future Offering Notice, in the Future Offering on the same
-17-
<PAGE>
terms and conditions set forth in the Future Offering Notice. The limitations
referred to in the preceding two sentence are collectively referred to as the
"Capital Raising Limitation". For purposes of this Section 4(g), "Aggregate
Percentage" at any time with respect to any Buyer shall mean the percentage
obtained by multiplying (A) 50% by (B) the quotient resulting from dividing (i)
the aggregate number of Preferred Shares purchased by such Buyer at the Closings
by (ii) the aggregate number of Preferred Shares purchased by all Buyers at the
Closings. A Buyer can exercise its option to participate in a Future Offering by
delivering written notice thereof to the Company within five (5) business days
(the "Response Period")of receipt of a Future Offering Notice, which notice
shall state the quantity of securities being offered in the Future Offering that
such Buyer will purchase, up to its Aggregate Percentage, and that number of
securities it is willing to purchase in excess of its Aggregate Percentage. In
the event that one or more Buyers fail to elect to purchase up to each such
Buyer's Aggregate Percentage then each Buyer which has indicated that it is
willing to purchase a number of securities in excess of its Aggregate Percentage
shall be entitled to purchase its pro rata portion (determined in the same
manner as described in the preceding sentence) of the securities in the Future
Offering which one or more Buyers have not elected to purchase. The Company
shall have 45 days after expiration of the Response Period to execute the
transaction documents necessary to close and sell the securities of the Future
Offering for which such Buyers' rights were not exercised, upon the same terms
and conditions (including the amount thereof) specified in the Future Offering
Notice. In the event the Company has not executed such transaction documents for
the sale of such securities of the Future Offering within such 45 day period,
the Company shall not thereafter issue or sell such securities without first
offering such securities to the Buyers in the manner provided in this Section
4(g). The Capital Raising Limitation shall not apply to (i) a loan from a
commercial bank without any equity component, (ii) any transaction involving the
Company's issuances of securities (A) as consideration in a merger or
consolidation or similar transaction, (B) in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or (C) as consideration for the acquisition of a business,
product or license or other assets by the Company, (iii) the issuance of Common
Stock in a firm commitment, underwritten public offering with net proceeds of at
least $10,000,000, (iv) the issuance of securities upon exercise or conversion
of the Company's options, warrants or other convertible securities outstanding
as of the date hereof, (v) the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option plan,
restricted stock plan or stock purchase plan for the benefit of the Company's
employees or directors, or (vi) any equity security of the Company issued after
November 17, 1998 and on or prior to December 31, 1998 pursuant to the terms of
the Structured Equity Line Flexible Financing Agreement (the "Structural Equity
Agreement"), between Cripple Creek Securities L.L.C., a Delaware limited
liability company("Cripple Creek") and the Company, as attached hereto as
Exhibit E. The Buyers shall not be required to participate or exercise their
right of participation with respect to a particular Future Offering in order to
exercise their right of first refusal with respect to later Future Offerings.
-18-
<PAGE>
h. Listing. The Company shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation system
(including The Nasdaq National Market), if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Registrable Securities from time to time issuable under the terms
of the Transaction Documents and the Certificate of Designations. The Company
shall maintain the Common Stock's authorization for listing on The Nasdaq
National Market or The New York Stock Exchange, Inc. ("NYSE"). Neither the
Company nor any of its Subsidiaries shall take any action which may result in
the delisting or suspension of the Common Stock on The Nasdaq National Market or
NYSE (other than to switch listings from The National Nasdaq Market to NYSE).
The Company shall promptly provide to each Buyer copies of any notices it
receives from The Nasdaq National Market or NYSE regarding the continued
eligibility of the Common Stock for listing on such automated quotation system
or securities exchange. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(h).
i. Expenses. Subject to Section 9(l) below, following the
Initial Closing, the Company shall reimburse the Buyers for the Buyers' expenses
(including attorneys' fees and expenses) in connection with negotiating and
preparing the Transaction Documents and consummating the transactions
contemplated thereby up to an aggregate of $50,000.
j. Transactions With Affiliates. So long as any Preferred
Shares are outstanding the Company shall not, and shall cause each of its
Subsidiaries not to, enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, person who were officers or directors at any time during
the previous two years, stockholders who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "Related Party"),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any agreement, transaction, commitment or arrangement on
an arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (c) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
-19-
<PAGE>
more common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "Control" or
"controls" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
k. Filing of Form 8-K. On or before the fifth business day
following the Initial Closing Date and on or before the first business day
following the Put Closing Date and the Put Share Notice Date, the Company shall
file a Form 8-K with the SEC describing the terms of the transaction
contemplated by the Transaction Documents and consummated on such Closing Date
or the Put Share Notice Date, as the case may be, in each case in the form
required by the 1934 Act.
l. Proxy Statement. The Company shall provide each stockholder
entitled to vote at the next meeting of stockholders of the Company, which
meeting shall occur on or before the earlier of (A) the date which is 75 days
after the Proxy Statement Triggering Date (as defined below) and (B) the date
which is 105 days after the Closing Date (the "Stockholder Meeting Deadline"), a
proxy statement, which has been previously reviewed by the Buyers and a counsel
of their choice, soliciting each such stockholder's affirmative vote at such
stockholder meeting for approval of the Company's issuance of all of the
Securities as described in this Agreement, and the Company shall use its best
efforts to (i) solicit its stockholders' approval of such issuance of the
Securities and (ii) cause the Board of Directors of the Company to recommend to
the stockholders that they approve such proposal. If the Company fails to hold a
meeting of its stockholders by the Stockholder Meeting Deadline, then, as
partial relief (which remedy shall not be exclusive of any other remedies
available at law or in equity), the Company shall pay to each holder of
Preferred Shares an amount in cash per Preferred Share equal to the product of
(i) $10,000; multiplied by (ii) .02; multiplied by (iii) the quotient of (x) the
number of days after the Stockholder Meeting Deadline that a meeting of the
Company's stockholders is not held, divided by (y) 30. The Company shall make
the payments referred to in the immediately preceding sentence within five days
of the earlier of (I) the holding of the meeting of the Company's stockholders,
the failure of which resulted in the requirement to make such payments, and (II)
the last day of each 30-day period beginning on the Stockholder Meeting
Deadline. In the event the Company fails to make such payments in a timely
manner, such payments shall bear interest at the rate of 1.5% per month (pro
rated for partial months) until paid in full. "Proxy Statement Triggering Date"
shall mean the first date after the date of this Agreement on which the sum of
(A) the number of shares of Common Stock previously issued upon conversion of
any of the shares of Preferred Stock and (B) the number of shares of Common
Stock issuable upon conversion of all the outstanding shares of Preferred Stock
based on the Conversion Price in effect on the date of such determination
(without regard to any limitation upon the conversion of any shares of Preferred
Stock, equal to or exceeds 15% of the number of shares of Common Stock issued
and outstanding immediately prior to the Initial Closing Date.
-20-
<PAGE>
m. Trading Restrictions. Each Buyer agrees, for so long as
such Buyer owns any Preferred Shares, that during the period beginning on the
date which is 45 trading days immediately preceding a Conversion Date (as
defined in the Certificate of Designations) on which such Buyer has delivered a
Conversion Notice (as defined in the Certificate of Designations) and ending on
the trading day which immediately precedes such Conversion Date (the "Pricing
Period") such Buyer shall not enter into any "short sale" (as such term is
defined in Rule 3b-3 of the 1934 Act) or other hedging transaction which
directly or indirectly involves the Common Stock (a "Short Sale Transaction")
unless (i) such Buyer effects such "short sale" or hedging transaction on a day
during such Pricing Period (a "Sales Day") at a price which is greater than or
equal to the lowest sales price of the Common Stock (as reported by Bloomberg
Financial Markets) on such Sales Day and (ii) a sale of the Common Stock was
effected at such lowest sale price on the Sales Day by a seller other than such
Buyer or its Affiliates. Each Buyer further agrees that during the period
beginning on the date which is 25 trading days immediately preceding the date
which is 180 days after the Initial Closing Date and ending on the date which is
180 days after the Initial Closing Date such Buyer shall not enter into a Short
Sale Transaction.
n. Underwriting Lock-Up Agreement. At any time during the
period beginning on the Initial Closing Date and ending on the Maturity Date, if
any, the Company may require that all, but not less than all, of the holders of
the Preferred Shares enter into a "lock-up" agreement with the underwriters of a
public offering of the Common Stock pursuant to which the holders would agree
not to sell or transfer any Conversion Shares issued with respect to Preferred
Shares converted on Conversion Dates (as defined in the Certificate of
Designations) during the period beginning on the date designated by the Company,
which date shall be not less than 10 business days after the holders' receipt of
such notice, and ending on the date which is up to 30 days after the beginning
of the lock-up period as designated by the Company (the "Underwriting Lock-Up
Period"). The Company shall exercise this right by delivering written notice
(the "Lock-Up Request Notice") of such request to all of the holders of the
Preferred Shares then outstanding at least 10 business days prior to the date on
which the Underwriting Lock-Up Period will begin, but in no event prior to the
filing of the registration statement for such proposed offering. The Lock-Up
Request Notice shall state (i) that the underwriters of such offering have
requested that the holders of the Preferred Shares enter into a "lock-up"
agreement, (ii) the date on which the Underwriting Lock-Up Period will begin,
and (iii) the name of the managing underwriters of the proposed offering.
Notwithstanding the foregoing, the Company shall not be entitled to require the
holders to enter into a "lock-up" agreement unless (A) the Underwriting Lock-Up
Period is not more than 30 days, (B) the Underwriting Lock-Up Period shall
terminate immediately upon (I) the termination or abandonment or indefinite
delay of the underwritten offering, (II) the announcement of a pending or
consummated Major Transaction or (III) the occurrence of a Triggering Event, (C)
all officers and directors of the Company enter into substantially similar
"lock-up" agreements, (D) such underwritten public offering is completed at a
price per share to the public of not less than $4.00 per share (subject to
-21-
<PAGE>
adjustment as a result of any stock split, stock dividend, recapitalization,
reverse stock split, consolidation, exchange or similar event) and generates
aggregate gross proceeds to the Company of at least $10,000,000, (E) there has
been no other Underwriting Lock-Up Period during the 365-day period immediately
preceding the first day of the Underwriting Lock-Up Period being requested, (F)
during the period beginning on and including the date which is 20 business days
prior to the filing of the registration statement for the proposed offering and
ending on and including the first day of the Underwriting Lock-Up Period, the
Registration Statement has been effective and available for sale of all of the
Registrable Securities, there has been no Grace Period (as defined in the
Registration Rights Agreement) and there has been no stop order or other
regulatory prohibition on trading of the Common Stock and (G) the offering shall
be underwritten by one or more of the underwriters included on Schedule 4(n). In
the event the Company requires an Underwriting Lock-Up Period, the Maturity Date
(as defined in the Certificate of Designations) shall be extended two (2) days
for each day in the Underwriting Lock-Up Period as provided in Section 2(g) of
the Certificate of Designations. If the Company delivers a Lock-Up Request
Notice and the underwritten public offering is not consummated within 90 days of
the first day of the Underwritten Lock-Up Period, then the Company may not
require another Underwritten Lock-Up Period pursuant to this Section 4(n).
o. Cripple Creek. The Company will terminate its ability to
draw down additional financing and its obligation to issue any additional
warrants pursuant to the Structured Equity Agreement with Cripple Creek on or
prior to December 31, 1998 other than those warrants for which the obligation to
issue pursuant to the Structural Equity Agreement was earned on or before
December 31, 1998.
p. Foreign Qualification. The Company will become authorized
to do business in the state of New Jersey on or prior to April 30, 1999.
q. Legends and Stop Transfer Orders. Upon the receipt by the
Company of a copy of an irrevocable proxy, executed in accordance with Section
7(a)(xv), the Company shall instruct the Transfer Agent to either (a) place
legends on those certificates subject to such proxy or (b) place a stop transfer
order on such certificates, in accordance with such proxy.
5. TRANSFER AGENT INSTRUCTIONS.
-22-
<PAGE>
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares in such amounts as specified from time to time by each Buyer
to the Company upon conversion of the Preferred Shares (the "Irrevocable
Transfer Agent Instructions"). Prior to registration of the Conversion Shares
and the Dividend Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares, prior
to registration of the Conversion Shares under the 1933 Act) will be given by
the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 5 shall affect in any way each Buyer's obligations and agreements
set forth in Section 2(g) to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities. If a Buyer provides the
Company with an opinion of counsel, in generally acceptable form, that
registration of a resale by such Buyer of any of such Securities is not required
under the 1933 Act, the Company shall permit the transfer, and, in the case of
the Conversion Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer
and without any restrictive legends. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section
5, that the Buyers shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. Initial Closing Date. The obligation of the Company
hereunder to issue and sell the Initial Preferred Shares to each Buyer at the
Initial Closing is subject to the satisfaction, at or before the Initial Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction
Documents and delivered the same to the Company.
-23-
<PAGE>
(ii) The Certificate of Designations shall have been filed
with the Secretary of State of the State of Delaware.
(iii) Such Buyer shall have delivered to the Company the
Purchase Price for the Preferred Shares being purchased by such Buyer
at the Initial Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
(iv) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the Initial Closing
Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents to be performed,
satisfied or complied with by such Buyer at or prior to the Initial
Closing Date.
(v) All 1,250 Initial Preferred Shares shall have been
purchased by one or more of the Buyers.
(vi) On the Initial Closing Date, no legal action, suit or
proceeding shall be pending or threatened which seeks to restrain or
prohibit the transactions contemplated by this Agreement.
b. Put Closing Date. The obligation of the Company hereunder
to issue and sell the Put Preferred Shares to each Buyer at the Put Closing is
subject to the satisfaction, at or before the Put Closing Date, of each of the
following conditions, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have delivered to the Company the
Purchase Price for the Put Preferred Shares being purchased by such
Buyer at the Put Closing by wire transfer of immediately available
funds pursuant to the wire instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the Put Closing
Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents to be performed,
satisfied or complied with by such Buyer at or prior to the Put Closing
Date.
(iii) On the Put Closing Date, no legal action, suit or
proceeding shall be pending or threatened which seeks to restrain or
prohibit the transactions contemplated by this Agreement.
-24-
<PAGE>
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. Initial Closing Date. The obligation of each Buyer
hereunder to purchase the Initial Preferred Shares at the Initial Closing is
subject to the satisfaction, at or before the Initial Closing Date, of each of
the following conditions, provided that these conditions are for each Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion:
(i) The Company shall have executed each of the Transaction
Documents, and delivered the same to such Buyer.
(ii) The Certificate of Designations, shall have been filed
with the Secretary of State of the State of Delaware, and a copy
thereof certified by such Secretary of State shall have been delivered
to such Buyer.
(iii) The Common Stock shall be authorized for quotation on
The Nasdaq National Market or listing on NYSE, trading in the Common
Stock issuable upon conversion of the Initial Preferred Shares to be
traded on The Nasdaq National Market or NYSE shall not have been
suspended by the SEC, The Nasdaq Stock Market, Inc. or NYSE and all of
the Conversion Shares issuable upon conversion of the Initial Preferred
Shares to be sold at the Initial Closing shall be listed upon The
Nasdaq National Market or NYSE.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Initial
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall
have performed, satisfied and complied with the covenants, agreements
and conditions required by the Transaction Documents or Certificate of
Designations to be performed, satisfied or complied with by the Company
at or prior to the Initial Closing Date. Such Buyer shall have received
a certificate, executed by the Chief Executive Officer of the Company,
dated as of the Initial Closing Date, to the foregoing effect, and an
update as of the Initial Closing Date of the representation contained
in Section 3(c) above.
(v) Such Buyer shall have received the opinion of Warshaw
Burstein Cohen Schlesinger & Kuh, LLP dated as of the Initial Closing
Date, in form, scope and substance reasonably satisfactory to such
Buyer and in substantially the form of Exhibit C attached hereto.
-25-
<PAGE>
(vi) The Company shall have executed and delivered to such
Buyer the Stock Certificates (in such denominations as such Buyer shall
request) for the Initial Preferred Shares being purchased by such Buyer
at the Initial Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to such Buyer (the "Resolutions").
(viii) As of the Initial Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Preferred Shares, at
least 10,000,000 shares of Common Stock.
(ix) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary (other than subsidiaries which are
organized outside of the United States) in such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within 10 days of the Initial Closing.
(xi) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) By-laws, each as in effect at the
Initial Closing.
(xii) The Company shall have delivered to such Buyer a
certified copy of its Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware within ten days of the
Initial Closing Date.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the Initial
Closing Date.
(xiv) On the Initial Closing Date, no legal action, suit or
proceeding shall be pending or threatened which seeks to restrain or
prohibit the transactions contemplated by this Agreement.
(xv) The Company shall have delivered to such Buyers copies of
proxy agreements, in a form reasonably acceptable to such buyer,
executed by each executive officer and director of the Company pursuant
to which such persons agree to vote in favor of the matters described
-26-
<PAGE>
in Section 4(l) and which cover a minimum of 27.7% of the shares of
Common Stock outstanding on the date hereof.
(xvi) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by the
Transaction Documents as such Buyer or its counsel may reasonably
request.
b. Put Closing Dates. The obligation of each Buyer hereunder
to purchase the Put Preferred Shares at the Put Closing is subject to the
satisfaction, at or before the Put Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion:
(i) The Company shall have complied with the requirements of
Section 1(c) and all of the Put Notice Conditions set forth in Section
1(d) shall have been satisfied.
(ii) The Certificate of Designations, shall be in full force
and effect and shall not have been amended since the Initial Closing
Date, and a copy thereof certified by the Secretary of State of the
State of Delaware shall have been delivered to such Buyer.
(iii) The Common Stock shall be authorized for quotation on
The Nasdaq National Market or listing on NYSE, trading in the Common
Stock issuable upon conversion of the Put Preferred Shares to be traded
on The Nasdaq National Market or NYSE shall not have been suspended by
the SEC, The Nasdaq Stock Market, Inc. or NYSE and all of the
Conversion Shares issuable upon conversion of the Put Preferred Shares
to be sold at the Put Closing shall be listed upon The Nasdaq National
Market or NYSE.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Put Closing
Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents or the Certificate of
Designations to be performed, satisfied or complied with by the Company
at or prior to the Put Closing Date. Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company,
dated as of the Put Closing Date, to the foregoing effect, and an
update as of the Put Closing Date of the representation contained in
Section 3(c) above.
(v) Such Buyer shall have received the opinion of Warshaw
Burstein Cohen Schlesinger & Kuh, LLP dated as of the Put Closing Date,
in form, scope and substance reasonably satisfactory to such Buyer and
in substantially the form of Exhibit C attached hereto.
-27-
<PAGE>
(vi) The Company shall have executed and delivered to such
Buyer the Stock Certificates (in such denominations as such Buyer shall
request) for the Put Preferred Shares being purchased by such Buyer at
the Put Closing.
(vii) The Board of Directors of the Company shall have
adopted, and shall not have amended, the Resolutions.
(viii) As of the Put Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Preferred Shares, a
number of shares of Common Stock equal to at least 200% of the number
of shares of Common Stock which would be issuable upon conversion in
full of the then outstanding Preferred Shares (without regard to any
limitations on conversions), including for such purposes the Put
Preferred Shares to be issued at such Put Closing.
(ix) The Irrevocable Transfer Agent Instructions shall remain
in effect as of the Put Closing Date and the Company shall cause its
Transfer Agent to deliver a letter to the Buyers to that effect.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in the state of such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within 10 days of the Put Closing Date.
(xi) The Company shall have delivered to such Buyer a
certified copy of its Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware within ten days of the Put
Closing Date.
(xii) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) By-laws, each as in effect at the
Put Closing.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the Put
Closing Date.
(xiv) On the Put Closing Date, no legal action, suit or
proceeding shall be pending or threatened which seeks to restrain or
prohibit the transactions contemplated by this Agreement.
-28-
<PAGE>
(xv) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement
as such Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Designations, the Company shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of the
Securities and all of their stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or the Certificate of Designations or any
other certificate, instrument or document contemplated hereby or thereby, (b)
any breach of any covenant, agreement or obligation of the Company contained in
the Transaction Documents or the Certificate of Designations or any other
certificate, instrument or document contemplated hereby or thereby, or (c) any
cause of action, suit or claim brought or made, other than by the Company,
against such Indemnitee and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or the
Certificate of Designations, (ii) any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of the issuance of
the Securities or (iii) the status of such Buyer or holder of the Securities as
an investor in the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the right and
obligations under this Section 8 shall be the same as those set forth in Section
6(a) and (d) of the Registration Rights Agreement, including, without
limitation, those procedures with respect to the settlement of the claims and
the Company's right, to assume the defense of claims.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. The corporate laws
of the State of Delaware shall govern all issues concerning the relative rights
of the Company and its stockholders. All other questions concerning the
-29-
<PAGE>
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting the City of New York, borough of Manhattan, for the adjudication
of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
-30-
<PAGE>
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least two-thirds of the Preferred Shares then
outstanding, and no provision hereof may be waived other than by an instrument
in writing signed by the party against whom enforcement is sought. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Preferred Shares then outstanding. No consideration shall be
offered or paid to any person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents or the Certificate of
Designations unless the same consideration also is offered to all of the parties
to the Transaction Documents or holders of the Preferred Shares, as the case may
be.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) business day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
Immunomedics, Inc.
300 American Road
Morris Plains, NJ 07950
Telephone: (973) 605-8200
Facsimile: (973) 605-8311
Attention: President
With a copy to:
Warshaw Burstein Cohen Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, NY 10017
Telephone: (212) 984-7832
Facsimile: (212) 984-7893
Attention: Michael D. Schwamm
-31-
<PAGE>
If to the Transfer Agent:
American Stock Transfer & Trust Company
40 Wall Street
New York, N.Y.
Telephone: (718) 921-8247
Facsimile: (718) 921-8323
Attention: Wilbert Myles
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers attached hereto, with copies to such Buyer's representatives
as set forth on the Schedule of Buyers, or at such other address and/or
facsimile number and/or to the attention of such other person as the recipient
party has specified by written notice given to each other party five days prior
to the effectiveness of such change. Written confirmation of receipt (A) given
by the recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the holders of two-thirds of the Preferred Shares then
outstanding including by merger or consolidation. A Buyer and any Permitted
Assignees (as defined below) may assign some or all of its rights hereunder,
including the Preferred Shares (i) without the consent of the Company, to any
person or entity who, immediately prior to such assignment, is (A) an affiliate
of such Buyer, (B) a holder of Preferred Shares, (C) an entity or fund which has
the same principal investment adviser as the Buyer, or (D) a pledgee (or a
transferee of such pledgee) in connection with a bona fide margin account if
such pledgee seeks to enforce or realize such pledge (each such person or entity
described in the immediately preceding clause (A), (B), (C) and (D) is referred
to as a "Permitted Assignee") and (ii) with the prior written consent of the
Company, which consent shall not be unreasonably withheld, to any person or
entity; provided, however, that any such assignment shall not release such Buyer
from its obligations hereunder unless such obligations are assumed by such
assignee and the Company has consented to such assignment and assumption, which
consent shall not be unreasonably withheld. Notwithstanding anything to the
contrary contained in the Transaction Documents or the Certificate of
Designations, each Buyer shall be entitled to pledge the Securities in
connection with a bona fide margin account.
-32-
<PAGE>
h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and the Buyers contained
in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive each
of the Closings. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right
to approve before issuance any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of any Buyer, to make
any press release or other public disclosure with respect to such transactions
as is required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Initial Closing shall
not have occurred with respect to a Buyer on or before three (3) business days
from the date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(l), the Company shall remain obligated to reimburse the
non-breaching Buyers for expenses up to the amount described in Section 4(i)
above.
m. Placement Agent. The Company and each Buyer acknowledges
that it has not engaged any placement agent in connection with the sale of the
Preferred Shares. Each party shall be responsible for the payment of its own
placement agent's fees or brokers' commissions relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim. Each Buyer shall, severally and not jointly, pay, and hold the Company
harmless against, any liability, loss or expense (including without limitation,
-33-
<PAGE>
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.
n. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of Preferred Shares or
Conversion Shares shall have all rights and remedies set forth in the
Transaction Documents and the Certificate of Designation and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to the Registration
Rights Agreement or the Certificate of Designations or the Buyers enforce or
exercise their rights hereunder or thereunder, and such payment or payments or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
* * * * * *
-34-
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
IMMUNOMEDICS, INC. HFTP INVESTMENT L.L.C.
By: Promethean Investment Group L.L.C.
Its: Investment Manager
By:
Name: Robert S. DeLuccia
Its: President and Chief By:
Executive Officer Name: James F. O'Brien, Jr.
Its: Managing Member
WINGATE CAPITAL LTD.
By:
Name: Kenneth A. Simpler
Its: Vice President
FISHER CAPITAL LTD.
By:
Name: Kenneth A. Simpler
Its: Vice President
LEONARDO, L.P.
By: ANGELO, GORDON & CO., L.P.
Its: General Partner
By:
Name: Michael L. Gordon
Its: Chief Operating Officer
<PAGE>
GAM ARBITRAGE INVESTMENTS, INC.
By: ANGELO, GORDON & CO., L.P.
Its: Investment Advisor
By:
Name: Michael L. Gordon
Its:Chief Operating Officer
AG SUPER FUND INTERNATIONAL PARTNERS, L.P.
By: ANGELO, GORDON & CO., L.P.
Its: General Partner
By:
Name: Michael L. Gordon
Its: Chief Operating Officer
RAPHAEL, L.P.
By:
Name: Michael L. Gordon
Its: Chief Operating Officer
RAMIUS FUND, LTD.
By: AG RAMIUS PARTNERS, L.L.C.
Its: Investment Advisor
By:
Name: Michael L. Gordon
Its: Managing Officer
<PAGE>
<TABLE>
SCHEDULE OF BUYERS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of
Initial
Investor Address Preferred Investor's Representatives' Address
Investor Name and Facsimile Number Shares and Facsimile Number
HFTP Investment L.L.C. Promethean Investment Group, L.L.C. 650 Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520 40 West 57th Street, Suite 1520
New York, New York 10019 New York, New York 10019
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
Telephone: 212-698-0588 Telephone: 212-698-0588
Facsimile: 212-698-0505 Facsimile: 212-698-0505
Residence: New York
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Telephone: 312-902-5200
Facsimile: 312-902-1061
Wingate Capital Ltd. Citadel Investment Group, L.L.C. 105 Citadel Investment Group, L.L.C.
225 West Washington Street 225 West Washington Street
Chicago, Illinois 60606 Chicago, Illinois 60606
Attention: Daniel Hopkins Attention: Daniel Hopkins
Facsimile: (312) 338-0780 Facsimile: (312) 338-0780
Telephone: (312) 338-7803 Telephone: (312) 338-7803
Katten Muchin & Zavis
525 W. Monroe Street
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Facsimile: (312) 902-1061
Telephone: (312) 902-5200
Fisher Capital Ltd. Citadel Investment Group, L.L.C. 195 Citadel Investment Group, L.L.C.
225 West Washington Street 225 West Washington Street
Chicago, Illinois 60606 Chicago, Illinois 60606
Attention: Daniel Hopkins Attention: Daniel Hopkins
Facsimile: (312) 338-0780 Facsimile: (312) 338-0780
Telephone: (312) 338-7803 Telephone: (312) 338-7803
Katten Muchin & Zavis
525 W. Monroe Street
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Facsimile: (312) 902-1061
Telephone: (312) 902-5200
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P. 200 Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
Residence: Cayman Islands
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
GAM Arbitrage c/o Angelo, Gordon & Co., L.P. 20 Angelo, Gordon & Co., L.P.
Investments, Inc. 245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
Residence: British Virgin Islands
AG Super Fund c/o Angelo, Gordon & Co., L.P. 20 Angelo, Gordon & Co., L.P.
International Partners, 245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
L.P. New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
Residence: Cayman Islands
Raphael, L.P. c/o Angelo, Gordon & Co., L.P. 20 Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
Residence: Cayman Islands
Ramius Fund, Ltd. c/o Angelo, Gordon & Co., L.P. 40 Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
Residence: Bermuda
----------------------------------------------- -----------------------------------------
</TABLE>
<PAGE>
SCHEDULES
Schedule of Buyers
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(e) - Conflicts
Schedule 3(g) - Material Changes
Schedule 3(h) - Litigation
Schedule 3(n) - Intellectual Property
Schedule 3(p) - Liens
Schedule 3(u) - Tax Status
Schedule 3(v) - Certain Transactions
Schedule 4(d) - Use of Proceeds
Schedule 4(n) - Schedule of Underwriters
EXHIBITS
Exhibit A - Form of Certificate of Designations, Preferences and
Rights of the Preferred Shares
Exhibit B - Form of Registration Rights Agreement
Exhibit C - Form of Company Counsel Opinion
Exhibit D - Form of Irrevocable Transfer Agent Instructions
Exhibit E - Cripple Creek Financing Documents
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December,
9, 1998, by and among Immunomedics, Inc., a Delaware corporation, with
headquarters located at 300 American Road, Morris Plains, New Jersey 07950 (the
"Company"), and the undersigned buyers (each, a "Buyer" and collectively, the
"Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers shares of the
Company's Series F Convertible Preferred Stock (the "Initial Preferred Shares"),
which will be convertible into shares of the Company's common stock, par value
$.01 per share (the "Common Stock") in accordance with the terms of the
Company's Certificate of Designations, Preferences and Rights of the Series F
Convertible Preferred Stock (the "Certificate of Designations"); and
B. In connection with the Securities Purchase Agreement, each Buyer may
be obligated, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to purchase shares of the Company's Series F Convertible
Preferred Stock (the "Put Preferred Shares"), which will be convertible into
shares of Common Stock in accordance with the terms of the Certificate of
Designations (the Initial Preferred Shares and the Put Preferred Shares are
collectively referred to as the "Preferred Shares" and as converted, the
"Conversion Shares"); and
C. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
<PAGE>
a. "Investor" means a Buyer, any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section 9
and any transferee or assignee thereof to whom a transferee or assignee assigns
its rights under this Agreement and who agrees to become bound by the provisions
of this Agreement in accordance with Section 9.
b. "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d. "Registrable Securities" means the Conversion Shares issued
or issuable upon conversion of the Preferred Shares, any shares of Common Stock
issued as payment of Registration Delay Payments (as defined in Section 2(g))
and any shares of capital stock issued or issuable with respect to the
Conversion Shares or the Preferred Shares as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise, without
regard to any limitation on conversions of Preferred Shares.
e. "Initial Registration Statement" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering Registrable Securities relating to the Initial Preferred Shares.
f. "Put Registration Statement" means a registration statement
or registration statements of the Company filed under the 1933 Act covering
Registrable Securities relating to the Put Preferred Shares.
g. "Registration Statement" means the Initial Registration
Statement and the Put Registration Statement.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration.
(i) Initial Mandatory Registration. The Company
shall prepare, and, as soon as practicable but in no event later than 45 days
-2-
<PAGE>
after the date of issuance of the relevant Preferred Shares, file with the SEC
an Initial Registration Statement or Initial Registration Statements (as is
necessary) on Form S-3 covering the resale of all of the Registrable Securities
issuable pursuant to the Initial Preferred Shares (the "Initial Registrable
Securities"). In the event that Form S-3 is unavailable for such a registration,
the Company shall use such other form as is available for such a registration,
subject to the provisions of Section 2(e). The Initial Registration Statement or
Initial Registration Statements prepared pursuant hereto shall register for
resale at least that number of shares of Common Stock equal to the product of
(x) 2.0 and (y) the number of Initial Registrable Securities as of the date
immediately preceding the date the Registration Statement is initially filed
with the SEC, subject to adjustment as provided in Section 2(f). The Company
shall use its best efforts to have the Initial Registration Statement(s)
declared effective by the SEC as soon as practicable, but in no event later than
120 days after the issuance of the relevant Preferred Shares.
(ii) Put Mandatory Registration. The Company shall
prepare, and, as soon as practicable but in no event later than ten days after
the Put Share Notice Date (as defined in the Securities Purchase Agreement),
file with the SEC a Put Registration Statement or Put Registration Statements
(as is necessary) on Form S-3 covering the resale of all of the Registrable
Securities issuable pursuant to the Put Preferred Shares covered by the Put
Share Notice (the "Put Registrable Securities"). In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is
available for such a registration, subject to the provisions of Section 2(e).
Any Put Registration Statement prepared pursuant hereto shall register for
resale at least that number of shares of Common Stock equal to the product of
(x) 2.0 and (y) the number of Put Registrable Securities as of the date
immediately preceding the date such Additional Registration Statement is
initially filed with the SEC, subject to adjustment as provided in Section 2(f).
The Company shall use its best efforts to have the Put Registration Statement(s)
declared effective by the SEC as soon as practicable, but in no event later than
90 days after the Put Share Notice Date.
b. Piggy-Back Registrations. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company
proposes to file with the SEC a Registration Statement relating to an offering
for its own account or the account of others under the 1933 Act of any of its
securities (other than on Form S-4 or Form S-8 (or their equivalents at such
time) relating to securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans) the Company shall
promptly send to each Investor who is entitled to registration rights under this
Section 2(b) written notice of the Company's intention to file a Registration
Statement and of such Investor's rights under this Section 2(b) and, if within
twenty (20) days after receipt of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement all or any
part of the Registrable Securities such Investor requests to be registered,
subject to the priorities set forth in Section 2(b) below. No right to
registration of Registrable Securities under this Section 2(b) shall be
construed to limit any registration required under Section 2(a). The obligations
of the Company under this Section 2(b) may be waived by Investors holding a
majority of the Registrable Securities. If an offering in connection with which
an Investor is entitled to registration under this Section 2(b) is an
underwritten offering, then each Investor whose Registrable Securities are
-3-
<PAGE>
included in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten offering
using the same underwriter or underwriters and, subject to the provisions of
this Agreement, on the same terms and conditions as other shares of Common Stock
included in such underwritten offering. If a registration pursuant to this
Section 2(b) is to be an underwritten public offering and the managing
underwriter(s) advise the Company in writing, that in their reasonable good
faith opinion, marketing or other factors dictate that a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement is necessary to facilitate and not adversely affect the proposed
offering, then the Company shall include in such registration: (1) first, all
securities the Company proposes to sell for its own account, (2) second, up to
the full number of securities proposed to be registered for the account of the
holders of securities entitled to inclusion of their securities in the
Registration Statement by reason of demand registration rights, and (3) third,
the securities requested to be registered by the Investors and other holders of
securities entitled to participate in the registration, as of the date hereof,
drawn from them pro rata based on the number each has requested to be included
in such registration.
c. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Person's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities shall be allocated to the remaining
Investors, pro rata based on the number of Registrable Securities then held by
such Investors.
d. Legal Counsel. Subject to Section 5 hereof, the Buyers
holding a majority of the Registrable Securities shall have the right to select
one legal counsel to review and oversee any offering pursuant to this Section 2
("Legal Counsel"), which shall be Katten Muchin & Zavis or such other counsel as
thereafter designated by the holders of a majority of Registrable Securities.
The Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations under this Agreement.
e. Ineligibility for Form S-3. In the event that Form S-3 is
not available for any registration of Registrable Securities hereunder, the
Company shall (i) register the sale of the Registrable Securities on another
appropriate form and (ii) undertake to register the Registrable Securities on
Form S-3 as soon as such form is available, provided that the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the SEC.
-4-
<PAGE>
f. Sufficient Number of Shares Registered. In the event the
number of shares available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable Securities or an
Investor's allocated portion of the Registrable Securities pursuant to Section
2(c), the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to cover at least 200% of such Registrable Securities (based on the
then current market price of the Common Stock), in each case, as soon as
practicable, but in any event not later than fifteen (15) days after the
necessity therefor arises. The Company shall use it best efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof. For purposes of the foregoing
provision, the number of shares available under a Registration Statement shall
be deemed "insufficient to cover all of the Registrable Securities" if at any
time the number of Registrable Securities issued or issuable upon conversion of
the Preferred Shares is greater than the quotient determined by dividing (i) the
number of shares of Common Stock available for resale under such Registration
Statement by (ii) 1.5. For purposes of the calculation set forth in the
foregoing sentence, any restrictions on the convertibility of the Preferred
Shares shall be disregarded and such calculation shall assume that the Preferred
Shares are then convertible into shares of Common Stock at the then prevailing
Conversion Rate (as defined in the Company's Certificate of Designations).
g. Effect of Failure to Obtain and Maintain Effectiveness of
Registration Statement. If the Registration Statement covering the resale of all
of the shares of Common Stock issuable upon conversion of the Preferred Shares
covered by such Registration Statement and required to be filed by the Company
pursuant to this Agreement is not (i) filed within 45 days of the Initial
Closing Date or within ten days of the Put Share Notice Date as the case may be
(each, a "Scheduled Filing Date"), (ii) declared effective by the SEC on or
before the date which is 120 days after the Initial Closing Date or on or before
90 days after the Put Share Notice Date, as the case may be (each, a "Scheduled
Effective Date"), or (iii) if after the Registration Statement has been declared
effective by the SEC, other than days during an Allowable Grace Period (as
defined in Section 3(v)), available for the sales of all such shares of Common
Stock to be made pursuant to the respective Registration Statement (whether
because of a failure to keep the Registration Statement effective, to disclose
such information as is necessary for sales to be made pursuant to the
Registration Statement, to register sufficient shares of Common Stock or
otherwise), then, as partial relief for the damages to any holder by reason of
any such delay in or reduction of its ability to sell the underlying shares of
Common Stock (which remedy shall not be exclusive of any other remedies
available at law or in equity), the Company shall pay to each holder of
Preferred Shares an amount in cash per Preferred Share held (which relates to a
Registration Statement which was not declared effective on or before its
Scheduled Effective Date or pursuant to which sales cannot be made) equal to the
sum of:
(i) $150, if the Registration Statement is not
filed by the Scheduled Filing Date;
(ii) $150, if the Registration Statement is not
declared effective by the Scheduled Effective Date;
-5-
<PAGE>
(iii) $5 multiplied by the sum of (x) the number of
days after the Scheduled Filing Date during which such Registration
Statement is not filed with the SEC, plus (y) the number of days after
the Scheduled Effective Date during which the Registration Statement is
not declared effective by the SEC, plus (z) the number of days (other
than days during an Allowable Grace Period) that sales cannot be made
pursuant to the Registration Statement after the Registration Statement
has been declared effective by the SEC.
The payments to which a holder shall be entitled pursuant to this Section 2(g)
are referred to herein as "Registration Delay Payments." Registration Delay
Payments shall be paid within five business days of the earlier of (i) the last
day of the month in which such payments were incurred or (ii) the date that the
violation which caused such payment is cured. In the event the Company fails to
make Registration Delay Payments in a timely manner, such Registration Delay
Payments shall bear interest at the rate of 1.5% per month (prorated for partial
months) until paid in full. If the Company fails to pay the Registration Delay
Payments, including any interest thereon, within 15 business days of the date
incurred, then the holder entitled to such payments shall have the right at any
time, so long as the Company continues to fail to make such payments, to require
the Company, upon written notice, to immediately issue, in lieu of the
Registration Delay Payments, including any interest thereon, the number of
shares of Common Stock equal to the quotient of (X) the sum of the Registration
Delay Payments and all interest accrued thereon divided by (Y) the Conversion
Price in effect on such Conversion Date as is specified by the holder in writing
to the Company.
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(b) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2(a) or 2(g),
the Company will use its best efforts to effect the registration of the
Registrable Securities in accordance with the intended method of disposition
thereof and, pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Initial Registrable Securities (on or
prior to the 45th day after the Initial Closing Date) and with respect to the
Put Registrable Securities (on or prior to the date which is ten days after a
Put Share Notice Date) for the registration of Registrable Securities pursuant
to Section 2(a) and use its best efforts to cause such Registration Statement
relating to the Registrable Securities to become effective as soon as possible
after such filing (but, in the case of the Initial Registrable Securities, in no
event later than 120 days after the Initial Closing Date, in the case of the Put
Registrable Securities and in no event later than 90 days after the Put Share
Notice Date), and keep such Registration Statement effective pursuant to Rule
415 at all times until the earlier of (i) the date as of which the Investors may
sell all of the Registrable Securities without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto) or (ii) the date on
which (A) the Investors shall have sold all the Registrable Securities and (B)
-6-
<PAGE>
none of the Preferred Shares is outstanding (the "Registration Period"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company filing a report on Form 10-K, Form
10-Q or Form 8-K or any analogous report under the Securities Exchange Act of
1934 (the "1934 Act"), the Company shall file such amendments or supplements
with the SEC on the same day on which the 1934 Act report is filed which created
the requirement for the Company to amend or supplement the Registration
Statement.
c. The Company shall permit Legal Counsel to review and
comment upon a Registration Statement and all amendments and supplements thereto
at least seven (7) days prior to their filing with the SEC, and not file any
document in a form to which Legal Counsel reasonably objects. The Company shall
not submit a request for acceleration of the effectiveness of a Registration
Statement or any amendment or supplement thereto without the prior approval of
Legal Counsel, which consent shall not be unreasonably withheld. The Company
shall furnish to Legal Counsel, without charge, (i) any correspondence from the
SEC or the staff of the SEC to the Company or its representatives relating to
any Registration Statement, (ii) promptly after the same is prepared and filed
with the SEC, one copy of any Registration Statement and any amendment(s)
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto.
d. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) promptly after the same is prepared and filed with the SEC, at least
one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits, the prospectus included in such Registration
Statement (including each preliminary prospectus) and, with regards to such
Registration Statement(s), any correspondence by or on behalf of the Company to
the SEC or the staff of the SEC and any correspondence from the SEC or the staff
-7-
<PAGE>
of the SEC to the Company or its representatives, (ii) upon the effectiveness of
any Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Investor may reasonably request) and (iii) such other
documents, including copies of any preliminary or final prospectus, as such
Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.
e. The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or any Investor reasonably requests, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all other 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 (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
f. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
g. As promptly as practicable after becoming aware of such
event, the Company shall notify Legal Counsel and each Investor in writing of
the happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission 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 a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). The Company shall also promptly notify
Legal Counsel and each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and each
Investor by facsimile on the same day of such effectiveness and by overnight
-8-
<PAGE>
mail), (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
h. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold (and, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
i. At the request of any Investor, the Company shall furnish
to such Investor, on the date of the effectiveness of the Registration Statement
and thereafter from time to time on such dates as an Investor may reasonably
request (i) a letter, dated such date, from the Company's independent certified
public accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, and (ii) an opinion, dated as of such date, of
counsel representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to the Investors.
j. The Company shall make available for inspection by (i) any
Buyer, (ii) Legal Counsel, (iii) any underwriter participating in any
disposition pursuant to a Registration Statement, (iv) one firm of accountants
or other agents retained by the Investors, and (v) one firm of attorneys
retained by such underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall agree to sign a confidentiality
agreement covering the Records (in a form reasonably acceptable to the Company )
and shall hold in strict confidence and shall not make any disclosure (except to
an Investor) or use of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement of which the Inspector
has knowledge. Each Investor agrees that it shall, upon learning that disclosure
of such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential.
-9-
<PAGE>
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
l. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities covered
by the Registration Statement on The Nasdaq National Market and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities. The Company shall
pay all fees and expenses in connection with satisfying its obligation under
this Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any, or
the Investors may request.
n. The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of such
Registration Statement.
o. If requested by the managing underwriters or an Investor,
the Company shall (i) immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and any other terms
of the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; (ii) make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
-10-
<PAGE>
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration Statement
if requested by a shareholder of such Registrable Securities.
p. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
q. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
r. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
s. Within two (2) business days after the Registration
Statement which includes the Registrable Securities is ordered effective by the
SEC, the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that the Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
t. For each calendar quarter beginning in the quarter in which
the initial Registration Statement required to be filed pursuant to Section 2(a)
is declared effective and thereafter so long as any Preferred Shares are
outstanding, the Company shall deliver (or cause its transfer agent to deliver)
to each Investor a written report notifying the Investors of any occurrence
which prohibits the Company from issuing Common Stock upon conversion of the
Preferred Shares. The report shall also specify (i) the total number of
Preferred Shares outstanding as of the end of the quarter, (ii) the total number
of shares of Common Stock issued upon all conversions of Preferred Shares prior
to the end of the quarter, (iii) the total number of shares of Common Stock
which are reserved for issuance upon conversion of the Preferred Shares as of
the end of the quarter, and (iv) the total number of shares of Common Stock
which may thereafter be listed or issued by the Company upon conversion of the
Preferred Shares before the Company would exceed the Exchange Cap (as defined in
the Certificate of Designations). The Company (or its transfer agent) shall
deliver the report for each quarter to each Investor prior to the tenth day of
the calendar month following the quarter to which the report relates. In
addition, the Company (or its transfer agent) shall provide, within 15 days
after delivery to the Company of a written request by an Investor, any of the
information enumerated in clauses (i) - (iv) of this Section 3(t) as of the date
of the request.
-11-
<PAGE>
u. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
v. Notwithstanding anything to the contrary in Section 3(g),
at any time after the applicable Registration Statement has been declared
effective by the SEC, the Company may delay the disclosure of material
non-public information concerning the Company the disclosure of which at the
time is not, in the good faith opinion of the Board of Directors of the Company
and its counsel, in the best interest of the Company and, in the opinion of
counsel to the Company, otherwise required (a "Grace Period"); provided, that
the Company shall promptly (i) notify the Investors in writing of the existence
of material non-public information giving rise to a Grace Period (provided that
in each notice the Company will not disclose the content of such material
non-public information to the Investors) and the date on which the Grace Period
will begin, and (ii) notify the Investors in writing of the date on which the
Grace Period ends; and, provided further, that all Grace Periods shall not
exceed an aggregate of 30 days in any consecutive 365 day period with no more
than 15 consecutive days and during any consecutive 365 day period, there shall
be an aggregate of not more than two Grace Periods (an "Allowable Grace
Period"). For purposes of determining the length of a Grace Period above, the
Grace Period shall begin on and include the date the holders receive the notice
referred to in clause (i) and shall end on and include the later of the date the
holders receive the notice referred to in clause (ii) and the date referred to
in such notice. The provisions of Sections 2(g) and 3(h) hereof shall not be
applicable during the period of any Allowable Grace Period. Upon expiration of
the Grace Period, the Company shall again be bound by the first sentence of
Section 3(g) with respect to the information giving rise thereto unless such
material non-public information is no longer applicable. In the event there is a
Grace Period, the Maturity Date (as defined in the Certificate of Designations)
shall be delayed by two (2) days for each day in the Grace Period as provided in
the Certificate of Designations.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) business days prior to the first
anticipated filing date of a Registration Statement, the Company shall notify
each Investor in writing of the information the Company requires from each such
Investor if such Investor elects to have any of such Investor's Registrable
Securities included in such Registration Statement. 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.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
-12-
<PAGE>
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2, each such Investor agrees to
enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations (only with respect to violations
which occur in reliance upon and in conformity with information furnished in
writing to the Company by such Investor expressly for use in the Registration
Statement for such underwritten public offering), with the managing underwriter
of such offering and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of the Registrable Securities, unless
such Investor notifies the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from such Registration
Statement.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(h)
or the first sentence of 3(g), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(h) or the
first sentence of 3(g). Notwithstanding anything to the contrary, the Company
shall cause its transfer agent to deliver unlegended shares of Common Stock to a
transferee of an Investor in accordance with the terms of the Certificate of
Designations in connection with any sale of Registrable Securities with respect
to which an Investor has entered into a contract for sale prior to the
Investor's receipt of a notice from the Company of the happening of any event of
the kind described in Section 3(h) or the first sentence of 3(g) and for which
the Investor has not yet settled.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Investors entitled hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements, and (iii) agrees to pay its pro rata share of
all underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company and fees and disbursements of
Legal Counsel, shall be paid by the Company, provided, however, the fees and
expenses of Legal Counsel which the Company is required to pay pursuant to this
Section 5 shall not exceed, when aggregated with fees and expenses paid pursuant
to Section 4(i) of the Securities Purchase Agreement, $50,000.
-13-
<PAGE>
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who holds
such Registrable Securities, the directors, officers, partners, employees,
agents, representatives of, and each Person, if any, who controls any Investor
within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and any underwriter (as defined in the 1933 Act) for
the Investors, and the directors and officers of, and each Person, if any, who
controls, any such underwriter within the meaning of the 1933 Act or the 1934
Act (each, an "Indemnified Person"), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, attorneys' fees,
amounts paid in settlement or expenses, joint or several, (collectively,
"Claims") incurred in investigating, preparing or defending any action, claim,
suit, inquiry, proceeding, investigation or appeal taken from the foregoing by
or before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("Indemnified Damages"), to which any of them
may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("Blue Sky Filing"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, (iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement or
(iv) any violation of this Agreement (the matters in the foregoing clauses (i)
through (iv) being, collectively, "Violations"). The Company shall reimburse
each Indemnified Person promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified
Person arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by such
Indemnified Person or underwriter for such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
-14-
<PAGE>
available by the Company pursuant to Section 3(d); (ii) with respect to any
preliminary prospectus, shall not inure to the benefit of any such person from
whom the person asserting any such Claim purchased the Registrable Securities
that are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(d), and the Indemnified Person was promptly advised in
writing not to use the incorrect prospectus prior to the use giving rise to a
violation and such Indemnified Person, notwithstanding such advice, used it;
(iii) shall not be available to the extent such Claim is based on a failure of
the Investor to deliver or to cause to be delivered the prospectus made
available by the Company, if such prospectus was timely made available by the
Company pursuant to Section 3(d); and (iv) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer or
disposition of the Registrable Securities by the Investors.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in each case
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
-15-
<PAGE>
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The Company shall
pay reasonable fees for only one separate legal counsel for the Investors, and
such legal counsel shall be selected by the Investors holding a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its written
consent, provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without
the consent of the Indemnified Party or Indemnified Person, consent to entry of
any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
-16-
<PAGE>
e. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
f. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
As long as any Preferred Shares or Registrable Securities
remain outstanding, the Company, with a view to making available to the
Investors the benefits of Rule 144 promulgated under the 1933 Act or any other
similar rule or regulation of the SEC that may at any time permit the Investors
to sell securities of the Company to the public without registration ("Rule
144"), agrees to use its best efforts to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
-17-
<PAGE>
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically
assignable by the Investors to any transferee of all or any portion of
Registrable Securities if: (i) 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; (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities laws;
(iv) at or before the time the Company receives the written notice contemplated
by clause (ii) of this sentence the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein; and (v)
such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions 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 then hold two-thirds of the Registrable Securities.
Any amendment or waiver effected in accordance with this Section 10 shall be
binding upon each Investor and the Company. No such amendment shall be effective
to the extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons 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.
-18-
<PAGE>
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Immunomedics, Inc.
300 American Road
Morris Plains, New Jersey 07950
Telephone: (973) 605-8200
Facsimile: (973) 605-8311
Attention: President
With a copy to:
Warshaw Burstein Cohen Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, New York 10017
Telephone: (212) 984-7832
Facsimile: (212) 984-7893
Attention: Michael D. Schwamm, Esq.
If to a Investor, to it at the address and facsimile number set forth on the
Schedule of Investors attached hereto, with copies to such Investor's
representatives as set forth on the Schedule of Investors, or at such other
address and/or facsimile number and/or to the attention of such other person as
the recipient party has specified by written notice given to each other party
five days prior to the effectiveness of such change. Written confirmation of
receipt (A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender's
facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by a nationally
recognized overnight delivery service shall be rebuttable evidence of personal
service, receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
c. 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.
-19-
<PAGE>
d. The corporate laws of the State of Delaware shall govern
all issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
e. This Agreement, the Securities Purchase Agreement and the
Certificate of Designations constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement, the Securities Purchase
Agreement and the Certificate of Designations supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
-20-
<PAGE>
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Preferred Shares then outstanding have
been converted into Registrable Securities without regard to any limitation on
conversions of Preferred Shares.
k. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent and no rules
of strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
* * * * * *
-21-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
IMMUNOMEDICS, INC. HFTP INVESTMENT LLC
By: PROMETHEAN INVESTMENT
GROUP, By: L.L.C.
Name: Robert J. DeLuccia
Its: President & Chief Its: Investment Manager
Executive Officer
By:
Name: James F. O'Brien, Jr.
Its: Managing Member
WINGATE CAPITAL LTD.
By:
Name: Kenneth A. Simpler
Its: Vice President
FISHER CAPITAL LTD.
By:
Name: Kenneth A. Simpler
Its: Vice President
LEONARDO, L.P.
By: ANGELO, GORDON & CO. L.P.
Its: General Partner
By:
Name: Michael L. Gordon
Its: Chief Operating Officer
GAM ARBITRAGE INVESTMENTS, INC.
By: ANGELO, GORDON & CO. L.P.
Its: Investment Advisor
By:
Name: Michael L. Gordon
Its: Chief Operating Officer
-22-
<PAGE>
AG SUPER FUND INTERNATIONAL PARTNERS, L.P.
By: ANGELO, GORDON & CO., L.P.
Its: General Partner
By:
Name: Michael L. Gordon
Its: Chief Operating Officer
RAPHAEL, L.P.
By:
Name: Michael L. Gordon
Its: Chief Operating Officer
RAMIUS FUND, LTD.
By: AG RAMIUS PARTNERS, L.L.C.
Its: Investment Advisor
By:
Name: Michael L. Gordon
Its: Managing Officer
-23-
<PAGE>
SCHEDULE OF INVESTORS
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <S>
Investor's Address Investor's Representatives'
Investor Name and Facsimile Number Address and Facsimile Number
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
HFTP Investment LLC c/o Promethean Investment Group, Promethean Investment Group, L.L.C.
L.L.C. 40 West 57th Street, Suite 1520
40 West 57th Street, Suite 1520 New York, New York 10019
New York, New York 10019 Attention: James F. O'Brien, Jr.
Attention: James F. O'Brien, Jr. Facsimile: (212) 698-0505
Facsimile: (212) 698-0505 Telephone: (212) 698-0588
Telephone: (212) 698-0588
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Facsimile: (312) 902-1061
Telephone: (312) 902-5200
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Wingate Capital Ltd. Citadel Investment Group, L.L.C. Citadel Investment Group, L.L.C.
225 West Washington Street 225 West Washington Street
Chicago, Illinois 60606 Chicago, Illinois 60606
Attention: Daniel Hopkins Attention: Daniel Hopkins
Facsimile: (312) 338-0780 Facsimile: (312) 338-0780
Telephone: (312) 338-7803 Telephone: (312) 338-7803
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Facsimile: (312) 902-1061
Telephone: (312) 902-5200
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Fisher Capital Ltd. Citadel Investment Group, L.L.C. Citadel Investment Group, L.L.C.
225 West Washington Street 225 West Washington Street
Chicago, Illinois 60606 Chicago, Illinois 60606
Attention: Daniel Hopkins Attention: Daniel Hopkins
Facsimile: (312) 338-0780 Facsimile: (312) 338-0780
Telephone: (312) 338-7803 Telephone: (312) 338-7803
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Facsimile: (312) 902-1061
Telephone: (312) 902-5200
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P. Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <S>
GAM Arbitrage Investments, Inc. c/o Angelo, Gordon & Co., L.P. Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
AG Super Fund International c/o Angelo, Gordon & Co., L.P. Angelo, Gordon & Co., L.P.
Partners, L.P. 245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Raphael, L.P. c/o Angelo, Gordon & Co., L.P. Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Ramius Fund, Ltd. c/o Angelo, Gordon & Co., L.P. Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-25-
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Attn:
Re: Immunomedics, Inc.
Ladies and Gentlemen:
We are counsel to Immunomedics, Inc., a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "Purchase Agreement") entered into by and
among the Company and the buyers named therein (collectively, the "Holders")
pursuant to which the Company issued to the Holders shares of its Series F
Convertible Preferred Shares, par value $.01 per share, (the "Preferred Shares")
convertible into shares of the Company's common stock, par value $.01 per share
(the "Common Stock"). Pursuant to the Purchase Agreement, the Company also has
entered into a Registration Rights Agreement with the Holders (the "Registration
Rights Agreement") pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Preferred Shares under the Securities Act of 1933, as amended (the "1933 Act").
In connection with the Company's obligations under the Registration Rights
Agreement, on ____________ ___, 1998, the Company filed a Registration Statement
on Form S-3 (File No. 333-_____________) (the "Registration Statement") with the
Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities which names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
cc: [LIST NAMES OF HOLDERS]
<PAGE>
IMMUNOMEDICS ANNOUNCES $12.5 MILLION FINANCING
Morris Plains, New Jersey, December 9, 1998 - Immunomedics, Inc. (Nasdaq: IMMU)
announced today that it has completed a $12.5 million private placement of 4%
Convertible Preferred Stock. The Company, subject to certain conditions, may
exercise an option for up to an additional $7.5 million Convertible Preferred
Stock. This financing replaces the Company's current equity line.
"We have made a major strategic commitment to expanding product sales and to the
rapid advancement of imaging and therapeutic products in our development
pipeline," commented Robert J. DeLuccia, President and Chief Executive Officer
of Immunomedics. "We continue to strengthen our U.S. and European sales and
marketing effort for CEA-Scan(R) (arcitumomab) as well as our European effort
for LeukoScan(R) (sulesomab). We have also initiated our planning for the U.S.
introduction of LeukoScan upon FDA approval. Accordingly, we needed to have
access to more capital. We believe this financing, in addition to our expected
continued growth in product revenues and the potential formation of corporate
partnerships or similar arrangements, further strengthens our financial
position," he added.
The Preferred Stock may not be converted into common stock for approximately six
months after the closing date. The conversion price for the Preferred Stock will
be the lesser of 125% of the market price six months after the closing or 100%
of an average of the lowest closing bid during a specified period prior to a
conversion, with certain additional conversion features during the first year
after issuance that are favorable to the Company.
Terms of the financing include certain trading and conversion restrictions as
more fully set forth in the agreements. Further, under certain conditions, the
Company has the right to redeem the Preferred Shares or require that the shares
be converted.
Immunomedics is a biopharmaceutical company focused on the development,
manufacture, and commercialization of diagnostic imaging and therapeutic
products for the detection and treatment of cancer and infectious diseases.
Integral to these products are highly specific monoclonal antibodies and
antibody fragments designed to deliver radioisotopes and chemotherapeutic agents
to tumors and sites of infection. The Company's first product, CEA-Scan(R) for
the detection of colorectal cancer, is being marketed in the United States and
Europe (approved in Canada). The Company's second diagnostic imaging product,
LeukoScan(R), is being marketed in Europe for the diagnosis of osteomyelitis
(bone infection). This product is presently under regulatory review by the U.S.
Food and Drug Administration. Immunomedics also has several other diagnostic
imaging products and two therapeutic products in clinical trials.
This release, in addition to historical information, contains certain
forward-looking statements made pursuant to the Private Securities Litigation
Reform Act of 1995. Such statements may involve significant risks and
uncertainties and actual results could differ materially from those expressed or
implied herein. Factors that could cause such differences include, but are not
limited to, new product development (including clinical trials outcome and
regulatory requirement/actions), competitive risks to marketed products and
availability of financing and other sources of capital as well as those
discussed in the Company's Annual Report on Form 10-K for the year ended June
30, 1998.
Company contact: Kevin F.X. Brophy, VP, Finance & Administration and CFO,
(973) 605-8200, extension 185. Visit our web site at www.Immunomedics.com.
- --------------------
<PAGE>
