-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cra+Ve/Sq+zniezOms51K8eiLchFxc/VNBMyldBzsMFHgroBwRg14x0sbgYCBpSv bgXnnbqYKNzrL1ktIAY/ew== 0001005477-99-001170.txt : 19990315 0001005477-99-001170.hdr.sgml : 19990315 ACCESSION NUMBER: 0001005477-99-001170 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19990312 GROUP MEMBERS: FLEMING ROBERT INC / DA GROUP MEMBERS: FLEMING US DISCOVERY FUND III, L.P. GROUP MEMBERS: FLEMING US DISCOVERY OFFSHORE FUND III, L.P. GROUP MEMBERS: FLEMING US DISCOVERY PARTNERS, L.P. GROUP MEMBERS: FLEMING US DISCOVERY, LLC GROUP MEMBERS: ROBERT FLEMING HOLDINGS, LTD. GROUP MEMBERS: ROBERT FLEMING, INC. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: GLOBAL PHARMACEUTICAL CORP \DE\ CENTRAL INDEX KEY: 0001003642 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 650403311 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-48867 FILM NUMBER: 99564411 BUSINESS ADDRESS: STREET 1: CASTOR & KENSINGTON AVES CITY: PHILADELPHIA STATE: PA ZIP: 19124-5694 BUSINESS PHONE: 2152892220 MAIL ADDRESS: STREET 1: CASTOR & KENSINGTON AVENUES CITY: PHILADELPHIA STATE: PA ZIP: 19124-5694 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FLEMING ROBERT INC / DA CENTRAL INDEX KEY: 0000902812 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 320 PARK AVENUE STREET 2: 11TH & 12TH FL CITY: NEW YORK STATE: NY ZIP: 10022 MAIL ADDRESS: STREET 1: 320 PARK AVE STREET 2: 11TH AND 12TH FL CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: FLEMING ROBERT INC DATE OF NAME CHANGE: 19930429 SC 13D 1 SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- SCHEDULE 13D (Rule 13d-101) Under the Securities Exchange Act of 1934 (Amendment No.__)* GLOBAL PHARMACEUTICAL CORPORATION ---------------------------------------------------- (Name of Issuer) Common Stock, $.01 PAR VALUE ---------------------------------------------------- (Title of Class of Securities) 378922 10 8 ---------------------------------------------------- (CUSIP Number) Larry A. Kimmel Robert Fleming, Inc. 320 Park Avenue, 11th Floor New York, NY 10022 (212) 508-3610 ---------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) March 2, 1999 ---------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|. Note: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. - ---------- * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP No. 378922 10 8 SCHEDULE 13D Page 2 of 15 Pages - -------------------------------------------------------------------------------- 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person FLEMING US DISCOVERY FUND III, L.P. - -------------------------------------------------------------------------------- 2 Check the Appropriate Box If a Member of a Group a. |X| b. |_| - -------------------------------------------------------------------------------- 3 SEC Use Only - -------------------------------------------------------------------------------- 4 Source of Funds WC - -------------------------------------------------------------------------------- 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) |_| - -------------------------------------------------------------------------------- 6 Citizenship or Place of Organization Delaware - -------------------------------------------------------------------------------- 7 Sole Voting Power Number of Shares 1,616,000 shares of Common Stock Beneficially -------------------------------------------------------- Owned By 8 Shared Voting Power Each Reporting 259,000 shares of Common Stock Person -------------------------------------------------------- With 9 Sole Dispositive Power 1,616,000 shares of Common Stock -------------------------------------------------------- 10 Shared Dispositive Power 259,000 shares of Common Stock -------------------------------------------------------- - -------------------------------------------------------------------------------- 11 Aggregate Amount Beneficially Owned by Each Reporting Person 1,875,000 shares of Common Stock - -------------------------------------------------------------------------------- 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares |_| - -------------------------------------------------------------------------------- 13 Percent of Class Represented By Amount in Row (11) 22.2% - -------------------------------------------------------------------------------- 14 Type of Reporting Person PN - -------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 378922 10 8 SCHEDULE 13D Page 3 of 15 Pages - -------------------------------------------------------------------------------- 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person FLEMING US DISCOVERY OFFSHORE FUND III, L.P. - -------------------------------------------------------------------------------- 2 Check the Appropriate Box If a Member of a Group a. |X| b. |_| - -------------------------------------------------------------------------------- 3 SEC Use Only - -------------------------------------------------------------------------------- 4 Source of Funds WC - -------------------------------------------------------------------------------- 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) |_| - -------------------------------------------------------------------------------- 6 Citizenship or Place of Organization Bermuda - -------------------------------------------------------------------------------- 7 Sole Voting Power Number of Shares 259,000 shares of Common Stock Beneficially -------------------------------------------------------- Owned By 8 Shared Voting Power Each Reporting 1,616,000 shares of Common Stock Person -------------------------------------------------------- With 9 Sole Dispositive Power 259,000 shares of Common Stock -------------------------------------------------------- 10 Shared Dispositive Power 1,616,000 shares of Common Stock -------------------------------------------------------- - -------------------------------------------------------------------------------- 11 Aggregate Amount Beneficially Owned by Each Reporting Person 1,875,000 shares of Common Stock - -------------------------------------------------------------------------------- 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares |_| - -------------------------------------------------------------------------------- 13 Percent of Class Represented By Amount in Row (11) 22.2% - -------------------------------------------------------------------------------- 14 Type of Reporting Person PN - -------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 378922 10 8 SCHEDULE 13D Page 4 of 15 Pages - -------------------------------------------------------------------------------- 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person FLEMING US DISCOVERY PARTNERS, L.P. - -------------------------------------------------------------------------------- 2 Check the Appropriate Box If a Member of a Group a. |X| b. |_| - -------------------------------------------------------------------------------- 3 SEC Use Only - -------------------------------------------------------------------------------- 4 Source of Funds AF - -------------------------------------------------------------------------------- 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) |_| - -------------------------------------------------------------------------------- 6 Citizenship or Place of Organization Delaware - -------------------------------------------------------------------------------- 7 Sole Voting Power Number of Shares 0 shares of Common Stock Beneficially -------------------------------------------------------- Owned By 8 Shared Voting Power Each Reporting 1,875,000 shares of Common Stock Person -------------------------------------------------------- With 9 Sole Dispositive Power 0 shares of Common Stock -------------------------------------------------------- 10 Shared Dispositive Power 1,875,000 shares of Common Stock -------------------------------------------------------- - -------------------------------------------------------------------------------- 11 Aggregate Amount Beneficially Owned by Each Reporting Person 1,875,000 shares of Common Stock - -------------------------------------------------------------------------------- 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares |_| - -------------------------------------------------------------------------------- 13 Percent of Class Represented By Amount in Row (11) 22.2% - -------------------------------------------------------------------------------- 14 Type of Reporting Person PN - -------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 378922 10 8 SCHEDULE 13D Page 5 of 15 Pages - -------------------------------------------------------------------------------- 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person FLEMING US DISCOVERY, LLC - -------------------------------------------------------------------------------- 2 Check the Appropriate Box If a Member of a Group a. |_| b. |_| - -------------------------------------------------------------------------------- 3 SEC Use Only - -------------------------------------------------------------------------------- 4 Source of Funds AF - -------------------------------------------------------------------------------- 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) |_| - -------------------------------------------------------------------------------- 6 Citizenship or Place of Organization Delaware - -------------------------------------------------------------------------------- 7 Sole Voting Power Number of Shares 1,875,000 shares of Common Stock Beneficially -------------------------------------------------------- Owned By 8 Shared Voting Power Each Reporting 1,875,000 shares of Common Stock Person -------------------------------------------------------- With 9 Sole Dispositive Power 1,875,000 shares of Common Stock -------------------------------------------------------- 10 Shared Dispositive Power 1,875,000 shares of Common Stock -------------------------------------------------------- - -------------------------------------------------------------------------------- 11 Aggregate Amount Beneficially Owned by Each Reporting Person 1,875,000 shares of Common Stock - -------------------------------------------------------------------------------- 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares |_| - -------------------------------------------------------------------------------- 13 Percent of Class Represented By Amount in Row (11) 22.2% - -------------------------------------------------------------------------------- 14 Type of Reporting Person OO - -------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 378922 10 8 SCHEDULE 13D Page 6 of 15 Pages - -------------------------------------------------------------------------------- 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person ROBERT FLEMING, INC. - -------------------------------------------------------------------------------- 2 Check the Appropriate Box If a Member of a Group a. |_| b. |_| - -------------------------------------------------------------------------------- 3 SEC Use Only - -------------------------------------------------------------------------------- 4 Source of Funds AF - -------------------------------------------------------------------------------- 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) |_| - -------------------------------------------------------------------------------- 6 Citizenship or Place of Organization Delaware - -------------------------------------------------------------------------------- 7 Sole Voting Power Number of Shares 0 shares of Common Stock Beneficially -------------------------------------------------------- Owned By 8 Shared Voting Power Each Reporting 0 shares of Common Stock Person -------------------------------------------------------- With 9 Sole Dispositive Power 0 shares of Common Stock -------------------------------------------------------- 10 Shared Dispositive Power 0 shares of Common Stock -------------------------------------------------------- - -------------------------------------------------------------------------------- 11 Aggregate Amount Beneficially Owned by Each Reporting Person 1,875,000 shares of Common Stock - -------------------------------------------------------------------------------- 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares |_| - -------------------------------------------------------------------------------- 13 Percent of Class Represented By Amount in Row (11) 22.2% - -------------------------------------------------------------------------------- 14 Type of Reporting Person IA, CO - -------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 378922 10 8 SCHEDULE 13D Page 7 of 15 Pages - -------------------------------------------------------------------------------- 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person ROBERT FLEMING HOLDINGS, LTD. - -------------------------------------------------------------------------------- 2 Check the Appropriate Box If a Member of a Group a. |_| b. |_| - -------------------------------------------------------------------------------- 3 SEC Use Only - -------------------------------------------------------------------------------- 4 Source of Funds AF - -------------------------------------------------------------------------------- 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) |_| - -------------------------------------------------------------------------------- 6 Citizenship or Place of Organization United Kingdom - -------------------------------------------------------------------------------- 7 Sole Voting Power Number of Shares 0 shares of Common Stock Beneficially -------------------------------------------------------- Owned By 8 Shared Voting Power Each Reporting 0 shares of Common Stock Person -------------------------------------------------------- With 9 Sole Dispositive Power 0 shares of Common Stock -------------------------------------------------------- 10 Shared Dispositive Power 0 shares of Common Stock -------------------------------------------------------- - -------------------------------------------------------------------------------- 11 Aggregate Amount Beneficially Owned by Each Reporting Person 1,875,000 shares of Common Stock - -------------------------------------------------------------------------------- 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares |_| - -------------------------------------------------------------------------------- 13 Percent of Class Represented By Amount in Row (11) 22.2% - -------------------------------------------------------------------------------- 14 Type of Reporting Person HC, CO - -------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT! STATEMENT PURSUANT TO RULE 13d-1 OF THE GENERAL RULES AND REGULATIONS UNDER THE SECURITIES EXCHANGE ACT OR 1934, AS AMENDED ================================================================================ Responses to each item below are incorporated by reference into each other item, as applicable. Item 1. Security and Issuer. This Statement on Schedule 13D relates to Common Stock, par value $0.01 per share ("Common Stock"), of Global Pharmaceutical Corporation, a Delaware corporation ("Issuer"). The address of the Issuer's principal executive offices is Castor & Kensington Avenues, Philadelphia, Pennsylvania 19124. Item 2. Identity and Background. This statement is being filed pursuant to a Joint Filing Agreement (attached as Exhibit 1 and incorporated herein by reference) by (i) Fleming US Discovery Fund III, L.P. ("US Fund"), (ii) Fleming US Discovery Offshore Fund III, L.P. ("Offshore Fund"), (iii) Fleming US Discovery Partners, L.P., ("Fleming Partners"), the general partner of the US Fund and a general partner of the Offshore Fund, (iv) Fleming US Discovery, LLC ("Discovery"), the general partner of Fleming Partners, (v) Robert Fleming, Inc. ("RFI"), investment adviser to the US Fund and Offshore Fund (collectively, the "Funds"), and (vi) Robert Fleming Holdings, Ltd. ("RFH"), the parent of RFI (sometimes collectively referred to as the "Reporting Persons"). The information required by this Item for each of the Reporting Persons is set forth in Appendix 1 hereto. The information required by this Item for each officer, director, and partner and each controlling person, if any, of certain Reporting Persons is set forth in Appendix 2 hereto. The Offshore Fund has two general partners, Fleming Partners and Fleming (Bermuda) Discovery III Limited ("Fleming Bermuda"). Fleming Bermuda is a company organized in Bermuda. Its principal business and office address is c/o Bank of Bermuda, Ltd., 6 Front St., Hamilton HM 11, Bermuda. Its principal business is to serve as a general partner of the Offshore Fund. During the last five years prior to the date of this filing, none of the Reporting Persons or persons identified in Appendix 1 or Appendix 2 has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction ending in a judgment, decree or Page 8 of 15 Pages final order enjoining future violations or prohibiting or mandating the activities subject to, federal or state securities laws or finding a violation with respect to such laws. Item 3. Source and Amount of Funds or Other Consideration. On March 2, 1999, the US Fund entered into the Stock and Warrant Purchase Agreement, dated as of March 2, 1999, between the Issuer and the US Fund (attached hereto as Exhibit 4 and incorporated herein by reference), to purchase, for a total purchase price of $2,585,600 (x) 25,856 shares of Series D Convertible Preferred Stock, $0.01 par value per share ("Series D Preferred Stock"), and (y) warrants ("US Fund Warrants") (pursuant to the Warrant Certificate issued by the Issuer to US Fund attached hereto as Exhibit 8 and incorporated herein by reference), to purchase up to 323,200 shares of Common Stock, of the Issuer. The Series D Preferred Stock is convertible into 1,292,800 shares of Common Stock. The US Fund purchased the Series D Preferred Stock and the US Fund Warrants, which were acquired by the US Fund at the closing on March 2, 1999, with its working capital. No part of the purchase price was or will be represented by funds or other consideration borrowed or otherwise obtained for the purpose of acquiring, holding, trading or voting the Common Stock. On March 2, 1999, the Offshore Fund entered into the Stock and Warrant Purchase Agreement, dated as of March 2, 1999, between the Issuer and the Offshore Fund, to purchase, for a total purchase price of $414,000, (x) 4,144 shares of Series D Preferred Stock and (y) warrants ("Offshore Fund Warrants") (pursuant to the Warrant Certificate issued by the Issuer to Offshore Fund), to purchase up to 51,800 shares of Common Stock (the US Fund Warrants and the Offshore Fund Warrants collectively referred to herein as the "Warrants"), of the Issuer. The Series D Preferred Stock is convertible into 207,200 shares of Common Stock. The Offshore Fund purchased the Series D Preferred Stock and the Offshore Fund Warrants, which were acquired by the Offshore Fund at closing on March 2, 1999, with its working capital. No part of the purchase price was or will be represented by funds or other consideration borrowed or otherwise obtained for the purpose of acquiring, holding, trading or voting the Common Stock. Item 4. Purpose of Transaction. a) The Series D Preferred Stock and the Warrants deemed to be beneficially owned by the Reporting Persons were acquired for, and are being held for, investment purposes. The Funds may dispose of or acquire securities of the Issuer, including Common Stock, depending upon the position of the market, the Issuer and other factors. Except as set forth above, none of the Reporting Persons nor, to the best of their knowledge, any person listed in Appendix I hereto, has any plans or proposals which relate to or would result in any other acquisition by any person of additional securities of the Issuer, or the disposition of securities of the Issuer. b) None of the Reporting Persons nor, to the best of their knowledge, any person listed in Appendix I hereto, has any plans or proposals which relate to or would result in an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries. Page 9 of 15 Pages c) None of the Reporting Persons nor, to the best of their knowledge, any person listed in Appendix I hereto, has any plans or proposals which relate to or would result in a sale or transfer of a material amount of assets of the Issuer or any of its subsidiaries. d) Pursuant to the Issuer's Certificate of Designations for the Series D Convertible Preferred Stock (attached hereto as Exhibit 5 and incorporated herein by reference), so long as either (i) the Funds, any Affiliate, officer or employee of an Affiliate or investment fund managed by an Affiliate of the Funds to which the Funds may transfer record or beneficial ownership of any shares of Series D Preferred Stock or any shares of Common Stock obtained or obtainable upon conversion of any shares of Series D Preferred Stock ("Fleming Holder") own at least 50% of the outstanding shares of Series D Preferred Stock or (ii) any transferee (except for a Fleming Holder) of any shares of Series D Preferred Stock or any shares of Common Stock obtained or obtainable upon conversion of any shares of Series D Preferred Stock ("Transferee") owns at least 50% of the outstanding shares of Series D Preferred Stock and the Issuer consented to such Transferee (which consent shall not be unreasonably withheld), the holders of Series D Preferred Stock, consenting or voting (as the case may be) as a separate class, shall be entitled, but not required, to elect up to three (3) directors of the Issuer. So long as either (i) the Fleming Holders own at least 37.5% of the outstanding shares of Series D Preferred Stock or (ii) any Transferee owns at least 37.5% of the outstanding shares of Series D Preferred Stock and the Issuer consented to such Transferee (which consent shall not be unreasonably withheld), the holders of Series D Preferred Stock, consenting or voting (as the case may be) as a separate class, shall be entitled, but not required, to elect up to two (2) directors of the Issuer. So long as either (i) the Fleming Holders own at least 25% of the outstanding shares of Series D Preferred Stock or (ii) any Transferee owns at least 25% of the outstanding shares of Series D Preferred Stock and the Issuer consented to such Transferee (which consent shall not be unreasonably withheld), the holders of Series D Preferred Stock, consenting or voting (as the case may be) as a separate class, shall be entitled, but not required, to elect one (1) director of the Issuer. Except as set forth above, none of the Reporting Persons nor, to the best of their knowledge, any person listed in Appendix I hereto, has any plans or proposals which relate to or would result in any other changes in the board of directors or management of the Issuer, or which relate to or would result in: (e) any material change in the present capitalization or divided policy of the Issuer; (f) any other material change in the Issuer's business or corporate structure; (g) changes in the Issuer's charter, By-Laws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Issuer by any person; (h) causing a class of securities of the Issuer to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) a class of equity securities of the Issuer becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) any action similar to any of those enumerated above. The Reporting Persons retain the right to change their investment intent, to propose one or more possible transactions to the Issuer's board, to acquire additional shares of preferred stock or common stock from time to time or to sell or otherwise dispose of all or part of the Series D Preferred Stock beneficially owned by them (or any shares of Common Stock into which such Series D Preferred Stock are converted) or to sell or otherwise dispose of all or part of the Warrants beneficially owned by them (or any Shares of Common Stock into which such Warrants are exercised) in any manner permitted by law. In the event of a material Page 10 of 15 Pages change in the present plans or intentions of the Reporting Persons, the Reporting Persons will amend this Schedule 13D to reflect such change. Item 5. Interest in Securities of the Issuer. (a) On March 2, 1999, the US Fund purchased 25,856 shares of Series D Preferred Stock ("US Fund Preferred Stock"). The US Fund Preferred Stock is currently convertible into 1,292,800 shares of Common Stock ("US Fund Conversion Shares"), subject to certain antidilution provisions. On March 2, 1999, the US Fund purchased Warrants exercisable at $4.00 per share, subject to certain antidilution provisions, for up to 323,200 shares of Common Stock ("US Fund Warrant Shares"). On March 2, 1999, the Offshore Fund purchased 4,144 shares of Series D Preferred Stock ("Offshore Fund Preferred Stock"). The Offshore Fund Preferred Stock is currently convertible into 207,200 shares of Common Stock ("Offshore Fund Conversion Shares"), subject to certain antidilution provisions. On March 2, 1999, the Offshore Fund purchased warrants exercisable at $4.00 per share, subject to certain antidilution provisions, for up to 51,800 shares of Common Stock ("Offshore Fund Warrant Shares"). Because of their relationship as affiliated entities, both Funds may be deemed to beneficially own the US Fund Conversion Shares, the US Fund Warrant Shares, the Offshore Fund Conversion Shares and the Offshore Fund Warrant Shares. As the general partner of both Funds, Fleming Partners may be deemed to beneficially own the US Fund Conversion Shares, the US Fund Warrant Shares, the Offshore Fund Conversion Shares and the Offshore Fund Warrant Shares. As the general partner of Fleming Partners, Discovery may be deemed to beneficially own the US Fund Conversion Shares, the US Fund Warrant Shares, the Offshore Fund Conversion Shares and the Offshore Fund Warrant Shares. As investment adviser to the Funds, controlling member of Discovery and the sole limited partner of Fleming Partners, RFI may be deemed to beneficially own the US Fund Conversion Shares, the US Fund Warrant Shares, the Offshore Fund Conversion Shares and the Offshore Fund Warrant Shares. RFH is the indirect 80% owner of RFI. Thus, as the indirect parent of RFI, RFH may be deemed to beneficially own the US Fund Conversion Shares, the US Fund Warrant Shares, the Offshore Fund Conversion Shares and the Offshore Fund Warrant Shares. Pursuant to the Offshore Fund's Limited Partnership Agreement (attached hereto as Exhibit 2 and incorporated herein by reference), Fleming Bermuda, one of the Offshore Fund's general partners, is responsible for the Offshore Fund's administrative, secretarial and related management activities. Fleming Bermuda has no authority over or responsibility for the investment management of the Offshore Fund. As of March 2, 1999, each of the Funds, each of Fleming Partners, Discovery, RFI and RFH may be deemed to have owned beneficially 22.2% of the outstanding Common Stock, on an aggregated basis, which percentage is calculated based upon (i) 6,588,450 shares of Common Stock reported outstanding by the Issuer to the Reporting Persons as of February 11, 1999, (ii) the number of shares of Common Stock (1,500,000) issuable upon conversion of the US Fund Preferred Stock and Offshore Fund Preferred Stock and (iii) the number of shares of Common Stock (375,000) issuable upon exercise of the Warrants. Page 11 of 15 Pages The percentage is calculated by dividing 1,875,000 (which is the sum of 1,500,000 and 375,000) by 8,463,450 (which is the sum of 1,500,000, 375,000 and 6,588,450). (b) The information required by this paragraph is reflected on Lines 7-10 of each Reporting Person's cover page, incorporated herein by reference. The information required by Items 2 of this Schedule for Fleming US Discovery Investment Trust and Fleming US Discovery Fund is set forth in Appendix 1 and Appendix 2 hereto. (c) None of the Reporting Persons has effected any transactions in the Common Stock during the last 60 days. (d) No other person is known to have the right to receive or the power to direct the receipt of dividends from, or any proceeds from the sale of, the shares of Common Stock beneficially owned by any of the Reporting Persons. (e) Not Applicable. Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to the Securities of the Issuer. The Funds acquired their respective shares of Series D Preferred Stock pursuant to the Stock and Warrant Purchase Agreements, dated as of March 2, 1999, and executed by the Funds and the Issuer. The Funds acquired their respective Warrants pursuant to their respective Warrant Certificates, dated March 2, 1999, and executed by the Issuer. The Warrant Certificates contain certain antidilution provisions. A Stockholders' Agreement, dated as of March 2, 1999 (attached hereto as Exhibit 6 and incorporated herein by reference), was entered into by the Issuer, Barry R. Edwards and each of the Funds. The Stockholders' Agreement provides that in the event Barry R. Edwards ("Edwards") proposes to transfer his shares ("Transferor Shares") to any Person ("Buyer"), as a condition to such Transfer, Edwards shall cause the Buyer to offer to purchase from each Fund up to that number of Series D Preferred Stock and Common Stock owned by any Fleming Holder or any Transferee ("Investor Shares") representing the same percentage of all Investor Shares owned by it as the Transferor Shares are of all Edwards Shares, subject to certain exceptions. These "Tag-Along" rights are more fully set forth in Section 1 of the Stockholders' Agreement. Pursuant to the Registration Rights Agreement, dated March 2, 1999 (attached hereto as Exhibit 7 and incorporated herein by reference), the Issuer has granted to the Fleming Holders and their permitted transferees certain demand and "piggyback" registration rights with respect to the shares of Common Stock (including Common Stock issuable upon the conversion of Series D Preferred Stock) held by such stockholders. Page 12 of 15 Pages Pursuant to the Certificate of Designations of the Series D Preferred Stock, filed with the Secretary of State of Delaware on February 26, 1999 (attached hereto as Exhibit 5 and incorporated herein by reference), the Fleming Holders currently are entitled to one vote per share of Common Stock into which each share of Series D Preferred Stock is convertible. The Fleming Holders are entitled to receive dividends in an amount equal to the equivalent per share dividend declared on the Common Stock, when and as declared by the Board of Directors. In addition, under the Certificate of Designations of the Series D Preferred Stock, the Fleming Holders are entitled to elect certain members of the Issuer's Board of Directors, as more fully set forth in Item 5 herein and Section 4(c) of the Certificate of Designations of the Series D Preferred Stock. In the Limited Partnership Agreements of the US Fund and the Offshore Fund, each dated as of September 27, 1996 (attached hereto as Exhibits 3 and 2, and incorporated herein by reference), the Funds and their respective limited partners agreed that (i) all investment opportunities would be apportioned between the Funds in proportion to the relative amounts of capital committed to each Fund and (ii) the Funds would sell or otherwise dispose of their investments at substantially the same time, on substantially the same terms, in amounts proportionate to the relative size of their investments. The foregoing response to this Item 6 is qualified in its entirety by reference to the Stock and Warrant Purchase Agreements, the Stockholders' Agreement, the Certificate of Designations, the Registration Rights Agreement and the Warrant Certificates. Except as set forth in this Item 6 and Items 3, 4 and 5 of this statement, there are no contracts, arrangements, understandings or relationships among the persons named in Item 2 or between such persons and any other person with respect to any securities of the Issuer. Page 13 of 15 Pages Item 7. Material to be Filed as Exhibits. Exhibit 1 - Joint Filing Agreement. Exhibit 2 - Limited Partnership Agreement of Fleming Discovery Offshore Fund III, L.P. (incorporated by reference to Exhibit 3 to the Schedule 13D of Robert Fleming, Inc. with respect to the securities of Anicom, Inc. filed on July 29, 1997). Exhibit 3 - Limited Partnership Agreement of Fleming US Discovery Fund III, L.P. (incorporated by reference to Exhibit 6 to the Schedule 13D of Robert Fleming, Inc. with respect to the securities of Anicom, Inc. filed on July 29, 1997). Exhibit 4 - Stock and Warrant Purchase Agreement, dated as of March 2, 1999, between Global Pharmaceutical Corporation and Fleming US Discovery Fund III, L.P. Exhibit 5 - Certificate of Designations of Series D Convertible Preferred Stock of Global Pharmaceutical Corporation filed with the Secretary of State of Delaware on February 26, 1999. Exhibit 6 - Stockholders' Agreement, dated as of March 2, 1999, among Global Pharmaceutical Corporation, Barry R. Edwards, Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. Exhibit 7 - Registration Rights Agreement, dated as of March 2, 1999 among Global Pharmaceutical Corporation, Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. Exhibit 8 - Warrant Certificate, dated March 2, 1999, between Global Pharmaceutical Corporation and Fleming US Discovery Fund III, L.P. Exhibit 9 - Press Release issued by the Issuer on March 3, 1999 (incorporated by reference to the same document included as Exhibit 99 to Form 8-K filed by the Issuer on March 5, 1999, under SEC File No. 0-27354). Appendix 1- Address, Organization and Principal Business of Each Reporting Person Required by Item 2 Appendix 2- Information About Each Reporting Person Required by Item 2 Page 14 of 15 Pages SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.* March 12, 1999 FLEMING US DISCOVERY FUND III, L.P. By: Fleming US Discovery Partners, L.P., its general partner By: Fleming US Discovery, LLC, its general partner By: /s/ Robert L. Burr ------------------------------ Robert L. Burr, Director FLEMING US DISCOVERY OFFSHORE FUND III, L.P. By: Fleming US Discovery Partners, L.P., its general partner By: Fleming US Discovery, LLC, its general partner By: /s/ Robert L. Burr -------------------------- Robert L. Burr, Director FLEMING US DISCOVERY PARTNERS, L.P. By: Fleming US Discovery, LLC, its general partner By: /s/ Robert L. Burr ---------------------------------- Robert L. Burr, Director FLEMING US DISCOVERY, LLC By: /s/ Robert L. Burr ---------------------------------- Robert L. Burr, Director ROBERT FLEMING, INC. By: /s/ Robert L. Burr ---------------------------------- Robert L. Burr, Director ROBERT FLEMING HOLDINGS, LTD. By: /s/ Arthur A. Levy ---------------------------------- Arthur A. Levy, Director Page 15 of 15 Pages EX-99.1 2 JOINT FILING AGREEMENT Exhibit 1 JOINT FILING AGREEMENT Pursuant to and in accordance with Rule 13d-1(k)(1) under the Securities Exchange Act of 1934, the undersigned hereby agree to jointly file the Schedule 13D dated March 12, 1999 and any amendments thereto with respect to the beneficial ownership by each of the undersigned of shares of common stock of Global Pharmaceutical Corporation. Such joint filings may be executed by one or more of us on behalf of each of the undersigned. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. Executed this day of March 12, 1999. FLEMING US DISCOVERY FUND III, L.P. By: Fleming US Discovery Partners, L.P., its general partner By: Fleming US Discovery, LLC, its general partner By: /s/ Robert L. Burr ------------------------------ Robert L. Burr, Director FLEMING US DISCOVERY OFFSHORE FUND III, L.P. By: Fleming US Discovery Partners, L.P., its general partner By: Fleming US Discovery, LLC, its general partner By: /s/ Robert L. Burr -------------------------- Robert L. Burr, Director FLEMING US DISCOVERY PARTNERS, L.P. By: Fleming US Discovery, LLC, its general partner By: /s/ Robert L. Burr ---------------------------------- Robert L. Burr, Director FLEMING US DISCOVERY, LLC By: /s/ Robert L. Burr ---------------------------------- Robert L. Burr, Director Exhibit 1 ROBERT FLEMING, INC. By: /s/ Robert L. Burr ---------------------------------- Robert L. Burr, Director ROBERT FLEMING HOLDINGS, LTD. By: /s/ Arthur A. Levy ---------------------------------- Arthur A. Levy, Director APPENDIX 1 ADDRESS, ORGANIZATION AND PRINCIPAL BUSINESS OF EACH REPORTING PERSON REQUIRED BY ITEM 2 AND OTHER PERSONS REQUIRED BY ITEM 5
PRINCIPAL BUSINESS PLACE OF REPORTING PERSON AND OFFICE ADDRESS ORGANIZATION PRINCIPAL BUSINESS Fleming US Discovery Fund 320 Park Avenue, 11th Delaware limited partnership to invest in securities with a III, L.P. Floor view to long-term capital ("US Fund") New York, NY 10022 appreciation Fleming US Discovery c/o Bank of Bermuda, Ltd, Bermuda limited partnership to invest in securities with a Offshore Fund III, L.P. 6 Front St view to long-term capital ("Offshore Fund," with US Hamilton HM 11 Bermuda appreciation Funds the "Funds") Fleming US Discovery 320 Park Avenue, Delaware limited partnership to act as the general partner Partners, L.P. 11th Floor of the Funds ("Fleming Partners") New York, NY 10022 Fleming US Discovery, LLC 320 Park Avenue, Delaware limited liability to act as the sole general 11th Floor company partner of Fleming Partners New York, NY 10022 Robert Fleming, Inc. 320 Park Avenue, Delaware corporation a registered investment 11th Floor adviser and broker-dealer New York, NY 10022 Robert Fleming Holdings, 25 Copthall Avenue United Kingdom company to provide international Ltd. London EC2B 7PQ, investment banking, asset England management and securities brokerage services to its clients
OTHER Fleming US Discovery 25 Copthall Avenue Investment Trust London EC2B 7PQ, England Fleming US Discovery 320 Park Avenue, Fund 11th Floor New York, NY 10022 Appendix 2 INFORMATION ABOUT REPORTING PERSONS REQUIRED BY ITEM 2 MANAGERS AND COMMITTEES OF FLEMING US DISCOVERY, LLC MANAGERS Robert Fleming, Inc. Robert L. Burr Christopher M.V. Jones* Eytan M. Shapiro* Timothy R.V. Parton* EXECUTIVE COMMITTEE Arthur A. Levy Iain O.S. Saunders Jonathan K.L. Simon Robert L. Burr Christopher M.V. Jones INVESTMENT COMMITTEE Robert L. Burr Christopher M.V. Jones Eytan M. Shapiro Timothy R.V. Parton * Eytan M. Shapiro, Christopher M.V. Jones and Timothy R.V. Parton are United Kingdom citizens. Robert L. Burr is a United States citizen. Their business address is 320 Park Avenue, 11th Floor, New York, New York 10022. The citizenship and business address, for each of the remaining persons listed above is contained in "Executive Officers and Directors of Robert Fleming, Inc." EXECUTIVE OFFICERS AND DIRECTORS OF ROBERT FLEMING, INC. Name: Lord Robin Renwick Citizenship: United Kingdom Business Address: Robert Fleming & Co. 25 Copthall Avenue London EC2R-7DR, England Title: Chairman of the Board Name: Arthur A. Levy Citizenship: United States Business Address: Robert Fleming, Inc. 320 Park Avenue New York, NY 10022 Title: President, Vice Chairman and Director Name: Christopher M.V. Jones Citizenship: United Kingdom Business Address: Robert Fleming, Inc. 320 Park Avenue New York, NY 10022 Title: Director Name: Larry A. Kimmel Citizenship: United States Business Address: Robert Fleming,Inc. 320 Park Avenue New York, NY 10022 Title: Vice President and Director of Compliance Name: Iain O.S. Saunders Citizenship: United Kingdom Business Address: Robert Fleming & Co. 25 Copthall Avenue London EC2R-7DR, England Title: Director Name: Jonathan K.L. Simon Citizenship: United Kingdom Business Address: Robert Fleming, Inc. 320 Park Avenue New York, NY 10022 Title: Director Name: Andrea M. Whitmore Citizenship: United Kingdom Business Address: Robert Fleming, Inc. 320 Park Avenue New York, NY 10022 Title: Chief Financial Officer and Vice President Name: Mark Mattheys Citizenship: United States Business Address: Robert Fleming, Inc. 320 Park Avenue New York, NY 10022 Director and Chief Operating Officer Title: Name: Charlie Bridge Citizenship: United States Business Address: Robert Fleming, Inc. 320 Park Avenue New York, NY 10022 Title: Director Name: Eduardo Canet Citizenship: United States Business Address: Robert Fleming, Inc. 320 Park Avenue New York, NY 10022 Title: Director OFFICERS AND DIRECTORS OF ROBERT FLEMING HOLDINGS, LTD. BOARD OF DIRECTORS* CITIZENSHIP John Manser CBE United Kingdom Chairman William Garrett United Kingdom Group Chief Executive Phillip Wichelow United Kingdom Iain O.S. Saunders United Kingdom John Emly United Kingdom Paul Bateman United Kingdom Tom Hughes-Hallett United Kingdom Michael Baines United Kingdom David Boardman United Kingdom Robin Fleming United Kingdom Ken Inglis United Kingdom Arthur A. Levy United States Bernard Taylor United Kingdom Sir Robin Renwick KCMG United Kingdom John Archibald United Kingdom Peter Barton United Kingdom Ian Hannam United Kingdom *With the exception of Arthur A. Levy, the business address for each of the above persons is 25 Copthall Avenue, London EC2R- 77DR, England. The titles below the first four names refer to officer titles. EX-99.4 3 STOCK AND WARRANT PURCHASE AGREEMENT Exhibit 4 The Stock and Warrant Purchase Agreement, dated as of March 2, 1999, between Global Pharmaceutical Corporation and Fleming US Discovery Offshore Fund III, L.P., is substantially identical to the agreement attached hereto (Stock and Warrant Purchase Agreement, dated as of March 2, 1999, between Global Pharmaceutical Corporation and Fleming US Discovery Fund III, L.P.) except that the parties to the former agreement are Global Pharmaceutical Corporation and Fleming US Discovery Offshore Fund III, L.P., and the parties to the latter agreement are Global Pharmaceutical Corporation and Fleming US Discovery Fund III, L.P. ================================================================================ STOCK AND WARRANT PURCHASE AGREEMENT dated March 2, 1999 between GLOBAL PHARMACEUTICAL CORPORATION and FLEMING US DISCOVERY FUND III, L.P. ================================================================================ TABLE OF CONTENTS Page SECTION 1. SALE AND PURCHASE OF PREFERRED STOCK AND WARRANTS..............1 SECTION 2. CLOSING........................................................2 SECTION 3. DEFINITIONS....................................................3 SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................15 4.1. Corporate Existence, Power and Authority......................15 4.2. Capital Stock.................................................16 4.3. Subsidiaries..................................................18 4.4. Business......................................................18 4.5. No Defaults or Conflicts......................................18 4.6. Disclosure Materials; Other Information.......................19 4.7. Litigation....................................................20 4.8. Taxes.........................................................20 4.9. ERISA.........................................................21 4.10. Legal Compliance..............................................22 4.11. Outstanding Securities........................................23 4.12. Permits, Licenses and Approvals; Intellectual Property and Other Rights..............................................23 4.13. Key Employees.................................................23 4.14. Properties....................................................24 4.15. Suppliers and Customers.......................................24 4.16. Environmental Compliance......................................24 4.18. Offering of Shares and Warrants...............................25 4.19. SEC Reports...................................................25 4.20. Indebtedness..................................................26 4.21. Use of Proceeds...............................................26 4.22. Other Names...................................................27 4.23. Brokers.......................................................27 SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...............27 5.1. Corporate Power and Authority.................................27 5.2. Investment Intent.............................................27 5.3. Brokers.......................................................28 1 Page ---- SECTION 6. RESTRICTIONS ON TRANSFER......................................28 SECTION 7. INFORMATION AS TO THE COMPANY.................................28 7.1. Financial Information.........................................28 7.2. Communication with Accountants................................31 7.3. Inspection....................................................31 7.4. Notices.......................................................31 7.5. Confidentiality Agreement.....................................32 SECTION 8. AFFIRMATIVE COVENANTS.........................................33 8.1. Maintenance of Existence, Properties and Franchises; Compliance with Law; Taxes; Insurance.........................33 8.2. Office for Payment, Exchange and Registration; Location of Office; Notice of Change of Name or Office........34 8.3. Fiscal Year...................................................34 8.4. Environmental Matters.........................................34 8.5. Reservation of Shares.........................................35 8.6. Stockholders' Meeting.........................................36 8.7. Securities Exchange Act Registration..........................36 8.8. Delivery of Information for Rule 144A Transactions............36 8.9. Senior Securities.............................................37 8.10. Shelf Registration............................................37 8.11. Further Assurances............................................37 SECTION 9. NEGATIVE COVENANTS............................................37 9.1. No Dilution or Impairment; No Changes in Capital Stock........38 9.2. Indebtedness..................................................39 9.3. Consolidation, Merger and Sale................................39 9.4. No Change in Business.........................................39 9.5. Restricted Payments; Investments..............................39 9.6. Sale of Substantial Portion of Assets.........................40 9.7. Affiliate Loans and Guaranties................................40 9.8. Transactions with Affiliates..................................41 9.9. Liens.........................................................41 9.10. Private Placement Status......................................41 9.11. Maintenance of Public Market..................................41 9.12. Actions Prior to Any Closing Date.............................42 2 Page ---- SECTION 10. CONDITIONS TO PURCHASER'S OBLIGATIONS.........................42 10.1. Certificate of Designations; Stockholders' Agreement; Registration Rights Agreement.................................42 10.2. Certificates for Shares and Warrants..........................43 10.3. Stockholders' Meeting.........................................43 10.4. Senior Status.................................................43 10.5. Accuracy of Representations and Warranties....................43 10.6. Compliance with Agreements....................................44 10.7. Officers' Certificates........................................44 10.8. Proceedings...................................................44 10.9. Legality; Governmental and Other Authorization................44 10.10. No Material Adverse Change....................................44 10.11. Opinion of Counsel............................................45 10.12. Additional Purchases of Shares and Warrants...................45 10.13. Acceptance of Agent for Service of Process....................45 10.14. Other Documents and Opinions..................................45 SECTION 11. BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS...........45 SECTION 12. SPECIFIC PERFORMANCE..........................................46 SECTION 13. EXPENSES......................................................46 SECTION 14. DIRECT PAYMENTS...............................................48 SECTION 15. AMENDMENTS AND WAIVERS........................................48 SECTION 16. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED SHARES; REPLACEMENT...........................................49 SECTION 17. NOTICES.......................................................50 SECTION 18. MISCELLANEOUS.................................................50 3 Schedule 1 Purchasers; Number of Shares; Number of Warrants Schedule 2 Indebtedness Schedule 3 Investments Schedule 4 Disclosure Material Schedule 5 Liens Schedule 6 Capital Stock EXHIBIT A-1 Certificate of Designations EXHIBIT A-2 Form of Warrant Certificates EXHIBIT B Disclosure Schedule EXHIBIT C Stockholders' Agreement EXHIBIT D Registration Rights Agreement EXHIBIT E Opinion of Counsel for the Company EXHIBIT F Confidentiality Agreement 4 STOCK AND WARRANT PURCHASE AGREEMENT This STOCK AND WARRANT PURCHASE AGREEMENT is dated as of March 2, 1999 between Global Pharmaceutical Corporation, a Delaware corporation (the "Company"), and the Purchaser listed on the signature page of this Agreement (the "Purchaser"). W I T N E S S E T H : WHEREAS, the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase from the Company, shares of the Company's Series D Convertible Preferred Stock, par value $.01 per share (the "Series D Convertible Preferred Stock"), and Warrants to purchase shares of the Company's Common Stock, par value $.01 per share (the "Common Stock"), all upon the terms and provisions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: SECTION 1. SALE AND PURCHASE OF PREFERRED STOCK AND WARRANTS (a) The Company agrees to sell to the Purchaser and, subject to the terms and conditions hereof and in reliance upon the representations and warranties of the Company contained herein or made pursuant hereto, the Purchaser agrees to purchase from the Company at one or more of the Closings provided for in Section 2 hereof, the number of shares of Series D Convertible Preferred Stock and the number of Warrants, each to purchase one share of Common Stock of the Company, set forth opposite the Purchaser's name on Schedule 1 hereto. The shares of Series D Convertible Preferred Stock being acquired under this Agreement and by the other Purchaser under the other Stock and Warrant Purchase Agreement (as hereinafter defined) are collectively referred to herein as the "Shares", containing rights and privileges as more fully set forth in the Certificate of Designations of the Company in the form attached hereto as Exhibit A- 1 (the "Certificate of Designations"). As used herein, "Warrants" means Warrants to purchase the aggregate of up to the number of shares of Common Stock equal to 25% of the number of shares of Common Stock obtainable upon conversion of the Shares. The Warrants contain rights and privileges as more fully set forth in the Warrant Certificates of the Company in the form attached hereto as Exhibit A-2 (the "Warrant Certificates"). (b) The aggregate purchase price to be paid to the Company by the Purchaser for the Shares and Warrants to be purchased by the Purchaser pursuant to this Agreement shall be the amount set forth opposite the Purchaser's name on Schedule 1 hereto. No further payment shall be required from the Purchaser for the Shares and Warrants. The parties further acknowledge and agree that the Shares do not constitute "preferred stock" as that term is used in Section 305(b)(4) of the Code and Treasury Regulation ss. 1.305-5(a) and agree not to take any position inconsistent with the characterization of the Shares as common stock for purposes of Section 305 of the Code on any Tax Return or before any Taxing Authority. (c) The Shares and Warrants are being sold to the purchasers listed on Schedule 1 hereto (the "Purchasers") pursuant to this Agreement and the other Series D Convertible Preferred Stock and Warrant Purchase Agreement (both of such agreements collectively, as from time to time assigned, supplemented or amended or as the terms thereof may be waived, the "Stock and Warrant Purchase Agreements"). Both Stock and Warrant Purchase Agreements shall be dated the date hereof and shall be identical except as to the identities of the respective Purchasers. The sale of Shares and Warrants to each Purchaser under each Stock and Warrant Purchase Agreement is to be a separate sale, and no Purchaser shall have any liability under any Stock and Warrant Purchase Agreement other than the Stock and Warrant Purchase Agreement to which it is a party. (d) The Company will use the proceeds from the sale of the Shares and Warrants, together with other funds it will receive on each Closing Date to repay debt, to fund future development opportunities and for working capital and general corporate purposes. SECTION 2. CLOSINGS (a) Subject to the terms and conditions hereof, the closing of the purchase and sale of the Shares and Warrants to be purchased by the Purchaser and the other Purchasers will take place at the offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York at 10:00 A.M., New York City time, (i) on March 2, 1999, or such other time and date as shall be mutually agreed to by the Company and the Purchaser (the "First Closing") (such time and date are herein referred to as the "First Closing Date"), and (ii) on the date which is within five business days of the Company's 1999 annual meeting of stockholders (the "Stockholders' Meeting") or such other time and date as shall be mutually agreed to by the Company and the Purchaser, but in any event no later than June 30, 1999; provided that at such Stockholders' Meeting the appropriate corporate action has been taken to authorize sufficient additional shares of Common Stock to permit conversion in full of the Series D Convertible Preferred Stock into shares of Common Stock and to permit exercise in full of all Warrants issued on such date (the "Second Closing") (such time and date are herein referred to as the "Second Closing Date"). The First Closing and the Second Closing are called individually a "Closing" and collectively the "Closings"; the First Closing Date and the Second Closing Date are called individually a "Closing Date" and collectively, the "Closing Dates." The sale and purchase of Shares and Warrants by the Fleming Funds pursuant to the Stock and Warrant Purchase Agreements between each of the Fleming Funds and the Company shall be consummated concurrently, (a) for 2 an aggregate purchase price of $3,000,000 on the First Closing Date and (b) for an aggregate purchase price of $2,000,000 on the Second Closing Date. (b) Subject to the terms and conditions hereof, at each Closing (i) the Company will deliver to the Purchaser (x) a certificate registered in the Purchaser's name (or the name of its nominee, if any, as specified on Schedule 1 hereto) evidencing the number of Shares set forth opposite the Purchaser's name on Schedule 1 and (y) a Warrant Certificate registered in the Purchaser's name (or the name of its nominee, if any, as specified on Schedule 1 hereto) evidencing a number of Warrants equal to the number set forth opposite the Purchaser's name on Schedule 1, and (ii) upon the Purchaser's receipt thereof, the Purchaser will deliver to the Company a certified or official bank check (or wire transfer) in an amount equal to the aggregate purchase price (as specified in Section 1(b) hereof) for the Shares and Warrants to be purchased by the Purchaser payable to the order of the Company in federal or other immediately available funds. SECTION 3. DEFINITIONS (a) For purposes of this Agreement, the following definitions shall apply (such definitions to be equally applicable to both the singular and plural forms of the terms defined): "Affiliate", when used with respect to any Person, means (i) if such Person is a corporation, any officer or director thereof (other than a director elected pursuant to Section 4(c) of the Certificate of Designations) and any Person which is, directly or indirectly, the beneficial owner (by itself or as part of any group) of more than five percent (5%) of any class of any equity security (within the meaning of the Securities Exchange Act) thereof, and, if such beneficial owner is a partnership, any general partner thereof, or if such beneficial owner is a corporation, any Person controlling, controlled by or under common control with such beneficial owner, or any officer or director of such beneficial owner or of any corporation occupying any such control relationship, (ii) if such Person is a partnership, any general or limited partner thereof, and (iii) any other Person which, directly or indirectly, controls or is controlled by or is under common control with such Person. For purposes of this definition, "control" (including the correlative terms "controlling", "controlled by" and "under common control with"), with respect to any Person, shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. The holding of Shares (or of Conversion Shares obtained upon conversion of Shares) or Warrants (or of Warrant Shares issuable upon the exercise of the Warrants), and the rights under any Stock and Warrant Purchase Agreement or under the Certificate of Designations, Warrant Certificates, the 3 Stockholders' Agreement or the Registration Rights Agreement (or the exercise of any such rights, including, without limitation, nominating a director to the Board (or Board committee) of the Company and or sending an observer to Board (or Board committee) meetings of the Company), shall not cause a Purchaser to be deemed to be an "Affiliate" of the Company. "Agreement" means this Stock and Warrant Purchase Agreement (together with exhibits and schedules) as from time to time assigned, supplemented or amended or as the terms hereof may be waived. "Benefit Plan" means any Plan, existing at any Closing, established or to which contributions have at any time been made by the Company, or any predecessor of any of the foregoing, or under which any employee, former employee or director of the Company or any beneficiary thereof is covered, is eligible for coverage or has benefit rights. "Board" or "Board of Directors" means with respect to any Person which is a corporation, a business trust or other entity, the board of directors or other group, however, designated, which is charged with legal responsibility for the management of such Person, or any committee of such board of directors or group, however designated, which is authorized to exercise the power of such board or group in respect of the matter in question. "Business Day" means any day other than a Saturday, Sunday or any day on which banks in the location of the office of the Company provided for in Section 17 hereof are authorized or obligated to close. "Capitalized Leases" means any lease to which the Company is party as lessee, or by which it is bound, under which it leases any property (real, personal or mixed) from any lessor other than the Company, and which either is required to be capitalized in accordance with generally accepted accounting principles consistently applied, or, even if not so required to be capitalized, shall have (or have had), at the time first entered into, an initial term of greater than three (3) years (including leases of shorter duration which are or were extendible to a total term greater than three (3) years at the option of the lessor). The value of Capitalized Leases, as of the time of any determination thereof, shall mean the sum of the then present values, determined as hereinafter provided, of future obligations of lessees under then existing Capitalized Leases. To compute the value of any Capitalized Lease, the following methods shall be used, as applicable: (i) values of leases required to be capitalized in accordance with generally accepted accounting principles shall be computed in accordance with such principles; and 4 (ii) values of other leases (and values of contracts or other items which this Agreement provides are to be valued as if they were Capitalized Leases) shall be computed by discounting, to the date of determination, at an assumed interest rate of eight percent (8%) per annum, the minimum amount of future rental payments that will be due under the related documentation, including rental payments that may be due during extensions which are at the other party's option, but excluding any amounts in respect of insurance on, taxes on and/or maintenance of the properties subject to such leases (provided that such amounts are owed and paid only to the extent actually incurred). "Certificate of Designations" has the meaning set forth in Section 1(a) hereof. "Closing" or "Closings" have the meanings set forth in Section 2(a) hereof. "Closing Date" or "Closing Dates" have the meanings set forth in Section 2(a) hereof. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations and interpretations thereunder. "Commission" means the Securities and Exchange Commission and any other similar or successor agency of the federal government administering the Securities Act or the Securities Exchange Act. "Common Stock" means the Company's Common Stock, par value $.01 per share, and shall also include any common stock of the Company hereafter authorized and any capital stock of the Company of any other class hereafter authorized which is not preferred as to dividends or assets over any other class of capital stock of the Company or which has ordinary voting power for the election of directors of the Company; provided that Common Stock shall not include the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock, the Series C Convertible Preferred Stock or the Series D Convertible Preferred Stock. "Company" means Global Pharmaceutical Corporation, a Delaware corporation, its successors and assigns. "Confidentiality Agreement" has the meaning set forth in Section 7.5 hereof. "Consolidated" or "consolidated", when used with reference to any financial term in this Agreement, means the aggregate for the Company of the amounts signified by 5 such term for all such Persons, with intercompany items eliminated, and, with respect to net worth, after eliminating the portion of net worth properly attributable to minority interests, if any, in the capital of any such Person (other than in the capital of the Company) and otherwise as determined in accordance with generally accepted accounting principles consistently applied (except as otherwise expressly provided herein). "Conversion Share" or "Conversion Shares" means the shares of the Company's Common Stock obtained or obtainable upon conversion of Shares and shall also include any capital stock or other securities into which Conversion Shares are changed and any capital stock or other securities resulting from or comprising a reclassification, combination or subdivision of, or a stock dividend on, any Conversion Shares. In the event that any Conversion Shares are sold either in a public offering pursuant to a registration statement under the Securities Act or pursuant to a Rule 144 Transaction, then the transferees of such Conversion Shares shall not be entitled to any benefits under this Agreement with respect to such Conversion Shares and such Conversion Shares shall no longer be considered to be "Conversion Shares" for purposes of any consent or waiver provision of this Agreement. "Disclosure Material" has the meaning specified in Section 4.6(a) hereof. "Environmental Laws" means all federal, state, local, foreign, civil and criminal laws, statutes, ordinances, orders, codes, Environmental Permits, rules, policies, and regulations and common law relating to the protection of the environment and human health or relating to the handling, use, generation, treatment, storage, transportation or disposal of Hazardous Materials, including but not limited to the Resource Conservation and Recovery Act of 1976, 42 U.S.C. ss. 6901 et seq.; the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq.; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. ss. 9601 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. ss. 1251 et seq.; the Clean Air Act, 42 U.S.C. ss. 7401 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801 et seq.; The Occupational Safety and Health Act, 29 U.S.C. ss. 651; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. ss. 136y et seq.; and the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 et seq., all as may be amended or superseded from time to time. "Environmental Lien" has the meaning set forth in Section 4.16 hereof. "Environmental Permits" means all permits, licenses, approvals, authorizations or consents required by any Governmental Authority under any applicable Environmental Law and includes any and all orders, consent orders or binding agreements issued or entered into by a Governmental Authority under any applicable Environmental Law. 6 "ERISA" means Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" means each "person" (as defined in Section 3(9) of ERISA) which is under "common control" with the Company (within the meaning of Section 414(b), (c), (m) or (o) of the Code). "First Closing" has the meaning set forth in Section 2(a) hereof. "First Closing Date" has the meaning set forth in Section 2(a) hereof. "Fleming Funds" means Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. "Fleming Holders" means (i) the Fleming Funds, (ii) any Affiliate, officer or employee of an Affiliate or investment fund managed by an Affiliate of the Fleming Funds to which the Fleming Funds may transfer record and/or beneficial ownership of the Shares, the Conversion Shares, the Warrants or the Warrant Shares and (iii) any transferee of Shares, Conversion Shares, Warrants or Warrant Shares from a Fleming Holder other than a transferee of Shares, Conversion Shares, Warrants or Warrant Shares sold in either a public offering pursuant to a registration statement under the Securities Act or pursuant to a Rule 144 Transaction, except that for purposes of Section 9 hereof, such transferee shall be a Fleming Holder only if such transferee is reasonably acceptable to the Company. "Governmental Authority" means any federal, state, or local governmental agency or authority (including regulatory authority) having jurisdiction over the Company or any of its respective assets or businesses. "Guaranty" means (i) any guaranty or endorsement of the payment or performance of, or any contingent obligation in respect of, any indebtedness or other obligation of any other Person, (ii) any other arrangement whereby credit is extended to one obligor (directly or indirectly) on the basis of any promise or undertaking of another Person (a) to pay the indebtedness of such obligor, (b) to purchase an obligation owed by such obligor, (c) to purchase or lease assets (or to provide funds, goods or services) under circumstances that would enable such obligor to discharge one or more of its obligations or (d) to maintain the capital, working capital, solvency or general financial condition of such obligor, in each case whether or not such arrangement is disclosed in the balance sheet of such other Person or is referred to in a footnote thereto and (iii) any liability as a general partner of a partnership in respect of indebtedness or other obligations of such partnership; provided, however, that the term "Guaranty" shall not include 7 (1) endorsements for collection or deposit in the ordinary course of business, (2) any guaranty of indebtedness of the Company by a subsidiary of the Company or (3) obligations of the Company which would constitute Guaranties solely by virtue of the continuing liability of a Person which has sold assets subject to liabilities for the liabilities which were assumed by the Person acquiring the assets, unless such liability is required to be carried on the consolidated balance sheet of the Company. The amount of any Guaranty and the amount of indebtedness resulting from such Guaranty shall be the maximum amount of the guarantor's potential obligation in respect of such Guaranty. "Hazardous Materials" means any petroleum, petroleum hydrocarbons, petroleum waste or petroleum products, underground storage tanks, asbestos or asbestos-containing materials, pesticides, lead and lead-containing materials, urea formaldehyde insulation and polychlorinated biphenyls (PCBs), ionizing and non-ionizing radiation including radon and electromagnetic frequency radiation; and any chemicals, materials, substances or wastes in any amount or concentration which are now or hereafter "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants" or words of similar import, under any applicable Environmental Law. "Indebtedness" of any Person means, without duplication, as of any date as of which the amount thereof is to be determined, (i) all obligations of such Person to repay money borrowed (including, without limitation, all notes payable and drafts accepted representing extensions of credit, all obligations under letters of credit, all obligations evidenced by bonds, debentures, notes or other similar instruments and all obligations upon which interest charges are customarily paid), (ii) all Capitalized Leases in respect of which such Person is liable as lessee or as the guarantor of the lessee, (iii) all monetary obligations which are secured by any Lien existing on property owned by such Person whether or not the obligations secured thereby have been incurred or assumed by such Person, (iv) all conditional sales contracts and similar title retention debt instruments under which such Person is obligated to make payments, (v) all Guaranties by such Person and (vi) all contractual obligations (whether absolute or contingent) of such Person to repurchase goods sold and distributed. "Indebtedness" shall not include, however, any unfunded obligations in any employee pension benefit plan (as defined in ERISA) of the Company. "Initial Shelf Registration" has the meaning set forth in Section 8.10 hereof. "Investment" means, with respect to any Person, (i) any loan, advance or extension of credit by such Person to, and any contributions to the capital of, any other Person, (ii) any Guaranty by such Person, (iii) any interest in any capital stock, equity interest or other securities of any other Person, (iv) any transfer or sale of property of 8 such Person to any other Person other than upon full payment, in cash or other consideration, of not less than the agreed sale price bargained on an arms-length basis and (v) any commitment or option to make an Investment if, in the case of an option, the consideration therefor exceeds $10,000, and any of the foregoing under clauses (i) through (v) shall be considered an Investment whether such Investment is acquired by purchase, exchange, merger or any other method; provided, that the term "Investment" (1) shall not include an Investment in the Company, (2) shall not include current trade and customer accounts receivable and allowances, provided they relate to goods furnished in the ordinary course of business and are given in accordance with the customary practices of the Company, (3) shall not include temporary investments of excess cash of the Company in any of the following: (A) investment grade obligations maturing within one year of their issuance which as to principal and interest constitute direct obligations of, or obligations guaranteed by, the United States of America, (B) negotiable certificates of deposit of banks or trust companies which are organized under the laws of the United States of America or any state thereof and which have capital and surplus of at least $500,000,000, (C) commercial paper which is rated not less than prime-one or A-1 or their equivalents by Moody's Investor Service, Inc. or Standard & Poor's Corporation or their successors, (D) any repurchase agreement secured by any one or more of the foregoing and (E) money market funds primarily investing in any of the foregoing securities and sponsored by or affiliated with nationally recognized brokerage or investment advisory firms, and (4) shall not include Investments of the Company existing on the date hereof and disclosed on Schedule 3 hereto. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, or preference, priority or other security interest of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same effect as any of the foregoing, any assignment or other conveyance of any right to receive income and any assignment of receivables with recourse against the assignor), any filing of a financing statement as debtor under the Uniform Commercial Code or any similar statute and any agreement to give or make any of the foregoing; provided that the term "Lien" shall not include Permitted Liens. "Outside Directors" means those directors on the Company's Board of Directors at any time who are not otherwise Affiliates of or employed by the Company. "Outstanding" or "outstanding" means (a) when used with reference to the Shares, the Conversion Shares, the Warrants or the Warrant Shares as of a particular time, all Shares, Conversion Shares, Warrants or Warrant Shares theretofore duly issued except (i) Shares, Conversion Shares, Warrants and Warrant Shares theretofore reported as lost, stolen, mutilated or destroyed or surrendered for transfer, exchange or replacement, in respect of which new or 9 replacement Shares, Conversion Shares, Warrants or Warrant Shares have been issued by the Company, (ii) Shares, Conversion Shares, Warrants and Warrant Shares theretofore cancelled by the Company and (iii) Shares, Conversion Shares, Warrants and Warrant Shares registered in the name of, as well as Shares, Warrants and Warrant Shares owned beneficially by, the Company, or any of its Affiliates. For purposes of the preceding sentence, in no event shall "Affiliates" include (x) the persons which are identified as "Purchasers" on Schedule 1 hereto or (y) any Affiliates of any such persons. "Pension Plan" means any "employee pension benefit plan" as defined in Section 3(2) of ERISA. "Permitted Lien" means (i) any Lien for Taxes, governmental charges or levies not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any imperfections of title, easements, rights of way or similar Liens, zoning laws or land use restrictions as normally exist with respect to property similar in character to the property affected thereby and which individually or in the aggregate with other such Liens, zoning laws or land use restrictions do not materially impair the value or marketability of the property subject to such Liens, zoning laws or land use restrictions or interfere with the use of such property in the conduct of the business of the Company and which do not secure obligations for money borrowed, (iii) Liens imposed by any law, such as mechanic's, materialman's, landlord's, warehouseman's and carrier's Liens, securing obligations incurred in the ordinary course of business which are not yet overdue or which are being diligently contested in good faith by appropriate proceedings and, with respect to such obligations which are being contested, for which the Company has set aside adequate reserves, if appropriate, and (iv) any Lien resulting from purchase by the Company of goods in the ordinary course of business as to which Liens are not filed of record. "Person" or "person" means an individual, corporation, partnership, firm, association, joint venture, trust, unincorporated organization, government, governmental body, agency, political subdivision or other entity. "Plan" means any bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, leave of absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, accident, disability, workmen's compensation or other insurance, severance, separation or other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, or whether for the benefit of a single individual or more than one individual including, but not limited to, any "employee benefit plan" within the meaning of Section 3(3) of ERISA. 10 "Preferred Stock" means any class of the capital stock of a corporation (whether or not convertible into any other class of such capital stock) which has any right, whether absolute or contingent, to receive dividends or other distributions of the assets of such corporation (including, without limitation, amounts payable in the event of the voluntary or involuntary liquidation, dissolution or winding-up of such corporation), which right is superior to the rights of another class of the capital stock of such corporation. "Preferred Stock" includes, without limitation, the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock, the Series C Convertible Preferred Stock and the Series D Convertible Preferred Stock. "Purchaser" means the person who accepts and agrees to the terms hereof as indicated by such person's signature (as "the undersigned Purchaser") on the execution page of this Agreement, together with its successors and assigns. "Purchasers" has the meaning set forth in Section 1(c) hereof, together with their respective successors and assigns. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the First Closing Date, among the Company and each of the Purchasers. "Restricted Payment" means (i) every payment in connection with the redemption, purchase, retirement or other acquisition by or on behalf of the Company of any shares of the Company's capital stock (as defined below), whether or not owned by the Company, (ii) any prepayments or repayments made on Indebtedness of the Company, (iii) every payment to or on behalf of any Affiliate of the Company on account of or with respect to any lease arrangements, and (iv) every payment by or on behalf of the Company (whether as repayment or prepayment of principal or as interest or otherwise) on or with respect to (A) any obligation to repay money borrowed owing to any Affiliate of the Company or (B) any obligation, to any Person, of any Affiliate of the Company or to any other holder of shares of the Company's capital stock (as defined below), which obligation is assumed, or is the subject of a Guaranty, by the Company; provided, however, (a) that the restrictions of the foregoing clause (i) shall not apply to (A) any payment in respect of capital stock of the Company to the extent payable in shares of the capital stock of the Company, (B) any redemption of the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock or the Series C Convertible Preferred Stock in accordance with Section 5(a) of their respective Certificate of Designations as in effect on the date hereof, (C) any redemption of the Series D Preferred Stock or (D) any redemption or repurchase pursuant to the 1995 Stock Incentive Plan as in effect on the date hereof, (b) that the restrictions of the foregoing clause (ii) shall not apply to any regularly 11 scheduled prepayment or repayment of Indebtedness, provided that such Indebtedness being prepaid or repaid is not at the time of such prepayment or repayment or at any prior time thereto owing to an Affiliate of the Company, and (c) that none of the foregoing clauses shall apply to any payments, distributions or other transfers or actions on or with respect to the Shares or the Conversion Shares or to the Purchasers (or holders of Shares or the Conversion Shares) under the Stock and Warrant Purchase Agreements. For purposes of this definition, "capital stock" shall also include warrants and other rights and options to acquire shares of capital stock (whether upon exercise, conversion, exchange or otherwise). "Rule 144" means (i) Rule 144 under the Securities Act as such Rule is in effect from time to time and (ii) any successor rule, regulation or law, as in effect from time to time. "Rule 144A" means (i) Rule 144A under the Securities Act as such Rule is in effect from time to time and (ii) any successor rule, regulation or law, as in effect from time to time. "Rule 144 Transaction" means a transfer of Conversion Shares (A) complying with Rule 144 as such Rule is in effect on the date of such transfer (but not including a sale other than pursuant to "brokers' transactions" as defined in clauses (1) and (2) of paragraph (g) of such Rule as in effect on the date hereof) and (B) occurring at a time when Conversion Shares are registered pursuant to Section 12 of the Securities Exchange Act. "SEC Reports" has the meaning set forth in Section 4.19 hereof. "Second Closing" has the meaning set forth in Section 2(a) hereof. "Second Closing Date" has the meaning set forth in Section 2(a) hereof. "Securities Act" means the Securities Act of 1933, as amended, and the rules, regulations and interpretations thereunder. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules, regulations and interpretations thereunder. "Series A Convertible Preferred Stock" means the Company's Series A Convertible Preferred Stock, par value $.01 per share. "Series B Convertible Preferred Stock" means the Company's Series B Convertible Preferred Stock, par value $.01 per share. 12 "Series C Convertible Preferred Stock" means the Company's Series C Convertible Preferred Stock, par value $.01 per share. "Series D Convertible Preferred Stock" means the Company's Series D Convertible Preferred Stock, par value $.01 per share, which will have the rights, powers and privileges on such Closing Date as more fully set forth in the Certificate of Designations. "Shares" has the meaning set forth in Section 1(a) hereof. In the event that any Shares are sold either in a public offering pursuant to a registration statement under Section 5 of the Securities Act or pursuant to a Rule 144 Transaction, then the transferees of such Shares shall not be entitled to any benefits under this Agreement with respect to such Shares and such Shares shall no longer be considered to be "Shares" for purposes of any consent or waiver provision of this Agreement. "Shelf Registration" has the meaning set forth in Section 8.10 hereof. "Stock and Warrant Purchase Agreements" has the meaning set forth in Section 1(c) hereof. "Stockholders' Agreement" means the Stockholders' Agreement, dated as of the First Closing Date, among the Company, the Purchasers and certain other stockholders of the Company. "Stockholders' Meeting" has the meaning set forth in Section 2(a) hereof. "Subsequent Shelf Registration" has the meaning set forth in Section 8.10 hereof. "Subsidiary", with respect to any Person, means any corporation, association or other entity of which more than 50% of the total voting power of shares of stock or other equity interests (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is, at the time as of which any determination is being made, owned or controlled, directly or indirectly, by such Person or one or more of its Subsidiaries, or both. The term "Subsidiary" or "Subsidiaries" when used herein without reference to any particular Person, means a Subsidiary or Subsidiaries of the Company. "Tax" or "Taxes" means all federal, state, local or foreign net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, bank shares, withholding, payroll, employment, excise, property, alternative or add-on minimum, environmental or other taxes, assessments, duties, fees, levies or other governmental charges of any nature whatsoever, whether 13 disputed or not, together with any interest, penalties, additions to tax or additional amounts with respect thereto. "Tax Returns" means any returns, reports or statements (including any information returns) required to be filed for purposes of a particular Tax. "Taxing Authority" means any governmental agency, board, bureau, body, department or authority of any United States federal, state or local jurisdiction, or any foreign jurisdiction, having or purporting to exercise jurisdiction with respect to any Tax. "Transferees" shall mean any transferee (except for a Fleming Holder) of Shares or Conversion Shares (as such terms are defined within the definition of "Fleming Holders") from a Fleming Holder. Transferees shall not include a transferee of Shares or Conversion Shares sold in either a public offering pursuant to a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to Rule 144 under the Securities Act. "Warrant Certificates" has the meaning set forth in Section 1(a) hereof. "Warrants" has the meaning set forth in Section 1(a) hereof. "Warrant Share" or "Warrant Shares" means the shares of the Company's Common Stock obtained or obtainable upon the exercise of Warrants and shall also include any capital stock or other securities into which Warrant Shares are changed and any capital stock or other securities resulting from or comprising a reclassification, combination or subdivision of, or a stock dividend on, any Warrant Shares. In the event that any Warrant Shares are sold either in a public offering pursuant to a registration statement under the Securities Act or pursuant to a Rule 144 Transaction, then the transferees of such Warrant Shares shall not be entitled to any benefits under this Agreement with respect to such Warrant Shares and such Warrant Shares shall no longer be considered to be "Warrant Shares" for purposes of any consent or waiver provision of this Agreement. (b) For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: (i) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision; (ii) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles consistently applied (except as otherwise provided herein); 14 (iii) all computations provided for herein, if any, shall be made in accordance with generally accepted accounting principles consistently applied (except as otherwise provided herein); (iv) any uses of the masculine, feminine or neuter gender shall also be deemed to include any other gender, as appropriate; (v) all references herein to actions by the Company, such as "create", "sell", "transfer", "dispose of", etc., mean such action whether voluntary or involuntary, by operation of law or otherwise; (vi) the exhibits and schedules to this Agreement shall be deemed a part of this Agreement; (vii) each of the representations and warranties of the Company contained in Section 4 hereof is separate and is not limited, qualified or modified by the existence, wording or satisfaction of any other representation or warranty of the Company in Section 4 or otherwise; (viii) each of the covenants of the Company contained in Sections 7, 8 and 9 hereof or otherwise contained in any Stock and Warrant Purchase Agreement, the Certificate of Designations, the Warrant Certificates, the Stockholders' Agreement or the Registration Rights Agreement is separate and is not limited or satisfied by the existence, wording or satisfaction of any other covenant of the Company in Section 7, 8 or 9 or otherwise; and (ix) all references herein (in covenants or otherwise) to any action(s) which are to be taken (or which are prohibited from being taken) by any Person or the Company shall apply to such Person or the Company, as the case may be, whether such action is taken directly or indirectly. SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Purchaser as follows as of the date hereof and as of any Closing Date, except as set forth in the Disclosure Schedule attached hereto as Exhibit B: 4.1. Corporate Existence, Power and Authority. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Company is duly qualified, licensed and authorized to do business and is in good standing in each jurisdiction in which it 15 owns or leases any property or in which the conduct of its business requires it to so qualify or be so licensed, except for such jurisdictions where the failure to so qualify or be so licensed would not have a material adverse effect on the Company's assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects. (b) No proceeding has been commenced looking toward the dissolution or merger of the Company or the amendment of its certificate of incorporation (other than the Certificate of Designations). The Company is not in violation in any respect of its certificate of incorporation or by-laws. (c) The Company has all requisite power, authority (corporate and other) and legal right to own or to hold under lease and to operate the properties it owns or holds and to conduct its business as now being conducted. (d) The Company has all requisite power, authority (corporate and other) and legal right to execute, deliver, enter into, consummate the transactions contemplated by and perform its obligations under (i) the Stock and Warrant Purchase Agreements, including, without limitation, the issuance by the Company of the Shares and the Conversion Shares as contemplated herein and therein and in the Certificate of Designations and the issuance by the Company of the Warrants and Warrant Shares as contemplated herein and therein and in the Warrant Certificates (subject to the proper filing with the Secretary of State of the State of Delaware of (I) the Certificate of Designations for the Series D Preferred Stock, and (II) amendments to the respective Certificate of Designations for each of the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock and the Series C Convertible Preferred Stock), (ii) the Stockholders' Agreement and (iii) the Registration Rights Agreement. The execution, delivery and performance of the Stock and Warrant Purchase Agreements, the Stockholders' Agreement and the Registration Rights Agreement by the Company (including, without limitation, the issuance by the Company of the Shares and the Conversion Shares as contemplated herein and therein and in the Certificate of Designations and the issuance by the Company of the Warrants and Warrant Shares as contemplated herein and therein and in the Warrant Certificates) have been duly authorized by all required corporate and other actions; provided that the Second Closing is contingent upon the due authorization by corporate and other actions of sufficient additional shares of Common Stock to permit conversion in full of the Series D Convertible Preferred Stock into shares of Common Stock at the Shareholders' Meeting. The Company has duly executed and delivered the Stock and Warrant Purchase Agreements, the Stockholders' Agreement and the Registration Rights Agreement. The Stock and Warrant Purchase Agreements, the Stockholders' Agreement and the Registration Rights Agreement constitute the legal, valid and binding obligations of the Company enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to the rights of creditors generally. 4.2. Capital Stock. 16 (a) Schedule 6(a) hereto correctly and completely lists (i) the authorized capital stock of the Company (Common Stock and Preferred Stock), (ii) the number of designated shares of Preferred Stock in each Series or Class after giving effect to the Certificate of Designations and (iii) on January 31, 1999, after giving effect to the issuance of Shares contemplated by the Stock and Warrant Purchase Agreements, the number of shares outstanding in each Series or Class. Other than the conversion of certain shares of the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock and the Series C Convertible Preferred Stock, there have been no material issuances of shares since January 31, 1999. All of such outstanding shares are, or on such Closing Date will be, duly authorized, validly issued and outstanding, fully paid and non-assessable. The shares of the Company's Common Stock issuable upon conversion of the Series D Convertible Preferred Stock will be, when issued in accordance with the terms of the Series D Convertible Preferred Stock, duly authorized, validly issued, fully paid and non-assessable. Except as provided in the Certificate of Designations, none of the shares of the Company's capital stock which will be outstanding at each Closing (i) were or will be subject to preemptive rights when issued or (ii) provide the holders thereof with any preemptive rights with respect to any issuances of capital stock. (b) Schedule 6(b) hereto correctly and completely lists the number and purpose for which such shares of the Company's Common Stock are reserved for issuance by the Company. (c) Except as referred to in Section 4.2(b), there are no outstanding options, warrants, subscriptions, rights, convertible securities or other agreements or plans under which the Company may become obligated to issue, sell or transfer shares of its capital stock or other securities. (d) Except for the registration rights contained in the Registration Rights Agreement, there are and will be no outstanding registration rights with respect to any capital stock of the Company, which (in either case) will be outstanding on such Closing Date, or any capital stock referred to in Section 4.2(b) or 4.2(c). (e) There are no voting agreements, voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of the Company of which the Company is a party, except as provided herein, in the Stockholders' Agreement and the Certificate of Designations. (f) There are no anti-dilution protections or other adjustment provisions in existence with respect to any capital stock of the Company or any capital stock referred to in Section 4.2(b) or 4.2(c) or in the last sentence of Section 4.3(b) below. (g) The Certificate of Designations has been duly adopted by the Company and is fully effective as an amendment to the Company's certificate of incorporation. The Shares have all of the rights, priorities and terms set forth in the Certificate of Designations. 17 (h) The Warrant Certificates have been duly adopted by the Company, and the Warrants will have all of the rights and privileges set forth in the Warrant Certificates. (i) To the knowledge of the Company, those persons who own, directly or indirectly, more than 5% (calculated in accordance with Rule 13d-3 of the Securities Exchange Act) of the Company's outstanding Common Stock are as follows: Frederick R. Adler, Bear Stearns Asset Management Inc., Kingdon Capital Management Corporation, M. Kingdon Offshore N.V. 4.3. Subsidiaries. The Company has no Subsidiaries. The Company has no Investments in any other Person. 4.4. Business. The Company is engaged primarily in the business of the manufacture and sale of liquid and solid oral generic prescription and over-the-counter drugs. The Company neither currently engages in, nor has any intention of engaging in, any other business. 4.5. No Defaults or Conflicts. (a) The Company is not in violation or default in any material respect (and is not in default in any respect regarding any Indebtedness) under any indenture, agreement or instrument to which it is a party or by which it or its properties may be bound. The Company is not in default in any material respect under any material order, writ, injunction, judgment or decree of any court or other governmental authority or arbitrator(s). (b) The execution, delivery and performance by the Company of the Stock and Warrant Purchase Agreements, the Stockholders' Agreement and the Registration Rights Agreement and any of the transactions contemplated hereby or thereby (including, without limitation, the issuance of the Shares and the Conversion Shares as contemplated herein and therein and in the Certificate of Designations, the adoption of the Certificate of Designations as an amendment to the Company's certificate of incorporation and the issuance by the Company of the Warrants and Warrant Shares as contemplated herein and therein and in the Warrant Certificates) do not and will not (i) violate or conflict with, with or without the giving of notice or the passage of time or both, any provision of (A) the respective certificates of incorporation or by-laws of the Company, (B) any law, rule, regulation or order of any federal, state, county, municipal or other governmental authority, (C) any judgment, writ, injunction, decree, award or other action of any court or governmental authority or arbitrator(s), or (D) any agreement, indenture or other instrument applicable to the Company or any of its respective properties, (ii) result in the creation of any Lien upon any of the Company's properties, assets or revenues, 18 except as provided in the Certificate of Designations of the Series D Convertible Preferred Stock, (iii) require the consent, waiver, approval, order or authorization of, or declaration, registration, qualification or filing with, any Person (whether or not a governmental authority and including, without limitation, any shareholder approval) (other than the vote at the Stockholders' Meeting regarding authorized stock and other than approvals which have been obtained prior to the Closing Date), or (iv) cause antidilution clauses of any outstanding securities to become operative or give rise to any preemptive rights. No provision referred to in Sections (A) and (C) of the preceding clause (i) materially adversely affects the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis or the ability of the Company to perform its obligations under the Stock and Warrant Purchase Agreements, the Certificate of Designations, the Warrant Certificates, the Stockholders' Agreement, the Registration Rights Agreement or any of the transactions contemplated hereby or thereby. 4.6. Disclosure Materials; Other Information. (a) The Company has previously furnished to the Purchaser the materials described on Schedule 4 hereto (the "Disclosure Material"). The audited and unaudited financial statements referred to or contained in the materials referred to on Schedule 4 fairly present the consolidated financial condition of the Company as of the respective dates thereof and the consolidated results of the operations of the Company for such periods and have been prepared in accordance with generally accepted accounting principles consistently applied, except that any such unaudited statements may omit notes and may be subject to year-end adjustment. (b) Since September 30, 1998, except as disclosed in the unaudited financial statements for December 31, 1998 provided to the Purchaser, (i) the business of the Company has been conducted in the ordinary course and (ii) there has been no material adverse change in the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis. As of such Closing Date and as of the date hereof, there are no material liabilities of the Company which would be required to be provided for in a consolidated balance sheet of the Company as of either such date prepared in accordance with generally accepted accounting principles consistently applied, other than liabilities provided for in the financial statements referred to in Section 4.6(a). Since September 30, 1998, no amount or property has directly or indirectly been declared, ordered, paid, made or set aside for any Restricted Payment nor has any such action been agreed to. (c) There are no material liabilities, contingent or otherwise, of the Company that have not been disclosed in the financial statements referred to in Section 4.6(a) or otherwise disclosed in the Disclosure Material. (d) The financial projections included in the Disclosure Material conform with the internal operating forecasts of the Company and were based on reasonable assumptions when made and have been prepared in good faith. 19 (e) There is no fact known to the Company which is not in the Disclosure Material and which materially and adversely affects, or in the future would be reasonably likely (as far as the Company currently can reasonably foresee) to materially and adversely affect, the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis. 4.7. Litigation. There is no action, suit, proceeding, investigation or claim pending or, to the knowledge of the Company, threatened in law, equity or otherwise before any court, administrative agency or arbitrator which (i) questions the validity of the Stock and Warrant Purchase Agreements, the Certificate of Designations, the Warrant Certificates, the Stockholders' Agreement, the Registration Rights Agreement, the Shares, the Conversion Shares, the Warrants or the Warrant Shares or any action taken or to be taken pursuant hereto or thereto, (ii) might adversely affect the right, title or interest of any Purchaser to the Shares, the Conversion Shares, the Warrants or the Warrant Shares or (iii) might result in a material adverse change in the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis. 4.8. Taxes. The Company has duly and timely filed all Tax Returns required to be filed by it, and each such Tax Return correctly and completely reflects the Tax liability and all other information required to be reported thereon. The Company has paid or caused to be paid all Taxes (whether or not reflected on such Tax Returns) that are due and payable. The provision for Taxes due by the Company in the most recent financial statement included in the Disclosure Material is sufficient for all unpaid Taxes, being current Taxes not yet due and payable, of the Company, as of the end of the period covered by such financial statement, and as of such Closing Date, such provision, as adjusted for the passage of time through such Closing Date, will be sufficient for the then-accrued and unpaid Taxes not yet due and payable of the Company. No Tax Returns of the Company have ever been audited by any Taxing Authority, there is no dispute concerning any Tax liability of the Company either threatened, claimed or raised by any Taxing Authority, and the Company does not expect any Taxing Authority to assess additional Taxes against or in respect of it for any past period. The Company has withheld and paid, or, if not yet due for payment, set aside in accounts for such purposes, all Taxes required to have been withheld in connection with amounts paid or owing to any employee, creditor, independent contractor or other third party. Other than stamp taxes, the Company has no liability for Taxes of any Person other than the Company (i) as a transferee or successor, (ii) by contract, or (iii) otherwise. There are no applicable Taxes payable by the Company in connection with the execution and delivery of the Stock and Warrant Purchase Agreements, the Stockholders' Agreement or the Registration Rights Agreement or the issuance by the Company of the Shares, the Conversion Shares, the Warrants or the Warrant Shares. 20 4.9. ERISA. (a) All Benefit Plans are listed in Exhibit B, and copies of all documentation relating to such Benefit Plans have been delivered to or made available for review by Purchasers (including copies of written Benefit Plans, written descriptions of oral Benefit Plans, summary plan descriptions, trust agreements, the three most recent annual returns, employee communications, and IRS determination letters). (b) Each Benefit Plan has at all times been maintained and administered in all material respects in accordance with its terms and with the requirements of all applicable law, including ERISA and the Code, and each Benefit Plan intended to qualify under section 401(a) of the Code has at all times since its adoption been so qualified, and each trust which forms a part of any such plan has at all times since its adoption been tax-exempt under section 501(a) of the Code. (c) No Benefit Plan has incurred any "accumulated funding deficiency" within the meaning of section 302 of ERISA or section 412 of the Code, and the "amount of unfunded benefit liabilities" within the meaning of section 4001(a)(18) of ERISA does not exceed zero with respect to any Benefit Plan subject to Title IV of ERISA. (d) No "reportable event" (within the meaning of section 4043 of ERISA) has occurred with respect to any Benefit Plan or any Plan maintained by an ERISA Affiliate since the effective date of said section 4043 for which notice is not waived under the regulations issued pursuant to said Section 4043. (e) No Benefit Plan is a multiemployer plan within the meaning of section 3(37) of ERISA. (f) No direct, contingent or secondary liability has been incurred or is expected to be incurred by the Company under Title IV of ERISA to any party with respect to any Benefit Plan, or with respect to any other Plan presently or heretofore maintained or contributed to by any ERISA Affiliate. (g) Neither the Company nor any ERISA Affiliate has incurred any liability for any tax imposed under section 4971 through 4980B of the Code or civil liability under section 502(i) or (l) of ERISA. (h) No benefit under any Benefit Plan, including, without limitation, any severance or parachute payment plan or agreement, will be established or become accelerated, vested or payable by reason of any transaction contemplated under this Agreement. (i) No Benefit Plan provides health or death benefit coverage beyond the termination of an employee's employment, except as required by Part 6 of Subtitle B of Title I of 21 ERISA or section 4980B of the Code or any State laws requiring continuation of benefits coverage following termination of employment. (j) No suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of plan activities and any other claim which could reasonably be expected to result in a material liability or expense to the Company) has been brought or, to the knowledge of the Company, threatened against or with respect to any Benefit Plan and there are no facts or circumstances known to the Company that could reasonably be expected to give rise to any such suit, action or other litigation. (k) All contributions to Benefit Plans that were required to be made under such Benefit Plans have been made, and all benefits accrued under any unfunded Benefit Plan have been paid, accrued or otherwise adequately reserved in accordance with generally accepted accounting principles, all of which accruals under unfunded Benefit Plans are as disclosed in Exhibit B, and the Company has performed all material obligations required to be performed under all Benefit Plans. (l) The execution, delivery and performance of the Stock and Warrant Purchase Agreements, the Stockholders' Agreement and the Registration Rights Agreement and the consummation of the transactions contemplated hereby and thereby (including, without limitation, the offer, issue and sale by the Company, and the purchase by the Purchaser of the Shares, the Conversion Shares, the Warrants and the Warrant Shares) will not involve any "prohibited transaction" within the meaning of ERISA or the Code with respect to any Benefit Plan. 4.10. Legal Compliance. (a) The Company's manufacturing, distribution and marketing practices are in compliance in all material respects with all applicable laws, rules, regulations, orders, licenses, judgments, writs, injunctions, decrees or demands, including, without limitation, laws and regulations administered by the Food and Drug Administration ("FDA") and the Drug Enforcement Administration ("DEA"). (b) The Company possesses all material Food and Drug Administration new drug applications, abbreviated new drug applications, and new animal drug applications as are necessary for the conduct of its business as now being conducted, a list of such which will be provided to the Purchaser upon the Purchaser's request. (c) Other than the May 25, 1993 "Richlyn Order," there are no adverse orders, judgments, writs, injunctions, decrees, or demands of any court or administrative body, domestic or foreign, or of any governmental agency or instrumentality, domestic or foreign, outstanding against the Company. 22 (d) The Company has not and will not use the services of any person debarred under the provisions of the Generic Drug Enforcement Act of 1992, 21 U.S.C. ss. 335(a)(b). None of the Company's officers or employees has been convicted of a felony under federal law for conduct relating to the development, approval or regulation of any product subject to the Federal Food, Drug, and Cosmetic Act or the Controlled Substances Act. 4.11. Outstanding Securities. All securities (as defined in the Securities Act) of the Company have been offered, issued, sold and delivered in compliance with, or pursuant to exemptions from, all applicable federal and state laws, and the rules and regulations of federal and state regulatory bodies governing the offering, issuance, sale and delivery of securities. 4.12. Permits, Licenses and Approvals; Intellectual Property and Other Rights. The Company owns or possesses and holds free from material conflicts with the rights of others all franchises, licenses, permits, consents, approvals and other authority (governmental or otherwise), patents, patent rights, trademarks, trademark rights, trade names, trade name rights and copyrights (each of which patent, trademark or copyright is listed on Exhibit B hereto), and all rights and privileges with respect to any of the foregoing, as are necessary for the conduct of its business as now being conducted and as currently proposed to be conducted; provided that, no such representation is made with respect to government franchises, licenses, permits, consents, approvals or other authority which may be required with respect to the Company's business as proposed to be conducted. The Company is not in default in any material respect under any of such franchises, licenses, permits, consents, approvals or other authority. The rights of (and use by) the Company with respect to such or any other patents, patent rights, trademarks, trademark rights, trade names, trade name rights or copyrights do not conflict with or infringe any rights of others in a manner which might materially and adversely affect the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis, and no such claim of conflict or infringement has been asserted by any Person. 4.13. Key Employees. The Company has good relationships with its employees and has not had and does not expect any substantial labor problems. The Company has no knowledge as to any intentions of any key employee or any group of employees to leave the employ of the Company. The employees of the Company are not and have never been represented by any labor union, and no collective bargaining agreement is binding and in force against the Company or currently being negotiated by the Company. 23 4.14. Properties. Other than the Permitted Liens, the Company has good and marketable title to its real property, all of which is disclosed on Exhibit B hereto, and good and marketable title to each of its other properties other than leased properties. Certain real property used by the Company in the conduct of their respective businesses is held under lease (as identified on Exhibit B hereto), and the Company is not aware of any pending or threatened claim or action by any lessor of any such property to terminate any such lease. All such leases are valid and in full force and effect, and none of such leases is in default. None of the properties owned or leased by the Company is subject to any Liens which could materially and adversely affect the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis. 4.15. Suppliers and Customers. (a) The Company has adequate sources of supply for its business as currently conducted and as proposed to be conducted. The Company has good relationships with all of its material sources of supply of goods and services and does not anticipate any material problem with any such material sources of supply. (b) The Company has no knowledge that the customer base of the Company might materially decrease. 4.16. Environmental Compliance. (a) There is no Hazardous Material on, about, under or in, any property, real or personal, in which the Company has any interest in an amount or concentration which could constitute a violation that would result in a liability in excess of $5,000 or otherwise result in a liability in excess of $5,000 to the Company under any applicable Environmental Law. (b) There is no (and has not been any) off-site use, handling, storage or disposal or on-site use, handling, storage or disposal of Hazardous Material at or from any locations currently or formerly owned, leased, operated or occupied by the Company as a result of which use, handling, storage or disposal there would exist a risk that the Company could incur a material liability or obligation under any applicable Environmental Law. (c) The Company has not received any verbal or written notice, citation, subpoena, summons, complaint or other correspondence or communication from any person with respect to the presence of any non-indigenous Hazardous Material upon, into, beneath, or emanating from or affecting any of the real property (including improvements) currently or formerly owned or occupied by the Company that could result in a liability to the Company in excess of $5,000. 24 (d) There has been no intentional or unintentional, gradual or sudden, release, disposal or discharge by the Company or, to the Company's knowledge, by others, upon, into or beneath the real property (including improvements) currently or formerly owned or occupied by the Company that has caused or is causing soil or groundwater contamination which, under applicable Environmental Laws could require investigation or remediation or could otherwise create a material liability or obligation on the part of the Company. (e) The Company is in material compliance with all applicable Environmental Laws and the terms and conditions of all Environmental Permits. (f) To the best knowledge of the Company after reasonable inquiry, there are no Liens arising under or pursuant to any Environmental Law ("Environmental Liens") relating to any real property (including improvements thereon) currently owned by the Company. (g) There are no (i) underground storage tanks, (ii) polychlorinated biphenyl containing equipment or (iii) asbestos-containing materials at any site currently owned, operated or leased by the Company, except in compliance with all applicable Environmental Laws. 4.17. No Burdensome Agreements. To the best of the knowledge of the Company, other than this Agreement and the related documents, the Company is not a party to any contract or agreement with any Affiliate of the Company, the terms of which are less favorable to the Company than those which might have been obtained, at the time such contract or agreement was entered into, from a person who was not such an Affiliate. 4.18. Offering of Shares and Warrants. None of the Company, any agent or any other person acting on its behalf, directly or indirectly, (i) offered any of the Shares, the Warrants or any similar security of the Company (A) by any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) or (B) for sale to or solicited offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any person other than the Purchasers and not more than twenty-four (24) other institutional investors each of which the Company reasonably believed was an "accredited investor" within the meaning of Regulation D under the Securities Act or (ii) has done or caused to be done (or has omitted to do or to cause to be done) any act which act (or which omission) would result in bringing the issuance or sale of the Shares within the provisions of Section 5 of the Securities Act or the filing, notification or reporting provisions of any state securities laws. 25 4.19. SEC Reports. The Company has filed all proxy statements, reports and other documents required to be filed by it under the Securities Exchange Act. The Company has furnished the Purchaser with copies of (i) its Annual Report on Form 10-K for the fiscal year ended December 31, 1997, (ii) its Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1998, June 30, 1998 and September 30, 1998 and (iii) its Proxy Statement dated April 6, 1998 (collectively, the "SEC Reports"). Each SEC Report was in substantial compliance with the requirements of its respective form and none of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC Reports, as of their respective dates, contained any untrue statement of a material fact or omitted 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. 4.20. Indebtedness. Schedule 2 hereto sets forth (i) the amount of all Indebtedness of the Company outstanding as of January 31, 1999 (and there is no additional material amount of Indebtedness of the Company outstanding other than that listed as of January 31, 1999 or as set forth in Schedule B), (ii) any Lien with respect to such Indebtedness and (iii) a description of each instrument or agreement governing such Indebtedness. The Company has made available to the Purchaser a complete and correct copy of each such instrument or agreement (including all amendments, supplements or modifications thereto). No material default exists with respect to or under any such Indebtedness or any instrument or agreement relating thereto and no event or circumstance exists with respect thereto that (with notice or the lapse of time or both) could give rise to such a default. 4.21. Use of Proceeds. The Company will use the proceeds realized from the sale of the Shares and the Warrants to repay debt, to fund future development opportunities and for working capital and general corporate purposes. No portion of such proceeds will be used for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying, within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended from time to time, any "margin stock" as defined in said Regulation U, or any "margin stock" as defined in Regulation G of the Board of Governors of the Federal Reserve System, as amended from time to time, or for the purpose of purchasing, carrying or trading in securities within the meaning of Regulation T of the Board of Governors of the Federal Reserve System, as amended from time to time, or for the purpose of reducing or retiring any indebtedness which both (i) was originally incurred to purchase any such margin stock or other securities and (ii) was directly or indirectly secured by such margin stock or other securities. None of the assets of the Company includes any such "margin stock." The Company has no present intention of acquiring any such "margin stock." 26 4.22. Other Names. The businesses previously or presently conducted by the Company has not been conducted under any corporate, trade or fictitious name. 4.23. Brokers. No broker, finder or investment banker or other party is entitled to any brokerage, finder's or other similar fee or commission in connection with any Stock and Warrant Purchase Agreement, the Stockholders' Agreement, the Registration Rights Agreement, the Warrant Certificates or the Certificate of Designations or any of the transactions contemplated hereby or thereby, based upon arrangements made by or on behalf of the Company or any of its Affiliates. SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to the Company as follows: 5.1. Corporate Power and Authority. The Purchaser has all requisite power, authority and legal right to execute, deliver, enter into, consummate the transactions contemplated by and perform its obligations under this Agreement, the Stockholders' Agreement and the Registration Rights Agreement. The execution, delivery and performance of this Agreement, the Stockholders' Agreement and the Registration Rights Agreement by the Purchaser have been duly authorized by all required corporate and other actions. The Purchaser has duly executed and delivered this Agreement, the Stockholders' Agreement and the Registration Rights Agreement, and this Agreement, the Stockholders' Agreement and the Registration Rights Agreement constitute the legal, valid and binding obligations of the Purchaser enforceable against the Purchaser in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to the rights of creditors generally. 5.2. Investment Intent. The Purchaser is capable of evaluating the risk of its investment in the Shares and Warrants being purchased by it and is able to bear the economic risk of such investment. The Purchaser is purchasing the Shares and the Warrants to be purchased by it for its own account for investment and not with a present view to any distribution thereof in violation of applicable securities laws; provided, however, that the Purchaser may transfer record and/or beneficial ownership of the Shares, the Conversion Shares, the Warrants or the Warrant Shares to one or more Affiliates, officers or employees of Affiliates or investment funds managed by Affiliates of the Purchaser, in all cases in compliance with federal securities laws. It is understood that the 27 disposition of the Purchaser's property shall at all times be within the Purchaser's control. If the Purchaser should in the future decide to dispose of any of its Shares, Conversion Shares, Warrants or Warrant Shares, it is understood that it may do so only in compliance with the Securities Act, applicable securities laws and this Agreement. The Purchaser is an "accredited investor" as defined in Rule 501(a) under the Securities Act. 5.3. Brokers. Except as disclosed on Exhibit B hereto, no broker, finder or investment banker or other party is entitled to any brokerage, finder's or other similar fee or commission in connection with any Stock and Warrant Purchase Agreement, the Stockholders' Agreement, the Registration Rights Agreement, the Warrant Certificates or the Certificate of Designations or any of the transactions contemplated hereby or thereby, based upon arrangements made by or on behalf of the Purchaser or any of its Affiliates. SECTION 6. RESTRICTIONS ON TRANSFER The Purchaser agrees that it will not sell or otherwise dispose of any Shares, Conversion Shares, Warrants or Warrant Shares unless such Shares, Conversion Shares, Warrants or Warrant Shares have been registered under the Securities Act and, to the extent required, under any applicable state securities laws, or pursuant to an applicable exemption from such registration requirements. The Company may endorse on all Share certificates or Warrant Certificates a legend stating or referring to such transfer restrictions; provided, that no such legend shall be endorsed on any Share certificates or Warrant Certificates which, when issued, are no longer subject to the restrictions of this Section 6. SECTION 7. INFORMATION AS TO THE COMPANY The Company covenants and agrees as follows: 7.1. Financial Information. (a) The Company will maintain a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in accordance with generally accepted accounting principles consistently applied. (b) So long as any of the Shares remain outstanding, the Company will deliver to (I) the Fleming Funds and (II) each Transferee, provided that each such Transferee holds not less than an aggregate of 5000 Shares, the following: 28 (i) as soon as practicable but not later than five (5) Business Days after their issuance, and in any event within ninety (90) days after the close of each fiscal year of the Company, (A) a consolidated balance sheet of the Company as of the end of such fiscal year and (B) consolidated statements of operations, stockholders' equity and cash flows of the Company for such fiscal year, in each case setting forth in comparative form the corresponding figures for the preceding fiscal year, all such balance sheets and statements to be in reasonable detail and certified without qualification by Price Waterhouse Coopers LLC or any "Big Five" independent public accounting firm selected by the Company, and such statements shall be accompanied by a management analysis of any material differences between the results for such fiscal year and the corresponding figures for the preceding year; the Company's Annual Report on Form 10-KSB shall satisfy such requirement provided that it is in compliance with all applicable requirements of the SEC and is certified by a "Big Five" accounting firm; (ii) as soon as practicable, copies (A) of all financial statements, proxy material or reports sent to the Company's stockholders, (B) of any public press releases and (C) of all reports or registration statements filed with the Commission pursuant to the Securities Act or the Securities Exchange Act; (iii) as soon as practicable and in any event within forty-five (45) days after the close of each of the first three (3) fiscal quarters of the Company, (A) a consolidated balance sheet of the Company as of the end of such fiscal quarter, (B) consolidated statements of operations, stockholders' equity and cash flows of the Company for the portion of the fiscal year ended with the end of such quarter, in each case in reasonable detail, certified by the Chief Financial Officer, Chief Executive Officer or the President of the Company and setting forth in comparative form the corresponding figures for the comparable period one year prior thereto (subject to normal year-end adjustments), together with a management analysis of any material differences between such results and the corresponding figures for such prior period and (C) a certificate of the Chief Financial Officer, Chief Executive Officer or the President certifying the Company's compliance with the covenants contained in Section 9 of this Agreement; the Company's Quarterly Report on Form 10-QSB shall satisfy such requirement provided that it is in compliance with all applicable requirements of the SEC; (iv) as soon as practicable and without duplication of any of the above items, any other materials furnished to the Company's Board of Directors or to holders of the Company's capital stock or Indebtedness, including, without limitation, any compliance certificates furnished in respect of such Indebtedness; and (v) as soon as practicable, such other information as may reasonably be requested by (I) the Fleming Funds or (II) any Transferee, provided that such Transferee holds not less than an aggregate of 5000 Shares. (c) The Company will deliver to each member of the Company's Board of Directors and each observer to the Company's Board of Directors appointed pursuant to 29 Section 3(a) of the Stockholders' Agreement, as soon as practicable (and in the case of (iii), prior to the end of each fiscal year) and without duplication of any of the items listed below, the following: (i) copies of any annual, special or interim audit reports or management or comment letters with respect to the Company or their operations submitted to the Company by independent public accountants; (ii) copies of summary financial information prepared on a quarterly basis regarding the Company on a consolidated basis as presented to the Board and any other summary financial information otherwise prepared; (iii) copies of the annual budget and business plan for the next fiscal year; (iv) copies of all formal communications, from time to time, to directors of the Company (including without limitation all information furnished to such directors in connection with such communications), and copies of minutes of meetings of the Board of Directors (and of any executive committees thereof) of the Company; (v) notice of default under any material agreement, contract or other instrument to which the Company is a party or by which it is bound; (vi) notice of any action or proceeding which has been commenced or threatened against the Company and which, if adversely determined, would have, individually or in the aggregate, a material adverse effect on the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis; and (vii) copies of all filings made with the Commission. (d) All such financial statements referred to in this Section 7.1 shall be prepared in accordance with generally accepted accounting principles consistently applied (except for any change in accounting principles specified in the accompanying certificate, in the financial statements themselves or required by GAAP, and except that any interim financial statements may omit notes and may be subject to normal year-end adjustments). (e) Without limiting the foregoing provisions of this Section 7.1, the Company agrees that, if requested in writing by any holder of Shares, it will not deliver to such holder (until otherwise instructed by such holder) (x) any non-public information or non-public materials regarding the Company (whether described in this Section 7.1 or otherwise) and (y) any information (whether or not included in clause (x)) which such holder specifies that it does not want to receive. The Company shall comply with any such request with respect to each such 30 Purchaser and any subsequent holders of Shares acquired directly or indirectly (through one or more transfers) from such Purchaser, until instructed otherwise by the then holder of such Shares. 7.2. Communication with Accountants. The Company hereby authorizes the Purchaser to communicate directly with the independent certified public accountants for the Company and authorizes such accountants to disclose to the Purchaser any and all financial statements and any other information of any kind that they may have with respect to the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company. The Company shall deliver a letter addressed to such accountants instructing them to comply with the provisions of this Section 7.2. 7.3. Inspection. The Company will permit (I) the Fleming Funds, (II) any Transferee, provided that such Transferee holds not less than an aggregate of 5000 Shares and (III) any authorized representative of the Fleming Funds or such Transferee, to visit and inspect any of the properties of the Company, to examine their respective books and records and to discuss with their officers their books and records and the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company, all at such reasonable times, all on reasonable notice and as often as may be reasonably requested. 7.4. Notices. The Company will give notice to all holders of Shares promptly after it learns (other than by notice from all of such holders) of the existence of any of the following: (a) any default under any Indebtedness (or under any indenture, mortgage or other agreement relating to any Indebtedness) which Indebtedness is in an aggregate principal amount exceeding $250,000 (or the equivalent thereof in other currencies) in respect of which the Company is liable; (b) any action or proceeding which has been commenced or threatened against the Company and which, if adversely determined, would have, individually or in the aggregate, a material adverse effect on the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis or the ability of the Company to perform its obligations under the Stock and Warrant Purchase Agreements, the Stockholders' Agreement, the Registration Rights Agreement, the Warrant Certificates or the Certificate of Designations; (c) any dispute which may exist between the Company and any governmental regulatory body which, in the reasonable opinion of the Company is reasonably likely to, 31 individually or in the aggregate, materially adversely affect the normal business operations of the Company or the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis or the ability of the Company to perform its obligations under the Stock and Warrant Purchase Agreements, the Stockholders' Agreement, the Registration Rights Agreement, the Warrant Certificates or the Certificate of Designations; and (d) if any (i) "reportable event" (as such term is described in Section 4043(c) of ERISA) has occurred; or (ii) "accumulated funding deficiency" (within the meaning of Section 412(a) of the Code) has been incurred with respect to a Pension Plan maintained or contributed to (or required to be maintained or contributed to) by the Company or any ERISA Affiliate that is subject to the funding requirements of ERISA and the Code or that an application may be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code, in each case with respect to such a Pension Plan; or (iii) Pension Plan maintained or contributed to (or required to be maintained or contributed to) by the Company or any ERISA Affiliate has been terminated, reorganized, petitioned or declared insolvent under Title IV of ERISA; or (iv) Pension Plan maintained or contributed to (or required to be maintained or contributed to) by the Company or any ERISA Affiliate has an unfunded current liability giving rise to a lien under ERISA or the Code; or (v) proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Pension Plan maintained or contributed to (or required to be maintained or contributed to) by the Company or any ERISA Affiliate; or (vi) of the Company or its ERISA Affiliates will or may incur any liability (including any contingent or secondary liability) to or on account of the termination or withdrawal from a Pension Plan maintained or contributed to (or required to be maintained or contributed to) by the Company or any ERISA Affiliate; or (vii) "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) in connection with an "employee benefit plan" (as defined in Section 3(3) of ERISA), maintained or contributed to (or required to be maintained or contributed to) by the Company or any ERISA Affiliate. Such notice (i) with respect to (a), shall specify the nature and period of existence of any such default and what the Company proposes to do with respect thereto and (ii) with respect to (b), (c) or (d), shall specify the nature of any such matter referred to in such clause, what action the Company proposes to take with respect thereto and what action any other relevant Person is taking or proposes to take with respect thereto. 7.5. Confidentiality Agreement. The Company's obligation to provide any non-public information under this Section 7 or otherwise to any person other than members of its Board of Directors shall be subject to prior execution of a confidentiality agreement between the Company and the recipient 32 of such information as more fully set forth in the form attached hereto as Exhibit F (the "Confidentiality Agreement"). SECTION 8. AFFIRMATIVE COVENANTS The Company covenants and agrees as follows: 8.1. Maintenance of Existence, Properties and Franchises; Compliance with Law; Taxes; Insurance. The Company will: (a) maintain its corporate existence, rights and other franchises in full force and effect; (b) maintain its tangible assets in good repair, working order and condition so far as necessary or advantageous to the proper carrying on of its businesses; (c) comply with all applicable laws and with all applicable orders, rules, rulings, certificates, licenses, regulations, demands, judgments, writs, injunctions and decrees, provided, that such compliance shall not be necessary so long as (i) the applicability or validity of any such law, order, rule, ruling, certificate, license, regulation, demand, judgment, writ, injunction or decree shall be contested in good faith by appropriate proceedings and (ii) failure to so comply will not have a material adverse effect on the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis; (d) pay promptly when due all Taxes imposed upon its properties, assets or income and all claims or indebtedness (including, without limitation, vendor's, workmen's and like claims) which might become a lien upon such properties or assets; provided, that payment of any such Tax shall not be necessary so long as (i) the applicability or validity thereof shall be contested in good faith by appropriate proceedings and a reserve, if appropriate, shall have been established with respect thereto and (ii) failure to make such payment will not have a material adverse effect on the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis; and (e) keep adequately insured, by financially sound and reputable insurers of nationally recognized stature, all its properties of a character customarily insured by entities similarly situated, against loss or damage of the kinds and in amounts customarily insured against by such entities and with such deductibles or coinsurance as is customary. 33 8.2. Office for Payment, Exchange and Registration; Location of Office; Notice of Change of Name or Office. (a) So long as any of the Shares or the Warrants is outstanding, the Company will maintain an office or agency where Shares or Warrants may be presented for redemption, exchange, conversion, exercise or registration of transfer as provided in this Agreement. Such office or agency initially shall be the office of the Company specified in Section 17 hereof, subject to Section 8.2(b). (b) The Company shall give each holder of Shares or Warrants at least twenty (20) days' prior written notice of any change in (i) the name of the Company as then in effect or (ii) the location of the office of the Company required to be maintained under this Section 8.2. 8.3. Fiscal Year. The fiscal year of the Company for tax, accounting and any other purposes shall end on December 31 of each calendar year. 8.4. Environmental Matters. (a) The Company and shall keep and maintain any property either owned leased, operated or occupied by the Company free and clear of any Environmental Liens, and the Company shall keep all such property free of Hazardous Material contamination and in compliance with all applicable Environmental Laws and the terms and conditions of any Environmental Permits; provided, however, that the Company shall have the right at its cost and expense, and acting in good faith, to contest, object or appeal by appropriate legal proceeding the validity of any Environmental Lien. The contest, objection or appeal with respect to the validity of an Environmental Lien shall suspend the Company's obligation to eliminate such Environmental Lien under this paragraph pending a final determination by appropriate administrative or judicial authority of the legality, enforceability or status of such Environmental Lien, provided that the following conditions are satisfied: (i) contemporaneously with the commencement of such proceedings, the Company shall give written notice thereof to each holder of Shares, Conversion Shares, Warrants or Warrant Shares; and (ii) if under applicable law any real property or improvements thereon are subject to sale or forfeiture for failure to satisfy the Environmental Lien prior to a final determination of the legal proceedings, the Company must successfully move to stay such sale, forfeiture or foreclosure pending final determination of the Company's action; and (iii) the Company must, if requested, furnish to the holders of Shares, Conversion Shares, Warrants or Warrant Shares a good and sufficient bond, surety, letter of credit or other security satisfactory to such holders equal to the amount (including any interest and penalty) secured by the Environmental Lien. (b) The Company will, by administrative or judicial process, enforce the obligations of any other Person who is potentially liable for damages, contribution or other relief 34 in connection with any violation of Environmental Laws, including, but not limited to, asbestos abatement, Hazardous Material remediation or off-site or on-site disposal. (c) The Company will defend, indemnify and hold harmless each current, former and future holder of Shares, Conversion Shares, Warrants or Warrant Shares, its employees, officers, directors, stockholders, partners, financial and legal representatives and assigns, from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits and claims, joint or several, and any costs, disbursements and expenses (including attorneys' fees and expenses and costs of investigation) of whatever kind or nature, known or unknown, contingent or otherwise asserted against, imposed on, or sustained by, them, arising out of or in any way related to (i) the presence, disposal, release, removal, discharge, storage or transportation by the Company on behalf of any predecessors thereof of any Hazardous Material upon, into, from or affecting any real property (including improvements) currently or formerly owned, leased, operated or occupied by the Company; (ii) any judicial or administrative action, suit or proceeding, actual or threatened, relating to Hazardous Material upon, in, from or affecting any real property (including improvements) currently or formerly owned, leased, operated or occupied by the Company for which the Company could be liable; (iii) any violation of any Environmental Law, by the Company or any of their agents, tenants, subtenants or invitees; (iv) the imposition of any Environmental Lien for the recovery of costs expended in the investigation, study or remediation of any environmental liability of (or asserted against) the Company; and (v) any liability arising out of or related to the off-site shipment, disposal, treatment, handling or disposal of Hazardous Materials. This Section 8.4(c) and Section 8.4(d) shall survive any payment, conversion or transfer of Shares or Warrants and any termination of this Agreement. (d) To the extent that the Company is strictly liable without regard to fault under any environmental law, regulation or ordinance, the Company's obligations to the holders of Shares, Conversion Shares, Warrants or Warrant Shares under any of the indemnification provisions of the Stock and Warrant Purchase Agreements shall likewise be strict without regard to fault with respect to the violation of any environmental law, regulation or ordinance which results in any liability to any of the indemnified persons referred to in Section 8.4(c). 8.5. Reservation of Shares. There have been reserved, and the Company shall at all times keep reserved, free from preemptive rights, out of its authorized Common Stock a number of shares of Common Stock sufficient to provide for the exercise of the conversion rights provided in Section 5 of the Certificate of Designations and the exercise of the Warrants pursuant to Section 1 of the Warrant Certificates; except to the extent that such shares reservation is contingent upon the authorization of additional shares at the Shareholders' Meeting described in Section 8.6 hereof and provided that after such Shareholders' Meeting such shares shall be reserved in accordance with this Section 8.5. 35 8.6. Stockholders' Meeting. Prior to the Second Closing the Company shall cause there to be a Stockholders' Meeting and cause the appropriate corporate action to be taken to authorize sufficient additional shares of Common Stock to permit conversion in full of the Series D Convertible Preferred Stock. The Company shall use its best efforts to have the principal shareholders of the Company vote their shares in favor of increasing the additional shares of Common Stock to permit conversion in full of the Series D Convertible Preferred Stock. The Company shall mail all proxy materials for such Shareholders' Meeting, and file all such proxy materials with the Commission, on or before April 15, 1999 and shall hold such Shareholders' Meeting no later than May 31, 1999. In the event that the Second Closing does not take place before June 30, 1999, and the conversion price of the Shares subsequently is reduced as provided in the Certificate of Designations, the Company shall use its best efforts to authorize sufficient additional shares of Common Stock to permit conversion in full of the Series D Convertible Preferred Stock and shall not use any such additional shares of authorized Common Stock for any other purpose. 8.7. Securities Exchange Act Registration. (a) The Company will maintain effective a registration statement (containing such information and documents as the Commission shall specify and otherwise complying with the Securities Exchange Act), under Section 12(b) or Section 12(g), whichever is applicable, of the Securities Exchange Act, with respect to the Common Stock of the Company, and the Company will file on time such information, documents and reports as the Commission may require or prescribe for companies whose stock has been registered pursuant to such Section 12(b) or Section 12(g), whichever is applicable. (b) The Company will, upon the request of any holder of Shares or Warrants, make whatever other filings with the Commission, or otherwise make generally available to the public such financial and other information, as any such holder may deem reasonably necessary or desirable in order to enable such holder to be permitted to sell Shares or Warrants pursuant to the provisions of Rule 144. 8.8. Delivery of Information for Rule 144A Transactions. If a holder of Shares or Warrants proposes to transfer any such Shares or Warrants pursuant to Rule 144A under the Securities Act (as in effect from time to time), the Company agrees to provide (upon the request of such holder or the prospective transferee) to such holder and (if requested) to the prospective transferee any financial or other information concerning the Company which is required to be delivered by such holder to any transferee of such Shares or Warrants pursuant to such Rule 144A, subject to confidentiality provisions, if applicable. 36 8.9. Senior Securities. The Company shall maintain the senior status of the Series D Convertible Preferred Stock such that it shall rank senior in all respects, including the payment on limitation and redemption, to all other equity securities of the Company, including the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock, except that the Series C Convertible Preferred Stock shall rank senior to the Series D Convertible Preferred Stock. 8.10. Shelf Registration. On or before July 1, 1999, the Company shall prepare and file with the SEC a registration statement for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act (a "Shelf Registration") registering the resale from time to time by the Investors of all the Registrable Securities (the "Initial Shelf Registration"). The registration statement shall be on Form S-3 or another appropriate form permitting registration of such Registrable Securities for resale by the Investors. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time, the Company shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within thirty (30) days of such cessation of effectiveness amend the Shelf Registration in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or to promptly file an additional Shelf Registration covering all the Registrable Securities (a "Subsequent Shelf Registration"). 8.11. Further Assurances. The Company will from time to time, upon the request of the Fleming Holders, promptly and duly execute and deliver any and all such further instruments and documents as the Fleming Holders may reasonably deem necessary or desirable to obtain the full benefits of (i) the obligations of the Company under this Agreement and (ii) the other rights and powers herein granted. Upon the instructions from time to time of (I) the Fleming Funds or (II) any Transferee, provided that such Transferee holds not less than an aggregate of 5000 Shares, the Company shall execute and cause to be filed any document or filing presented to the Company in proper form for signing or filing, in each case as the Fleming Funds or such Transferee may reasonably deem necessary or desirable in light of the Company's obligations under this Agreement, and the Company shall pay or cause to be paid any filing or other fees in connection therewith. SECTION 9. NEGATIVE COVENANTS The Company covenants and agrees that without the prior written consent of the holders of more than 50% of outstanding Shares: 37 9.1. No Dilution or Impairment; No Changes in Capital Stock. The Company will not, by amendment of its certificate of incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Stock and Warrant Purchase Agreements, the Certificate of Designations, the Warrant Certificates, the Registration Rights Agreement or the Stockholders' Agreement. The Company will at all times in good faith assist in the carrying out of all such terms, and in the taking of all such action, as may be necessary or appropriate in order to protect the rights of the holders of Shares and Warrants (as such rights are set forth in the Stock and Warrant Purchase Agreements, the Warrant Certificates, the Certificate of Designations, the Registration Rights Agreement and the Stockholders' Agreement) against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not issue any shares or class or series of equity or equity-linked security, which is senior to, or pari passu with, the Series D Convertible Preferred Stock as to dividend payments or amounts payable in the event of liquidation or winding up of the Company; except that the Series C Convertible Preferred Stock shall be senior to the Series D Convertible Preferred Stock, (b) will not enter into any agreement or instrument which would restrict or otherwise materially adversely affect the ability of the Company to perform its obligations under the Stock and Warrant Purchase Agreements, the Stockholders' Agreement, the Registration Rights Agreement, the Warrant Certificates or the Certificate of Designations, (c) will not amend its certificate of incorporation or by-laws in any manner which would impair or reduce the rights of the Preferred Stock, including, without limitation, an amendment which would alter or change the powers, privileges or preferences of the holders of the Series D Convertible Preferred Stock (including, without limitation, changing the Certificate of Designations after any Shares have been called for redemption), (d) except as otherwise provided in the Certificate of Designations or the Warrant Certificates or in accordance with Section 5(a) of the respective Certificate of Designations of each of the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock or the Series C Convertible Preferred Stock, as in effect on the date hereof, will not redeem, repurchase or otherwise acquire any shares of capital stock of the Company or any other rights or options to subscribe for or purchase any capital stock of the Company or any other securities convertible into or exchangeable for capital stock of the Company, (e) will not permit the par value or the determined or stated value of any shares of Common Stock receivable upon the conversion of the Shares or exercise of the Warrants to exceed the amount payable therefor upon such conversion, (f) will take all such action as may be necessary or appropriate in order that the Company may at all times validly and legally issue duly authorized, fully paid and nonassessable shares of the Common Stock free from all taxes, Liens and charges with respect to the issue thereof, upon the conversion of the Shares or exercise of the Warrants from time to time outstanding, (g) will not take any action which results in any adjustment of the current conversion price under the Certificate of Designations or the current exercise price under the Warrant Certificates if the total number of shares of the Common Stock (or other securities) issuable after the action upon the conversion of all of the then outstanding Shares or the exercise of all of the then outstanding Warrants would exceed the total number of shares of Common Stock (or other securities) then 38 authorized by the Company's certificate of incorporation and available for the purpose of issuance upon such conversion or exercise, (h) will not have any authorized Common Stock (and will not issue any Common Stock) other than its existing authorized Common Stock, $.01 par value per share, and (i) will not amend its certificate of incorporation to change any terms of its Common Stock. 9.2. Indebtedness. So long as the Fleming Holders hold at least 50% of the aggregate number of shares of the Series D Convertible Preferred Stock purchased pursuant to the Stock and Warrant Purchase Agreements, the Company will not (i) incur Indebtedness, excluding any Indebtedness set forth on Schedule 2 hereto, in excess of $10 million in aggregate principal amount; or (ii) enter into any agreement, amendment or modification with respect to any Indebtedness, which agreement, amendment or modification under clause (ii) restricts or prohibits (or was intended primarily to restrict or prohibit) the Company from making any payments under, or otherwise performing under the Stock and Warrant Purchase Agreements. 9.3. Consolidation, Merger and Sale. So long as the Fleming Holders hold at least 50% of the aggregate number of shares of the Series D Convertible Preferred Stock purchased pursuant to the Stock and Warrant Purchase Agreements, the Company will not (or will not agree to): (a) wind up, liquidate or dissolve its affairs, (b) sell, lease, transfer or otherwise dispose of all or substantially all of its assets to any other Person for a period ending one (1) year after the First Closing Date; or (c) effect a merger or consolidation if the Company is not the surviving corporation from such merger or consolidation for a period ending one (1) year after the First Closing Date. 9.4. No Change in Business. The Company will not change substantially the character of its business as conducted on each Closing Date as represented in Section 4.4 hereof and described in the Disclosure Material. 9.5. Restricted Payments; Investments. The Company will not declare or make or permit to be declared or made: (a) any Restricted Payment; or (b) any Investment. 39 9.6. Sale of Substantial Portion of Assets. For a period ending one (1) year after the First Closing Date, the Company will not sell, transfer, lease or otherwise dispose of any assets to any Person (other than to the Company and other than assets consisting of inventory being disposed of in the ordinary course of business and other than assets which are, contemporaneously with such disposition (or within ninety (90) days thereafter), being replaced with other substantially similar (or improved) assets which are used by the Company for substantially the same purpose as the assets being replaced) to the extent the aggregate assets so sold, transferred, leased or disposed of: (x) during the twelve (12) month period ending on such sale, transfer, lease or disposition (i) had an aggregate book value equal to ten percent (10%) or more of the aggregate book value of the consolidated total assets of the Company at the end of the most recent fiscal quarter preceding such sale, transfer, lease or disposition or (ii) accounted for ten percent (10%) or more of the consolidated revenues of the Company as shown on the consolidated income statement of the Company for the most recent fiscal quarter or the then preceding fiscal year; or (y) during the period from such Closing Date through such sale, transfer, lease or disposition (i) had an aggregate book value equal to ten percent (10%) or more of the aggregate book value of the consolidated total assets of the Company at the end of the most recent fiscal quarter preceding such sale, transfer, lease or disposition or (ii) accounted for ten percent (10%) or more of the consolidated revenues of the Company over the Company's fiscal periods beginning after such Closing Date and ending at the end of the most recent fiscal quarter as shown on the consolidated income statements of the Company for such periods. 9.7. Affiliate Loans and Guaranties. The Company may not incur or permit to exist any of the following: (a) any obligation of the Company to repay money borrowed owing to (i) any Affiliate of the Company or (ii) any other holder of shares of the capital stock of the Company; or (b) any obligation, to any Person, which obligation is assumed or guaranteed by the Company and which is an obligation of (i) any Affiliate of the Company or (ii) any other holder of shares of the capital stock of the Company (excluding, in the case of this clause (b), any obligation of the Company which is not owed to an Affiliate of the Company or to an Affiliate or to any other holder of shares of the capital stock of the Company). 40 This Section 9.7 shall not apply to (1) any obligations under the Stock and Warrant Purchase Agreements or with respect to the Shares or Warrants, (2) any loans, advances or Guarantees referred to in clause (1) of the proviso to the definition of "Investment" contained in Section 3 hereof or (3) Indebtedness identified on Schedule 2 hereto. 9.8. Transactions with Affiliates. The Company will not directly or indirectly, enter into any transaction or agreement (including, without limitation, the purchase, sale, distribution, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company, unless such transaction or agreement (a) is approved by a majority of the Outside Directors on the Board of Directors, and (b) is on terms that are no less favorable to the Company, as the case may be, than those which might be obtained at the time of such transaction from a Person who is not such an Affiliate; provided, however, that this Section 9.8 shall not limit, or be applicable to, (i) employment arrangements with (and general salary and benefits compensation for) any individual who is a full-time employee of the Company if such arrangements are approved by a majority of the Outside Directors on the Board of Directors; and (ii) the payment of reasonable and customary regular fees to directors of the Company who are not employees of the Company; and (iii) existing arrangements as disclosed on the Disclosure Schedule. 9.9. Liens. The Company will not create or permit to exist, to create or suffer to exist, any Lien upon or with respect to any of its assets or income, other than Permitted Liens and existing liens set forth on Schedule 5 hereto. 9.10. Private Placement Status. Neither the Company nor any agent nor other Person acting on the Company's behalf will do or cause to be done (or will omit to do or to cause to be done) any act which act (or which omission) would result in bringing the issuance or sale of the Shares, the Conversion Shares, the Warrants or the Warrant Shares within the provisions of Section 5 of the Securities Act or the filing, notification or reporting requirements of any state securities law (other than in accordance with a registration and qualification of Conversion Shares or Warrant Shares pursuant to the Registration Rights Agreement). 9.11. Maintenance of Public Market. The Company will not proceed with a program of acquisition of its Common Stock, initiate a corporate reorganization or recapitalization or undertake a consolidation or merger or authorize, consent to or take any action which would have the effect of: 41 (a) removing the Company from registration with the Commission under the Securities Exchange Act with respect to the Company's Common Stock; (b) requiring the Company to make a filing under Section 13(e) of the Securities Exchange Act; (c) reducing substantially or eliminating the public market for shares of Common Stock of the Company; (d) causing a delisting of the Company's Common Stock as a Small Cap Market Security on the NASDAQ Stock Market (unless such stock is delisted as a result of being listed on a national securities exchange); or (e) if any shares of the Company's Common Stock are at any time listed on a national exchange, causing a delisting of such stock from such exchange. 9.12. Actions Prior to Any Closing Date. From the date hereof through any Closing Date, the Company will not, (a) issue or agree to issue any capital stock or any securities exercisable for, or convertible or exchangeable into, capital stock or (b) purchase, redeem or otherwise acquire any of its capital stock; provided, however, that this Section 9.12 shall not limit, or be applicable to, (i) the transactions contemplated by the Stock and Warrant Purchase Agreements, including any issuance of capital stock in connection with the transactions contemplated by Sections 9.1 and 9.11 hereof, (ii) grants of options or issuances of Common Stock to officers, directors or employees of the Company pursuant to the current terms of the Company's 1995 Stock Incentive Plan and (iii) the conversion of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock or the exercise of existing warrants. SECTION 10. CONDITIONS TO PURCHASER'S OBLIGATIONS The Purchaser's obligation to purchase Shares and Warrants hereunder is subject to satisfaction of the following conditions at any Closing (any of which may be waived by the Purchaser); provided that (A) Section 10.3 shall apply only to the Second Closing and (B) Section 10.12 is a condition to the obligations to consummate the transaction provided for herein of each of (I) the Purchaser and (II) the Company: 10.1. Certificate of Designations; Stockholders' Agreement; Registration Rights Agreement. (a) The certificate of incorporation of the Company shall have been duly amended by the filing of the Certificate of Designations in the form of Exhibit A-1 hereto. 42 (b) The Company, the Purchasers and certain other stockholders of the Company named therein shall have entered into a Stockholders' Agreement substantially in the form of Exhibit C hereto. (c) The Company shall have entered into a Registration Rights Agreement with the Purchasers substantially in the form of Exhibit D hereto. 10.2. Certificates for Shares and Warrants. The Purchaser shall concurrently receive the certificates for Shares and Warrants contemplated by Section 2(b) hereof. 10.3. Stockholders' Meeting. The Company shall have held its Stockholders' Meeting, and at such Stockholders' Meeting taken the appropriate corporate and other actions to authorize sufficient additional shares of Common Stock to permit conversion in full of the Series D Convertible Preferred Stock into Shares of Common Stock. 10.4. Senior Status. The Company shall have taken all of the necessary actions, including the amendment of the appropriate existing agreements, so that, except as provided in this Section 10.4, the Series D Convertible Preferred Stock shall rank senior in all respects, including the payment on limitation and redemption, to all other equity securities of the Company, including the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock, except that the Series C Convertible Preferred Stock shall rank senior to the Series D Convertible Preferred Stock. 10.5. Accuracy of Representations and Warranties. The representations and warranties of the Company contained in the Stock and Warrant Purchase Agreement herein or in any certificate or document delivered pursuant hereto shall be (i) correct and complete on and as of the First Closing Date with the same effect as though made on and as of such Closing Date (after giving effect to the transactions contemplated by this Agreement) and (ii) correct and complete in all material respects on and as of the Second Closing Date with the same effect as though made on and as of such Closing Date (after giving effect to the transactions contemplated by this Agreement); provided that Sections 4.1, 4.3, 4.4, 4.5, 4.7, 4.10, 4.11, 4.12, 4.16, 4.18, 4.19, 4.21, 4.22 and 4.23 shall be correct and complete in all respects and shall not be qualified by materiality, unless specifically qualified therein. 43 10.6. Compliance with Agreements. The Company shall have performed and complied in all material respects with all agreements, covenants and conditions contained in the Stock and Warrant Purchase Agreements and any other document contemplated hereby or thereby which are required to be performed or complied with by the Company on or before such Closing Date. 10.7. Officers' Certificates. The Purchaser shall have received a certificate dated such Closing Date and signed by the President or Chief Executive Officer and by the Secretary or the Treasurer of the Company, to the effect that the conditions of Sections 10.5, 10.6, 10.9 (second sentence only) and 10.10 have been satisfied. 10.8. Proceedings. All corporate and other proceedings in connection with the transactions contemplated by the Stock and Warrant Purchase Agreements, and all documents incident thereto, shall be in form and substance satisfactory to the Purchaser and its counsel, and the Purchaser shall have received all such originals or certified or other copies of such documents as the Purchaser or its counsel may reasonably request. 10.9. Legality; Governmental and Other Authorization. The purchase of and payment for the Shares and the Warrants shall not be prohibited by any law or governmental order, rule, ruling, regulation, release, interpretation or opinion applicable to the Purchaser and shall not subject the Purchaser to any penalty, tax, liability or other onerous condition. Any necessary consents, approvals, licenses, permits, orders and authorizations of, and any filings, registrations or qualifications with, any governmental or administrative agency or other Person, with respect to the transactions contemplated by the Stock and Warrant Purchase Agreements shall have been obtained or made and shall be in full force and effect. The Company shall have delivered to the Purchaser, upon its reasonable request setting forth what is required, factual certificates or other evidence, in form and substance satisfactory to the Purchaser and its counsel, to enable the Purchaser to establish compliance with this condition. 10.10. No Material Adverse Change. There shall have been no material adverse change in the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis since September 30, 1998, except that its cash position as of January 31, 1999 is $1,105,000. 44 10.11. Opinion of Counsel. The Purchaser shall have received an opinion, dated such Closing Date and addressed to the Purchasers, of Fulbright & Jaworski L.L.P., counsel for the Company, which opinion shall be in form and substance satisfactory to the Purchaser and its counsel and shall be to the effect set forth in Exhibit E hereto. 10.12. Additional Purchases of Shares and Warrants. The sale and purchase of Shares and Warrants by the Fleming Funds pursuant to the Stock and Warrant Purchase Agreements between each of the Fleming Funds and the Company shall be consummated concurrently, (a) for an aggregate purchase price of $3,000,000 on the First Closing Date and (b) for an aggregate purchase price of $2,000,000 on the Second Closing Date. 10.13. Acceptance of Agent for Service of Process. CSC, The United States Corporation Company shall have accepted its appointment as the Company's agent in New York to receive service of process pursuant to Section 18(i) hereof. 10.14. Other Documents and Opinions. The Purchaser shall have received such other documents and opinions, in form and substance reasonably satisfactory to the Purchaser and its counsel, relating to matters incident to the transactions contemplated hereby as the Purchaser may reasonably request. SECTION 11. BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS (a) The representations, warranties, covenants and agreements of the Company and the Purchaser contained in this Agreement, the Stockholders' Agreement, the Registration Rights Agreement or in any document or certificate delivered pursuant hereto or thereto or in connection herewith shall survive for a period of two (2) years from the First Closing Date, and shall continue in effect following, the execution and delivery of the Stock and Warrant Purchase Agreements, the Stockholders' Agreement, the Registration Rights Agreement, the closings hereunder and thereunder, any investigation at any time made by the Purchaser or on its behalf or by any other Person, the issuance, sale and delivery of the Shares or the Warrants, any disposition thereof and any payment, conversion or cancellation of the Shares; provided that Section 9 shall terminate upon conversion of all of the Shares (or as earlier provided therein). All statements contained in any certificate or other document delivered by or on behalf of the Company pursuant hereto shall constitute representations and warranties by the Company hereunder. 45 (b) The Company agrees to indemnify and hold the Purchaser harmless from and against and will pay to the Purchaser the full amount of any loss, damage, liability or expense (including amounts paid in settlement and reasonable attorneys' fees and expenses) to the Purchaser resulting either directly or indirectly from any breach of the representations, warranties, covenants or agreements of the Company contained in any Stock and Warrant Purchase Agreement, or in the Stockholders' Agreement, the Registration Rights Agreement or any other document or certificate delivered pursuant hereto or thereto or in connection herewith or therewith. SECTION 12. SPECIFIC PERFORMANCE The parties agree that irreparable damage will result in the event that this Agreement is not specifically enforced, and the parties agree that any damages available at law for a breach of this Agreement would not be an adequate remedy. Therefore, the provisions hereof and the obligations of the parties hereunder shall be enforceable in a court of equity, or other tribunal with jurisdiction, by a decree of specific performance, and appropriate injunctive relief may be applied for and granted in connection therewith. Such remedies and all other remedies provided for in this Agreement shall, however, be cumulative and not exclusive and shall be in addition to any other remedies which a party may have under this Agreement or otherwise. SECTION 13. EXPENSES (a) Whether or not the transactions herein contemplated are consummated, the Company shall pay (i) the costs, fees and expenses of the Company and its counsel in connection with the Stock and Warrant Purchase Agreements, the Certificate of Designations, the Warrant Certificates, the Stockholders' Agreement and the Registration Rights Agreement, other related documentation and the issuance of the Shares, the Conversion Shares, the Warrants and the Warrant Shares and the furnishing of all opinions by counsel for the Company, (ii) the costs, fees and expenses of Morgan, Lewis & Bockius LLP in connection with the Stock and Warrant Purchase Agreements, the Certificate of Designations, the Warrant Certificates, the Stockholders' Agreement and the Registration Rights Agreement, other related documentation and the tran sactions contemplated hereby and thereby (whether or not a Closing occurs hereunder) and if the First Closing occurs the Company will make such payment on the First Closing Date (with respect to costs, fees and expenses incurred prior to such date) and on the Second Closing Date (with respect to the remainder of such costs, fees and expenses if such Second Closing occurs)); provided, however, that (x) such fees and expenses shall not exceed $80,000 without the approval of the Company and (y) in the event that the First Closing does not occur (other than as a result of a breach by the Company of its obligations to the Fleming Holders), the Company shall pay 50% of such fees and expenses upon the termination of negotiations between the Company and the Fleming Holders, (iii) the fees and expenses of counsel to the Purchasers in 46 connection with any amendments to or modifications or waivers of any provisions of the Stock and Warrant Purchase Agreements, the Certificate of Designations, the Warrant Certificates, the Stockholders' Agreement or the Registration Rights Agreement, other related documentation or in connection with any other agreements between the Purchasers and the Company and (iv) the fees and expenses (including attorneys' fees and expenses) of any holder of Shares, Conversion Shares, Warrants or Warrant Shares in enforcing its rights against the Company if the Company defaults in its obligations hereunder, under the Certificate of Designations, the Warrant Certificates, the Stockholders' Agreement or the Registration Rights Agreement. (b) In addition to all other sums due hereunder or provided for in this Agreement, the Company shall pay to the Purchaser or its agents, respectively, an amount sufficient to indemnify such persons (net of any Taxes on any indemnity payments) against all reasonable costs and expenses (including reasonable attorneys' fees and expenses and reasonable costs of investigation) and damages and liabilities incurred by the Purchaser or its agents pursuant to any investigation or proceeding against any or all of the Company, the Purchasers, or their agents, arising out of or in connection with the Stock and Warrant Purchase Agreements, the Stockholders' Agreement, the Registration Rights Agreement, or purchase of the Shares or the Warrants (or any transaction contemplated hereby or thereby or any other document or instrument executed herewith or therewith or pursuant hereto or thereto), whether or not the transactions contemplated by this Agreement are consummated, which investigation or proceeding requires the participation of the Purchaser or its agents or is commenced or filed against the Purchaser or its agents because of the Stock and Warrant Purchase Agreements, the Stockholders' Agreement, the Registration Rights Agreement, the purchase of the Shares or the Warrants or any of the transactions contemplated hereby or thereby (or any other document or instrument executed herewith or therewith or pursuant hereto or thereto), other than any investigation or proceeding in which it is finally determined that there was (i) gross negligence or willful misconduct on the part of the Purchaser or its agents, (ii) a material breach by Purchaser of any of its representations or warranties contained herein, (iii) a material breach by Purchaser of any provision of the Confidentiality Agreement or any other confidentiality agreement between the Company and the Purchaser, in any case, which was not taken by them in reliance upon any of the Company's representations, warranties, covenants or agreements in the Stock and Warrant Purchase Agreements, the Stockholders' Agreement, the Registration Rights Agreement or in any other documents or instruments contemplated hereby or thereby or executed herewith or therewith or pursuant hereto or thereto. The Company shall assume the defense, and shall have its counsel represent the Purchaser and such agents, in connection with investigating, defending or preparing to defend any such action, suit, claim or proceeding (including any inquiry or investigation); provided, however, that the Purchaser, or any such agent, shall have the right (without releasing the Company from any of its obligations hereunder) to employ its own counsel and either to direct its own defense or to participate in the Company's defense, but the fees and expenses of such counsel shall be at the expense of such person unless (i) the employment of such counsel shall have been authorized in writing by the Company in connection with such defense, (ii) the Company shall not have provided its counsel to take charge of such defense or (iii) there may be defenses available to the Purchaser, or such agent of 47 the Purchaser which are different from or additional to those available to the Company, then in any of such events referred to in clauses (i), (ii) or (iii) such counsel fees and expenses (but only for one counsel for the Purchaser and its agents) shall be borne by the Company. Any settlement of any such action, suit, claim or proceeding shall require the consent of both the Company and such indemnified person (neither of which shall unreasonably withhold its consent). (c) The Company agrees to pay, or to cause to be paid, all documentary, stamp and other similar Taxes, other than transfer taxes payable upon the transfer by the Purchaser of Shares to a Transferee, levied under the laws of the United States of America, any state or local Taxing Authority thereof or therein or any other applicable jurisdiction in connection with the issuance and sale of the Shares or Warrants and the execution and delivery of the Stock and Warrant Purchase Agreements, the Stockholders' Agreement, the Registration Rights Agreement and any other documents or instruments contemplated hereby or thereby and any modification of the Certificate of Designations, the Warrant Certificates, the Stockholders' Agreement, the Registration Rights Agreement or the Stock and Warrant Purchase Agreements or any such other documents or instruments and will hold the Purchaser harmless without limitation as to time against any and all liabilities with respect to all such Taxes. (d) The obligations of the Company under this Section 13 shall survive any Closing hereunder and any termination of the Stock and Warrant Purchase Agreements. SECTION 14. DIRECT PAYMENTS As long as the Purchaser or any institutional holder which is a direct or indirect transferee (as a result of one or more transfers) from the Purchaser shall be the holder of any Shares or Warrants, the Company will make all redemption payments, liquidation payments and other distributions by wire transfer to the Purchaser's or such other holder's (or its nominee's) account at any bank or trust company, notwithstanding any contrary provision herein or in the Company's certificate of incorporation with respect to the place of payment. The Purchaser has provided an address on Schedule 1 hereto for payments by wire transfer, and such address may be changed for the Purchaser or any subsequent holder by notice to the Company. All such payments shall be made in U.S. dollars and in federal or other immediately available funds. SECTION 15. AMENDMENTS AND WAIVERS (a) The terms and provisions of this Agreement may be amended, waived, modified or terminated only with the written consent of the holders of more than 50% of outstanding Shares; provided, however, that no such amendment, waiver, modification or termination shall change this Section 15(a) without the written consent of the holders of all the Shares, Conversion Shares, the Warrants and the Warrant Shares then outstanding. 48 (b) Promptly after obtaining the written consent of the holders as herein provided, the Company shall transmit a copy of any amendment, waiver, modification or termination which has been adopted to all holders of Shares, Conversions Shares, Warrants and Warrant Shares then outstanding, but failure to transmit copies shall not in any way affect the validity of any such amendment, waiver, modification or termination. SECTION 16. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED SHARES; REPLACEMENT (a) Subject to Section 6 hereof, at any time at the request of any holder of Shares or Warrants to the Company at its address provided under Section 17 hereof, the Company at its expense (except for any transfer tax arising out of the exchange) will issue and deliver to or upon the order of the holder in exchange therefor a new certificate or certificates in such amount or amounts as such holder may request in the aggregate representing the number of Shares or Warrants represented by such surrendered certificates, and registered in the name of such holder or as such holder may direct. (b) Any Share certificate which is converted into Conversion Shares in whole or in part shall be cancelled by the Company, and no new Share certificates shall be issued in lieu of any Shares which have been converted into Conversion Shares. The Company shall issue a new certificate with respect to any Shares which were not converted into Conversion Shares and were represented by a certificate which was converted in part. Any Warrant underlying a Warrant Certificate which is exercised in whole or in part shall be cancelled by the Company, and no new Warrant Certificate shall be issued in lieu of any Warrants which have been exercised. The Company shall issue a new certificate with respect to any Warrants which were not exercised and were represented by a certificate which was exercised in part. (c) Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Share certificate or any Warrant Certificate and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory to the Company (if requested by the Company and unsecured in the case of the Purchaser or another similar institutional holder), or in the case of any such mutilation, upon surrender of such Share certificate or Warrant certificate, as the case may be, (which surrendered Share certificate or Warrant Certificate, as the case may be, shall be cancelled by the Company), the Company will issue a new Share certificate, or Warrant Certificate, as the case may be, of like tenor in lieu of such lost, stolen, destroyed or mutilated Share certificate or Warrant Certificate, as the case may be, as if the lost, stolen, destroyed or mutilated Share certificate or Warrant Certificate, as the case may be, were then surrendered for exchange. 49 SECTION 17. NOTICES All notices, requests, demands, consents and other communications hereunder shall be in writing and shall be delivered by hand or shall be sent by telex or telecopy (confirmed by registered, certified or overnight mail or courier, postage and delivery charges prepaid), (i) if to the Company, to Global Pharmaceutical Corporation, Castor & Kensington Avenues, Philadelphia, PA 19124-5694, Attention: President, with a copy to Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, NY 10103-3198, Attention: Sheldon G. Nussbaum, Esq. or (ii) if to the Purchaser, at the address indicated on Schedule 1 hereto, with a copy to Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, NY 10178-0060, Attention: David W. Pollak, Esq., or at such other address as a party may from time to time designate as its address in writing to the other party to this Agreement. Whenever any notice is required to be given hereunder, such notice shall be deemed given and such requirement satisfied only when such notice is delivered or, if sent by telex or telecopier, when received. SECTION 18. MISCELLANEOUS (a) The Stock and Warrant Purchase Agreements, the Stockholders' Agreement, the Registration Rights Agreement and, upon any closing hereunder, the Certificate of Designations and the Warrant Certificates, together with any further agreements entered into by the Purchaser and the Company at any closing hereunder, contain the entire agreement between the Purchaser and the Company, and supersede any prior oral or written agreements, commitments, terms or understandings, regarding the subject matter hereof. (b) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which may render any provision hereof prohibited or unenforceable in any respect. (c) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, whether so expressed or not; provided, that (a) the Company may not assign any of its rights, duties or obligations under this Agreement, except with the Purchaser's written consent, and (b) the Purchaser may assign any of its rights, duties or obligations under this Agreement to a purchaser of its Shares, provided that such purchaser is reasonably acceptable to the Company. (d) In addition to any assignment by operation of law, the Purchaser may assign, in whole or in part, any or all of its rights (and/or obligations) under this Agreement to any permitted transferee of any or all of its Shares, Conversion Shares, Warrants or Warrant 50 Shares, and (unless such assignment expressly provides otherwise) any such assignment shall not diminish the rights the Purchaser would otherwise have under this Agreement or with respect to any remaining Shares, Conversion Shares, Warrants or Warrant Shares held by the Purchaser. (e) No course of dealing and no delay on the part of any party hereto in exercising any right, power, or remedy conferred by this Agreement shall operate as a waiver thereof or otherwise prejudice such party's rights, powers and remedies. No single or partial exercise of any right, power or remedy conferred by this Agreement shall preclude any other or further exercise thereof or the exercise of any other right, power or remedy. (f) The headings and captions in this Agreement are for convenience of reference only and shall not define, limit or otherwise affect any of the terms or provisions hereof. (g) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York (other than any conflict of laws rule which might result in the application of the laws of any other jurisdiction). (h) This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument, and all signatures need not appear on any one counterpart. (i) THE COMPANY HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO THE PURCHASER'S ELECTION, ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT, THE CERTIFICATE OF DESIGNATIONS, THE WARRANT CERTIFICATES, THE STOCKHOLDERS' AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, THE SHARES OR THE CONVERSION SHARES MAY BE LITIGATED IN SUCH COURTS. THE COMPANY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE CERTIFICATE OF DESIGNATIONS, THE WARRANT CERTIFICATES, THE STOCKHOLDERS' AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, THE SHARES OR THE CONVERSION SHARES. THE COMPANY DESIGNATES AND APPOINTS CSC, THE UNITED STATES CORPORATION COMPANY, AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY THE COMPANY AND WHICH IRREVOCABLY AGREE IN WRITING TO SO SERVE AS ITS AGENT, TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THE 51 COMPANY TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO THE COMPANY AT THE ADDRESS OF THE COMPANY PROVIDED HEREUNDER EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. AS AN ALTERNATIVE TO SERVICE OF PROCESS ON SUCH AGENT (WHETHER OR NOT ANY SUCH AGENT HAS BEEN APPOINTED), THE COMPANY HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE AND SERVICE OF PROCESS. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE PURCHASER TO BRING PROCEEDINGS OR OBTAIN OR ENFORCE JUDGMENTS AGAINST THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION. (j) THE COMPANY AND THE PURCHASER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE CERTIFICATE OF DESIGNATIONS, THE WARRANT CERTIFICATES, THE STOCKHOLDERS' AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, THE SHARES OR THE CONVERSION SHARES, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION. THE COMPANY AND THE PURCHASER ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE PURCHASER. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE COMPANY AND THE PURCHASER FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO (OR ASSIGNMENTS OF) THIS AGREEMENT, THE CERTIFICATE OF DESIGNATIONS, THE WARRANT CERTIFICATES, THE STOCKHOLDERS' AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, THE SHARES OR THE CONVERSION SHARES. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY THE COURT. [remainder of page intentionally left blank] 52 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. GLOBAL PHARMACEUTICAL CORPORATION By /s/ Barry R. Edwards ----------------------------------- Name: Barry R. Edwards Title: President Accepted and Agreed to as of the date first above written by the undersigned Purchaser: FLEMING US DISCOVERY FUND III, L.P. By: FLEMING US DISCOVERY PARTNERS, L.P., its general partner By: FLEMING US DISCOVERY FUND, LLC, its general partner By: /s/ Robert L. Burr -------------------------------- Robert L. Burr, member Schedule 1 to the Stock and Warrant Purchase Agreement
Number at Number at Aggregate Aggregate First Second Purchase Purchase Closing Closing Price at Price at Name of ------- ------- First Second Purchaser Shares Warrants Shares Warrants Closing Closing --------- ------ -------- ------ -------- ------- ------- Fleming US Discovery Fund III, L.P. 25,856 323,200 17,237 215,462 $2,585,600 $1,723,700 Fleming US Discovery Offshore Fund III, L.P. 4,144 51,800 2,763 34,538 $ 414,400 $ 276,300 (a) address for communications: Fleming Capital Management 320 Park Avenue New York, NY 10022 Attention: Robert L. Burr David J. Edwards (b) address for payments by wire transfer: Fleming US Discovery Fund III, L.P. Fleming US Discovery Offshore Fund III, L.P. Chase Manhattan Bank Citibank, N.A. ABA # 021000021 ABA # 021000089 / Chips UID# 0008 / Swift Code - CITIUS33 A/C # 10921671 A/C: The Bank of Bermuda Limited, Hamilton, Bermuda A/C: Robert Fleming Inc. Chips UID# 005584 A/C # 400-470551 Swift Code: BBDA BM HM A/C: Fleming US Discovery Fund III, L.P. A/C: Fleming US Discovery Offshore Fund III, L.P. A/C # 0246769
EX-99.5 4 CERTIFICATE OF DESIGNATIONS Exhibit 5 GLOBAL PHARMACEUTICAL CORPORATION CERTIFICATE OF DESIGNATIONS OF SERIES D CONVERTIBLE PREFERRED STOCK ------------------------ Pursuant to Section 151(g) of the Delaware General Corporation Law The undersigned officer hereby certifies that: A. He is the duly elected and acting officer of GLOBAL PHARMACEUTICAL CORPORATION, a Delaware corporation (the "Corporation"). B. On February 24, 1999, the Board of Directors of the Corporation duly adopted resolutions in order to designate the Series D Preferred Stock (as set forth in the resolution below). C. The resolution contained herein has not been modified, altered or amended and is presently in full force and effect. RESOLVED, that pursuant to the authority expressly vested in the Board of Directors of the Corporation by Article 4 of the Certificate of Incorporation of the Corporation, the Board of Directors hereby fixes and determines the voting rights, designations, preferences, qualifications, privileges, limitations, restrictions, options, conversion rights and other special or relative rights of the foregoing series of the preferred stock, par value $.01 per share, which shall be designated as Series D Convertible Preferred Stock (the "Series D Preferred Stock"). 1. Designation. Fifty thousand (50,000) shares of preferred stock, par value $.01 per share, of the Corporation are hereby constituted as a series of the preferred stock designated as "Series D Convertible Preferred Stock." 2. Dividends. (a) Dividends on Series D Preferred Stock. In the event that the Corporation shall at any time or from time to time declare, order, pay or make a dividend or other distribution (whether in cash, securities, rights to purchase securities or other property) on its Common Stock, the holders of shares of the Series D Preferred Stock shall be entitled to receive from the Corporation, with respect to each share of Series D Preferred Stock held, a dividend or distribution that is the same dividend or distribution that would be received by a holder of the number of shares of Common Stock into which such share of Series D Preferred Stock is convertible pursuant to the provisions of Section 5 hereof on the record date for such dividend or distribution (except in the case of the payment of a stock dividend in shares of its Common Stock if a holder of shares of Series D Preferred Stock shall have given notice to the Corporation (within five (5) business days after such holder's receipt of the Corporation's notice regarding the stock dividend) of its election to have the Conversion Price of its shares adjusted in accordance with Section 5(d)(i) hereof). Any such dividend or distribution shall be declared, ordered, paid or made on the Series D Preferred Stock at the same time such dividend or distribution is declared, ordered, paid or made on the Common Stock. Dividends, if declared, on shares of the Series D Preferred Stock shall accrue and be cumulative from the payment date of such dividend on such shares. (b) Limitation on Dividends, Repurchases and Redemptions. So long as any shares of Series D Preferred Stock shall be outstanding, the Corporation shall not declare or pay or set apart for payment any dividends or make any other distributions on any Junior Securities, whether in cash, securities, rights to purchase securities or other property (other than dividends or distributions payable in shares of the class or series upon which such dividends or distributions are declared or paid), nor shall the Corporation purchase, redeem or otherwise acquire for any consideration or make payment on account of the purchase, redemption or other retirement of any Parity Securities or Junior Securities, nor shall any monies be paid or made available for a sinking fund for the purchase or redemption of any Parity Securities or Junior Securities, unless with respect to all of the foregoing all dividends or other distributions to which the holders of Series D Preferred Stock shall have been entitled, pursuant to Section 2(a) hereof, shall have been paid or declared and a sum of money has been set apart for the full payment thereof. (c) Pro Rata Payments. In the event that full dividends are not paid or made available to the holders of all outstanding shares of Series D Preferred Stock and of any Parity Securities (after the payment in full of the preferential amount to be paid to the holders of Senior Securities) and funds available for payment of dividends shall be insufficient to permit payment in full to holders of all such stock of the full preferential amounts to which they are then entitled, then the entire amount available for payment of dividends (after the payment in full of the preferential amount to be paid to the holders of Senior Securities) shall be distributed ratably among all such holders of Series D Preferred Stock and of any Parity Securities in proportion to the full amount to which they would otherwise be respectively entitled. 3. Preference on Liquidation. (a) Liquidation Preference for Series D Preferred Stock. In the event that the Corporation shall liquidate, dissolve or wind up, whether voluntarily or involuntarily, no -2- distribution shall be made to the holders of shares of Common Stock or other Junior Securities (and no monies shall be set apart for such purpose) unless prior thereto, the holders of shares of Series D Preferred Stock shall have received an amount per share equal to the greater of (i) the sum of (x) the Liquidation Value, plus (y) all declared but unpaid dividends thereon through the date of distribution, (ii) ratable distributions determined with respect to the holders of Series D Preferred Stock and Common Stock on the basis of the number of shares of Common Stock into which such Series D Preferred Stock could be converted pursuant to the provisions of Section 5 hereof immediately prior to such distribution and (iii) the Payment Amount, on a per share basis (the greater of (i), (ii) and (iii) above is herein referred to as the "Series D Liquidation Preference"). The "Liquidation Value" means $100 per share with respect to the Series D Preferred Stock. (b) Pro Rata Payments. If, upon any such liquidation, dissolution or other winding up of the affairs of the Corporation, the assets of the Corporation shall be insufficient to permit the payment in full of the Series D Liquidation Preference for each share of Series D Preferred Stock then outstanding and the full liquidating payments on all Parity Securities (in all instances, after the payment in full of the preferential amount to be paid to the holders of Senior Securities), then the assets of the Corporation remaining shall be ratably distributed among the holders of Series D Preferred Stock and of any Parity Securities in proportion to the full amounts to which they would otherwise be respectively entitled if all amounts thereon were paid in full. (c) Sale Not a Liquidation. Neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the property or assets of the Corporation nor the consolidation, merger or other business combination of the Corporation with or into one or more corporations shall be deemed to be a liquidation, dissolution or winding-up, voluntary or involuntary, of the Corporation. (d) Notice of Liquidation. Written notice of any liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when and the place or places where amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage prepaid, not less than thirty (30) days prior to any payment date specified therein, to the holders of record of the Series D Preferred Stock at their respective addresses as shall appear on the records of the Corporation. 4. Voting. (a) General. In addition to any voting rights provided in the Corporation's Certificate of Incorporation or by law, the Series D Preferred Stock shall vote together with the Common Stock as a single class on all actions to be voted on by the stockholders of the Corporation. Each share of Series D Preferred Stock shall entitle the holder thereof to such number of votes per share on each such action as shall equal the number of shares of Common Stock into which each share of Series D Preferred Stock is then convertible. The -3- holders of Series D Preferred Stock shall be entitled to notice of any stockholder's meeting in accordance with the By-Laws of the Corporation. (b) Board of Directors. The Corporation shall not, without the written consent or affirmative vote of the holders representing at least a majority of the shares of Series D Preferred Stock then outstanding, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, increase the maximum number of directors constituting the Board of Directors to a number in excess of nine (9). (c) Election of Directors. So long as either (i) the Fleming Holders own at least 50% of the outstanding shares of Series D Preferred Stock or (ii) any Transferee owns at least 50% of the outstanding shares of Series D Preferred Stock and the Corporation consented to such Transferee (which consent shall not be unreasonably withheld), the holders of Series D Preferred Stock, consenting or voting (as the case may be) as a separate class, shall be entitled, but not required, to elect up to three (3) directors of the Corporation. So long as either (i) the Fleming Holders own at least 37.5% of the outstanding shares of Series D Preferred Stock or (ii) any Transferee owns at least 37.5% of the outstanding shares of Series D Preferred Stock and the Corporation consented to such Transferee (which consent shall not be unreasonably withheld), the holders of Series D Preferred Stock, consenting or voting (as the case may be) as a separate class, shall be entitled, but not required, to elect up to two (2) directors of the Corporation. So long as either (i) the Fleming Holders own at least 25% of the outstanding shares of Series D Preferred Stock or (ii) any Transferee owns at least 25% of the outstanding shares of Series D Preferred Stock and the Corporation consented to such Transferee (which consent shall not be unreasonably withheld), the holders of Series D Preferred Stock, consenting or voting (as the case may be) as a separate class, shall be entitled, but not required, to elect one (1) director of the Corporation. A director or the directors elected in accordance with this Section 4 are referred to as a "Preferred Director" or the "Preferred Directors." Holders of at least a majority of the outstanding shares of Series D Preferred Stock shall exercise the right to elect a Preferred Director by written notice to the Corporation, whereupon the Corporation shall call a meeting of the holders of the Series D Preferred Stock to elect a Preferred Director. Thereafter, the holders of Series D Preferred Stock, consenting or voting as a class (as the case may be), shall be entitled to elect a Preferred Director at any meeting (or in a written consent in lieu thereof) held for the purpose of electing directors until such time as holders of at least a majority of the outstanding shares of Series D Preferred Stock shall notify the Corporation in writing that they no longer wish to exercise their right to elect a Preferred Director. At any meeting (or in a written consent in lieu thereof) held for the purpose of electing directors, (i) the presence in person or by proxy (or the written consent) of the holders representing a majority of the shares of Series D Preferred Stock then outstanding shall constitute a quorum of such class for the election of a Preferred Director; and (ii) the absence of the presence in person or by proxy (or written consent) of the holders representing a majority of the -4- shares of Common Stock then outstanding shall not affect the right of a quorum of holders of Series D Preferred Stock to elect a Preferred Director. Any Preferred Director may be removed with or without cause by, and shall not be removed except by, the holders representing a majority of the shares of Series D Preferred Stock then outstanding, present in person or by proxy and voting at a meeting of stockholders, or of the holders of Series D Preferred Stock called for that purpose, or by written consent signed by the holders representing a majority of the shares of Series D Preferred Stock then outstanding. A vacancy in the directorship to be held by a Preferred Director shall be filled only by vote or written consent of the holders of the Series D Preferred Stock as provided above. Unless otherwise required by the laws of the State of Delaware, any holder or holders of at least a majority of the outstanding shares of Series D Preferred Stock shall have the right to call a meeting of the holders of Series D Preferred Stock of the Corporation for the purpose of electing a Preferred Director and filling vacancies of Preferred Directors. 5. Conversion. The holders of shares of Series D Preferred Stock shall have the right to convert all or a portion of such shares into fully paid and nonassessable shares of Common Stock or any capital stock or other securities into which such Common Stock shall have been changed or any capital stock or other securities resulting from a reclassification thereof as follows: (a) Right to Convert. Subject to and upon compliance with the provisions of this Section 5, a holder of shares of Series D Preferred Stock shall have the right, at the option of such holder, at any time, to convert any or all of such shares into the number of fully paid and nonassessable shares of Common Stock (calculated as to each conversion rounded down to the nearest 1/100th of a share) obtained by dividing the aggregate Liquidation Value of the shares to be converted, plus all declared but unpaid dividends thereon through the date of conversion (unless the holder of shares of Series D Preferred Stock being so converted shall have elected to receive any such dividends in respect of the shares being converted subsequent to conversion), by the Conversion Price and by surrender of such shares, such surrender to be made in the manner provided in paragraph (b) of this Section 5. The Common Stock issuable upon conversion of the shares of Series D Preferred Stock, when such Common Stock shall be issued in accordance with the terms hereof, are hereby declared to be and shall be duly authorized, validly issued, fully paid and nonassessable Common Stock held by the holders thereof. (b) Mechanics of Conversion. Each holder of Series D Preferred Stock that desires to convert the same into shares of Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the principal office of the Corporation or of any transfer agent for the Series D Preferred Stock or Common Stock, accompanied by written notice to the Corporation that such holder elects to convert the same and stating therein the number of shares of Series D Preferred Stock being converted and whether all declared and unpaid dividends in respect of such shares shall be included in the calculation set forth in Section 5(a) hereof, and setting forth the name or names in which such holder wishes the certificate or -5- certificates for shares of Common Stock to be issued if such name or names shall be different than that of such holder. Thereupon, the Corporation shall issue and deliver at such office on not later than the fifth Business Day thereafter (unless such conversion is in connection with an underwritten public offering of Common Stock, in which event concurrently with such conversion) to such holder or on such holder's written order, (i) a certificate or certificates for the number of validly issued, fully paid and nonassessable full shares of Common Stock to which such holder is entitled and (ii) if less than the full number of shares of Series D Preferred Stock evidenced by the surrendered certificate or certificates are being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares converted. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date of such surrender of the shares to be converted (except that if such conversion is in connection with an underwritten public offering of Common Stock, then such conversion shall be deemed to have been effected upon such surrender) so that the rights of the holder thereof as to the shares being converted shall cease at such time except for the right to receive shares of Common Stock and if the holder of the shares being so converted shall have elected to receive dividends subsequent to such conversion, all accrued and unpaid dividends in accordance herewith, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock at such time. (c) Conditional Conversion. Notwithstanding any other provision hereof, if conversion of any shares of Series D Preferred Stock is to be made in connection with a public offering of Common Stock or any transaction described in Section 5(d)(vii) hereof, the conversion of any shares of Series D Preferred Stock may, at the election of the holder thereof, be conditioned upon the consummation of the public offering or such transaction, in which case such conversion shall not be deemed to be effective until the consummation of such public offering or transaction. (d) Adjustment of the Conversion Price. The Conversion Price shall be adjusted from time to time as follows: (i) Adjustment for Stock Splits and Combinations. If the Corporation at any time or from time to time after the Issue Date, pays a stock dividend in shares of its Common Stock, issues any convertible debt securities, effects a subdivision of the outstanding Common Stock, combines the outstanding shares of Common Stock, issues by reclassification of shares of its Common Stock any shares of capital stock of the Corporation, makes a distribution of any of its assets (other than cash dividends payable out of earnings or retained earnings in the ordinary course of business) then, in each such case, the Conversion Price in effect immediately prior to such event shall be adjusted so that each holder of shares of Series D Preferred Stock shall have the right to convert its shares of Series D Preferred Stock into the number of shares of Common Stock which it -6- would have owned after the event had such shares of Series D Preferred Stock been converted immediately before the happening of such event. Any adjustment under this Section 5(d)(i) shall become effective retroactively immediately after the record date in the case of a dividend and distribution and shall become effective immediately after the effective date in the case of a issuance, subdivision, combination or reclassification. If the Corporation pays a stock dividend in shares of its Common Stock and the holders of the Series D Preferred Stock received such stock dividend pursuant to Section 2(a) hereof, the Conversion Price shall not be adjusted for such stock dividend under this Section 5(d)(i). (ii) Issuance of Additional Shares of Stock. If the Corporation shall (except as hereinafter provided) issue or sell Additional Shares of Stock for an aggregate amount of consideration exceeding one million dollars ($1,000,000) in exchange for consideration in an amount per Additional Share of Stock less than the Conversion Price in effect immediately prior to such issuance or sale of Additional Shares of Stock, then the Conversion Price as to the Common Stock into which the Series D Preferred Stock is convertible immediately prior to such adjustment shall be adjusted: (A) In the event that such issue or sale occurs at any time during the period from the Issue Date up to and including the date which is eighteen (18) months after the Issue Date, to equal the consideration paid per Additional Share of Stock; and (B) In the event that such issue or sale occurs at any time after the date which is eighteen (18) months after the Issue Date, to equal the price determined by multiplying the Conversion Price by a fraction, of which: (x) the numerator shall be (1) the number of shares of Common Stock outstanding immediately prior to such issuance or sale of Additional Shares of Stock plus (2) the number of shares of Common Stock which the aggregate amount of consideration, if any, received by the Corporation for the total number of such Additional Shares of Stock so issued or sold would purchase at the greater of (I) the Market Price per share of the Common Stock in effect immediately prior to such issuance or sale of Additional Shares of Stock or (II) the Conversion Price in effect immediately prior to such issuance or sale of Additional Shares of Stock, and (y) the denominator shall be the number of shares of Common Stock outstanding immediately after such issuance or sale of Additional Shares of Stock; provided, however, that such adjustment shall be made only if the Conversion Price determined from such adjustment shall be less than the Conversion Price in effect immediately prior to the issuance of such Additional Shares of Stock. -7- The provisions of this Section 5(d)(ii) shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 5(d)(i) or which are dividends or distributions received by the holders of the Series D Preferred Stock pursuant to Section 2(a) hereof. (iii) (A) Issuance of Warrants or Other Rights. If at any time (i) the Corporation shall in any manner (whether directly or by assumption in a merger in which the Corporation is the surviving corporation) issue or sell any warrants or other rights to subscribe for or purchase any Additional Shares of Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the consideration (computed in accordance with Section 5(d)(vi)(A) hereof) received for such warrants or other rights or such Convertible Securities shall be less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the Conversion Price shall be adjusted as provided in Section 5(d)(ii). No further adjustments of the Conversion Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such warrants or other rights or upon the actual issue of such Common Stock upon such conversion or exchange of such Convertible Securities. (B) Issuance of Convertible Securities. If at any time the Corporation shall in any manner (whether directly or by assumption in a merger in which the Corporation is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to convert thereunder are immediately exercisable, and the consideration (computed in accordance with Section 5(d)(vi)(A) hereof) received for such Convertible Securities shall be less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the Conversion Price shall be adjusted as provided in Section 5(d)(ii). No adjustment of the Conversion Price shall be made under this Section 5(d)(iii)(B) upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights pursuant to Section 5(d)(iii)(A). No further adjustments of the Conversion Price shall be made upon the actual issue of such Common Stock upon conversion of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant or other right to subscribe for or to purchase any such Convertible Securities for which adjustments of the Conversion Price have been or are to be made pursuant to other provisions of this Section 5(d), no further adjustments of the Conversion Price shall be made by reason of such issue or sale. (iv) Superseding Adjustments. If, at any time after any adjustment of the Conversion Price at which the Series D Preferred Stock is convertible shall have been made pursuant to Section 5(d)(iii) as a result of any issuance of warrants, rights or Convertible Securities, -8- (A) such warrants or rights, or the right of conversion or exchange in such other Convertible Securities, shall expire, and all or a portion of such warrants or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised, or (B) the consideration per share for which shares of Stock are issuable pursuant to such warrants or rights, or the terms of such other Convertible Securities, shall be increased solely by virtue of provisions therein contained for an automatic increase in such consideration per share upon the occurrence of a specified date or event, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such rights or options or other Convertible Securities on the basis of (C) treating the number of Additional Shares of Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (D) treating any such warrants or rights or any such other Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Stock or other property are issuable under such warrants or rights or other Convertible Securities; whereupon a new adjustment of the Conversion Price at which the Series D Preferred Stock is convertible shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled. (v) Antidilution Adjustments Under Other Securities. Without limiting any other rights available hereunder to the holders of the Series D Preferred Stock, if there is an antidilution adjustment (i) under any Convertible Securities other than the Series D Preferred Stock, whether issued prior to or after the Issue Date, or (ii) under any rights, options or warrants to purchase Additional Shares of Stock, whether issued prior to or after the Issue Date which, in either case, results in a reduction in the exercise or purchase price with respect to such security or rights or results in an increase in the number of Additional Shares of Stock obtainable under such Convertible Security, right, option or warrant, then an adjustment shall be made to the Conversion Price hereunder. Any such -9- adjustment pursuant to this Section 5(d)(v) shall be whichever of the following results in a lower Conversion Price: (A) a reduction in the Conversion Price equal to the percentage reduction in such exercise or purchase price with respect to such Convertible Security, right, option or warrant or (B) a reduction in the Conversion Price which will result in the same percentage increase in the number of shares of Common Stock available hereunder as the percentage increase in the number of Additional Shares of Stock available under such Convertible Security, right, option or warrant. Any such adjustment under this Section 5(d)(v) shall only be made if it would result in a lower Conversion Price than that which would be determined pursuant to any other antidilution adjustment otherwise required hereunder as a result of the event or circumstance which triggered the adjustment to such Convertible Security, right, option or warrant, and if an adjustment is made pursuant to this Section 5(d)(v), such other antidilution adjustment otherwise required hereunder shall not be made as a result of such event or circumstance. (vi) Other Provisions Applicable to Adjustments under this Section. The following provisions shall be applicable to making adjustments to the shares of Common Stock into which the Series D Preferred Stock is convertible and the Conversion Price at which the Series D Preferred Stock is convertible provided for in this Section 5(d): (A) Computation of Consideration. To the extent that any Additional Shares of Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase any Additional Shares of Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Corporation therefor shall be the amount of the cash received by the Corporation therefor, or, if such Additional Shares of Stock or Convertible Securities are offered by the Corporation for subscription, the subscription price, or, if such Additional Shares of Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price (subtracting (i) in any case, any amounts paid or receivable for accrued interest or accrued dividends, (ii) in the case of any public offering, any compensation, discounts or expenses paid or incurred by the Corporation for and in the underwriting of, or otherwise in connection with, the issuance thereof, and (iii) in the case of any transaction other than a public offering, any compensation, discounts or expenses paid or incurred by the Corporation for and in the underwriting of, or otherwise in connection with, the issuance thereof; provided that, in the case of clause (iii), such amount is in excess of eight percent (8%) of the aggregate costs of such transactions, and then only to the extent of such excess). To the extent that such issuance shall be for a consideration other than cash, then except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Corporation. In case any Additional Shares of Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase such -10- Additional Shares of Stock or Convertible Securities shall be issued in connection with any merger in which the Corporation issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Corporation, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Stock, Convertible Securities, warrants or other rights, as the case may be. The consideration for any Additional Shares of Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by the Corporation for issuing such warrants or other rights plus the additional consideration payable to the Corporation upon exercise of such warrants or other rights. The consideration for any Additional Shares of Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by the Corporation for issuing warrants or other rights to subscribe for or purchase such Convertible Securities, plus the consideration paid or payable to the Corporation in respect of the subscription for or purchase of such Convertible Securities, plus the additional consideration, if any, payable to the Corporation upon the exercise of the right of conversion or exchange in such Convertible Securities. In case of the issuance at any time of any Additional Shares of Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Corporation shall be deemed to have received for such Additional Shares of Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. (B) When Adjustments to Be Made. The adjustments required by this Section 5(d) shall be made whenever and as often as any event requiring an adjustment shall occur, except that any adjustment of the Conversion Price that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 5(d)(i)) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made amount to a change in the Conversion Price of less than $.05. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 5(d) and not previously made, would result in a minimum adjustment or on the date of conversion. For the purpose of any adjustment, any event shall be deemed to have occurred at the close of business on the date of its occurrence. (C) Fractional Interests. In computing adjustments under this Section 5(d), fractional interests in the Common Stock shall be taken into account to the nearest 1/100th of a share. -11- (D) Challenge to Good Faith Determination. Whenever the Board of Directors of the Corporation shall be required to make a determination in good faith of the fair value of any item under this Section 5(d), such determination may be challenged in good faith by a holder of Series D Preferred Stock and any dispute shall be resolved by an investment banking firm of recognized national standing jointly selected by the Corporation and such holder. The fees of such investment banker shall be borne by such holder if the Corporation's calculation is determined to be between 95% and 105% of the calculation of such banker. (vii) Reorganization, Reclassification, Merger or Consolidation. If the Corporation shall at any time reorganize or reclassify the outstanding shares of Common Stock (other than a change in par value, or from no par value to par value, or from par value to no par value, or as a result of a subdivision or combination) or consolidate with or merge into another corporation (where the Corporation is not the continuing corporation after such merger or consolidation), the holders of Series D Preferred Stock shall thereafter be entitled to receive upon conversion of the Series D Preferred Stock in whole or in part, the same kind and number of shares of stock and other securities, cash or other property (and upon the same terms and with the same rights) as would have been distributed to a holder upon such reorganization, reclassification, consolidation or merger had such holder converted its Series D Preferred Stock immediately prior to such reorganization, reclassification, consolidation or merger (subject to subsequent adjustments under Section 5(d) hereof). The Conversion Price upon such conversion shall be the Conversion Price that would otherwise be in effect pursuant to the terms hereof. Notwithstanding anything herein to the contrary, the Corporation will not effect any such reorganization, reclassification, merger or consolidation unless prior to the consummation thereof, the corporation which may be required to deliver any stock, securities or other assets upon the conversion of the Series D Preferred Stock shall agree by an instrument in writing to deliver such stock, cash, securities or other assets to the holders of the Series D Preferred Stock. A sale, transfer or lease of all or substantially all of the assets of the Corporation to another person shall be deemed a reorganization, reclassification, consolidation or merger for the foregoing purposes. (viii) Exceptions to Adjustment of Conversion Price. Anything herein to the contrary notwithstanding, the Corporation shall not make any adjustment of the Conversion Price in the case of the issuance of shares of Common Stock to holders of the Series D Preferred Stock upon conversion of all or any portion of their shares of Series D Preferred Stock. (ix) Chief Financial Officer's Opinion. Upon each adjustment of the Conversion Price, and in the event of any change in the rights of a holder of Series D Preferred Stock by reason of other events herein set forth, then and in each such case, the Corporation will promptly obtain a certificate of the chief financial officer of the Corporation, stating the adjusted Conversion Price, or specifying the other shares of the -12- Common Stock, securities or assets and the amount thereof receivable as a result of such change in rights, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. The Corporation will promptly mail a copy of such certificate to the holders of Series D Preferred Stock. If a holder disagrees with such calculation, the Corporation agrees to obtain within thirty (30) business days an opinion of a firm of independent certified public accountants selected by the Corporation's Board of Directors and acceptable to such holder to review such calculation and the opinion of such firm of independent certified public accountants shall be final and binding on the parties and shall be conclusive evidence of the correctness of the computation with respect to any such adjustment of the Conversion Price. (x) Corporation to Prevent Dilution. In case at any time or from time to time conditions arise by reason of action taken by the Corporation, which in the good faith opinion of its Board of Directors or a majority of the holders of the Series D Preferred Stock are not adequately covered by the provisions of this Section 5(d), and which might materially and adversely affect the exercise rights of the holders of the Series D Preferred Stock, the Board of Directors of the Corporation shall appoint such firm of independent certified public accountants acceptable to a majority of the holders of the Series D Preferred Stock, which shall give their opinion upon the adjustment, if any, on a basis consistent with the standards established in the other provisions of this Section 5(d), necessary with respect to the Conversion Price, so as to preserve, without dilution (other than as specifically contemplated by the Certificate of Incorporation), the exercise rights of the holders of the Series D Preferred Stock. Upon receipt of such opinion, the Board of Directors of the Corporation shall forthwith make the adjustments described therein. (e) No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of Section 5 hereof and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series D Preferred Stock against impairment. (f) No Fractional Shares Adjustments. No fractional shares shall be issued upon conversion of the Series D Preferred Stock. If more than one share of the Series D Preferred Stock is to be converted at one time by the same stockholder, the number of full shares issuable upon such conversion shall be computed on the basis of the aggregate amount of the shares to be converted. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of any shares of Series D Preferred Stock, the Corporation will pay a cash adjustment in respect of such fractional interest in an amount equal to the same fraction of the Market Price per share of Common Stock at the close of business on the day of -13- conversion which such fractional share of Series D Preferred Stock would be convertible into on such date. (g) Shares to be Reserved. (i) Subject to clause (ii) of this Section 5(g), the Corporation shall at all times reserve and keep available, out of its authorized and unissued stock, solely for the purpose of effecting the conversion of the Series D Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series D Preferred Stock from time to time outstanding. The Corporation shall from time to time, in accordance with the laws of the State of Delaware, increase the authorized number of shares of Common Stock if at any time the number of shares of authorized but unissued Common Stock shall be insufficient to permit the conversion in full of the Series D Preferred Stock. (ii) The provisions of this Section 5(g) shall not apply to the extent that such shares reservation is contingent upon the authorization of additional shares at the Stockholders' Meeting (the "Stockholders' Meeting") described in the Stock and Warrant Purchase Agreement and provided that after such Shareholders' Meeting such shares shall be reserved in accordance with this Section 5(g). (h) Taxes and Charges. The Corporation will pay any and all issue or other taxes that may be payable in respect of any issuance or delivery of shares of Common Stock on conversion of the Series D Preferred Stock. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance or delivery of Common Stock in a name other than that of the Series D Preferred Stock, and no such issuance or delivery shall be made unless and until the Person requesting such issuance has paid to the Corporation the amount of such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. (i) Accrued Dividends. Upon conversion of any shares of Series D Preferred Stock, the holder thereof shall be entitled to receive any accrued but unpaid dividends in respect of the shares of Series D Preferred Stock so converted to the date of such conversion. (j) Closing of Books. The Corporation will at no time close its transfer books against the transfer of any shares of Series D Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series D Preferred Stock in any manner which interferes with the timely conversion of such shares of Series D Preferred Stock. -14- 6. Redemption (a) Redemption Price. Any redemption of the Series D Preferred Stock pursuant to Section 6(b) shall be at a price per share equal to the Liquidation Value plus all declared but unpaid dividends thereon through the redemption date (the "Mandatory Redemption Price"). Any redemption of the Series D Preferred Stock pursuant to Section 6(d) shall be at a price per share equal to the Series D Liquidation Preference, except that, for purposes of calculation of the redemption price under this Section 6(a), clause (ii) of the definition of Series D Liquidation Preference in Section 3(a) hereof shall provide for the amount per share such holders would have received if such holders had converted their shares of Series D Preferred Stock into shares of Common Stock immediately prior to the Fundamental Change (the "Optional Redemption Price"). The Mandatory Redemption Price shall be paid, at the election of the Corporation, in cash or shares of Common Stock which have been registered under a registration statement under the Securities Act of 1933, as amended, which registration statement is effective, provided, that, for purposes of calculating the number of shares of Common Stock to be received by each holder of Series D Preferred Stock, each such share of Common Stock shall be valued at 10% less than the Market Price. (b) Mandatory Redemption. Subject to Section 6(a) hereof, the Corporation shall redeem all of the then outstanding shares of Series D Preferred Stock at the Mandatory Redemption Price on March 31, 2004. (c) Procedures for Redemption. In the event the Corporation shall redeem shares of Series D Preferred Stock pursuant to Section 6(b), the Corporation shall give written notice of such redemption by first class mail, postage prepaid, mailed not less than thirty (30) nor more than ninety (90) days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock records of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares of Series D Preferred Stock to be redeemed; (iii) the Mandatory Redemption Price or Optional Redemption Price, as the case may be; (iv) the place or places where certificates for such shares are to be surrendered for payment of the Mandatory Redemption Price or Optional Redemption Price, as the case may be; (v) that payment will be made upon presentation and surrender of such Series D Preferred Stock; (vi) the then current Conversion Price and the date on which the right to convert such shares of Series D Preferred Stock will expire; (vii) that dividends on the shares to be redeemed shall cease to accrue following such redemption date; (viii) that such redemption is mandatory, if pursuant to Section 6(b) and (ix) that dividends, if any, accrued to and including the date fixed for redemption will be paid as specified in such notice. Notice having been mailed as aforesaid, from and after the redemption date, unless the Corporation shall be in default in the payment of the Mandatory Redemption Price or Optional Redemption Price, as the case may be (including any accrued and unpaid dividends to (and including) the date fixed for redemption), (A) dividends on the shares of the Series D Preferred Stock so called for redemption shall cease to accrue, (B) such shares shall be deemed no longer outstanding and (C) all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation -15- (i) any moneys payable upon redemption without interest thereon and (ii) any shares of Series D Preferred Stock and Common Stock pursuant to Section 6(a) hereof) shall cease. Upon surrender in accordance with such notice of the certificates for any such shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the applicable Mandatory Redemption Price. Notwithstanding the foregoing, if notice of redemption has been given pursuant to this Section 6 and any holder of shares of Series D Preferred Stock shall, prior to the close of business on the third (3rd) Business Day preceding the redemption date, give written notice to the Corporation pursuant to Section 5(b) hereof of the conversion of any or all of the shares to be redeemed held by such holder (accompanied by a certificate or certificates for such shares, duly endorsed or assigned to the Corporation), then the conversion of such shares to be redeemed shall become effective as provided in Section 5 hereof. (d) Redemption at Option of Holder Upon a Fundamental Change. Subject to Section 6(a) hereof, if a Fundamental Change occurs, each holder of Series D Preferred Stock shall have the right, at the holder's option, to require the Corporation to repurchase all of such holder's Series D Preferred Stock, or any portion thereof, on the date (the "Repurchase Date") selected by the Corporation that is not less than ten (10) nor more than twenty (20) days after the Final Surrender Date, at a price per share equal to the Optional Redemption Price. The Corporation agrees that it will not complete any Fundamental Change unless proper provision has been made to satisfy its obligations under this Section 6(d). (e) Notice of Fundamental Change. Within thirty (30) days after the occurrence of a Fundamental Change, the Corporation shall mail to all holders of record of the Series D Preferred Stock a notice in the manner and containing the information set out in Section 6(c), except that, for purposes of this Section 6(e), such notice shall also describe the occurrence of such Fundamental Change and of the repurchase right arising as a result thereof. To exercise the repurchase right, a holder of Series D Preferred Stock must surrender, on or before the date which is, subject to any contrary requirements of applicable law, thirty (30) days after the date of mailing of the notice from the Corporation (the "Final Surrender Date"), the certificates representing the Series D Preferred Stock with respect to which the right is being exercised, duly endorsed for transfer to the Corporation, together with a written notice of election. (f) Election Irrevocable. An election by a holder of Series D Preferred Stock to have the Corporation repurchase shares of Series D Preferred Stock pursuant to Section 6(d) shall become irrevocable at the close of business on the relevant Repurchase Date. 7. Shares to be Retired. Any share of Series D Preferred Stock converted, redeemed, repurchased or otherwise acquired by the Corporation shall be retired and cancelled and shall upon cancellation be restored to the status of authorized but unissued shares of -16- preferred stock, subject to reissuance by the Board of Directors as shares of preferred stock of one or more other series but not as shares of Series D Preferred Stock. 8. Preemptive Rights. (a) Except (i) for issuances of pro rata dividends to all holders of Common Stock, (ii) stock issued to employees, officers or directors in connection with management options or incentive plans approved by the Board of Directors, (iii) stock issued in connection with any merger, acquisition or business combination, (iv) stock issued for consideration amounting to less than $500,000 in any single transaction where the purchase price is not less than the then applicable Conversion Price, provided that the aggregate amount of all such transactions shall not exceed $1,000,000 or (v) stock issued in connection with any joint venture, partnership or limited liability company, or other entities with which the Corporation has a business relationship, the holders of the Series D Preferred Stock, in order to enable such holders to maintain their fully diluted percentage ownership of the Corporation, shall have preemptive rights, as hereinafter set forth, to purchase any capital stock, including any warrants or securities convertible into capital stock, of the Corporation hereafter issued by the Corporation so that a holder of the Series D Preferred Stock shall hereafter be entitled to acquire a percentage of capital stock which is hereafter issued equal to the same percentage of the issued and outstanding Common Stock of the Corporation as is held (directly or obtainable upon conversion of the Series D Preferred Stock) by such holder of Series D Preferred Stock immediately prior to the date on which the capital stock is to be issued on a fully diluted basis. As used herein, "issue" (and variations thereof) includes sales and transfers by the Corporation of treasury shares. From the date hereof until the fifth anniversary hereof, the total number of shares issuable under clause (v) of this Section 8(a) shall not exceed 200,000. (b) The Corporation shall, before issuing any additional capital stock (other than the exceptions referred to in Section 8(a) hereof), give written notice thereof to the holders of the Series D Preferred Stock. Such notice shall specify what type of instrument the Corporation intends to issue and the consideration which the Corporation intends to receive therefor. For a period of twenty (20) days following receipt by the holders of the Series D Preferred Stock of such notice, the Corporation shall be deemed to have irrevocably offered to sell to the holders of the Series D Preferred Stock a sufficient number of shares of such capital stock so that the holders of the Series D Preferred Stock, if such holders elects to acquire such shares as hereinafter set forth, shall be capable of acquiring the same percentage of such shares as the percentage of Common Stock beneficially owned (directly or obtainable upon conversion of the Series D Preferred Stock) by such holders immediately prior to the proposed issuance on a fully diluted basis. In the event any such offer is accepted, in whole or in part, by the holders of the Series D Preferred Stock, the Corporation shall sell such shares to holders of the Series D Preferred Stock for the consideration and on the precise terms set forth in the Corporation's notice (given under the first two sentences of this paragraph). In the event that one or more holders of the Series D Preferred Stock elects not to, or fails to, exercise its rights under this Section within the twenty (20) day period, then the Corporation may issue the remaining shares -17- of capital stock to third persons but only for the same consideration set forth in the Corporation's notice (given under the first two sentences of this paragraph) and no later than ninety (90) days after the expiration of such twenty day period. The closing for such transaction shall take place as proposed by the Corporation with respect to the shares of capital stock proposed to be issued, at which closing the Corporation shall deliver certificates for the shares of capital stock in the respective names of the holders of the Series D Preferred Stock against receipt of the consideration therefor. (c) Notwithstanding any other provision hereof, the preemptive rights granted to holders of Series D Preferred Stock by this Section 8 shall terminate (i) with respect to a share of Series D Preferred Stock upon the conversion or redemption of such share of Series D Preferred Stock in accordance with the provisions hereof and (ii) with respect to all shares of the Series D Preferred Stock, in the event that the Fleming Holders cease to hold at least 50% of the Series D Preferred Stock. 9. Call (a) Call at the Corporation's Option. Subject to the other provisions of this Section 9, on any date beginning after the Issue Date, the Corporation shall have the right to purchase all (but not less than all) outstanding shares of Series D Preferred Stock (the "Call"), provided, however, that (i) the Market Price of a share of Common Stock is equal to, or greater than, an amount equal to 500% of the then applicable Conversion Price and (ii) the Common Stock has traded, on the principal market for the Common Stock, with an average daily volume in excess of 50,000 shares for a period of 30 consecutive days ending on the day immediately prior to the Call Date (as hereinafter defined). Any purchase of the Series D Preferred Stock pursuant to this Section 9(a) shall be at a price per share of Series D Preferred Stock equal to the Mandatory Redemption Price. (b) Procedures for Call at the Corporation's Option. The Corporation's right to Call the Series D Preferred Stock pursuant to Section 9(a) shall be conditioned upon the Corporation giving notice (the "Call Notice"), by first class mail, postage prepaid, of the exercise of the Call to the holders of the Series D Preferred Stock not less than twenty five (25) days prior to the date of the exercise of the Call (the "Call Date"). Each Call Notice shall state: (i) the Call Date; (ii) the Mandatory Redemption Price; (iii) the place or places where certificates for such shares are to be surrendered for payment of the Mandatory Redemption Price; (iv) that payment will be made upon presentation and surrender of such Series A Preferred Stock; (v) the then current Conversion Price and the date on which the right to convert such shares of Series A Preferred Stock will expire; (vi) that dividends on the shares to be purchased shall cease to accrue following such Call Date; (vii) that such Call is mandatory; and (viii) that dividends, if any, accrued to and including the Call Date will be paid as specified in such notice. Notice having been mailed as aforesaid, from and after the Call Date, unless the Corporation shall be in default in the payment of the Mandatory Redemption Price (including any accrued and unpaid -18- dividends to (and including) the Call Date), (A) dividends on the shares of the Series D Preferred Stock shall cease to accrue, (B) such shares shall be deemed no longer outstanding and (C) all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation (i) any moneys payable upon exercise of the Call without interest thereon and (ii) any shares of Common Stock pursuant to Section 5 hereof) shall cease. Upon surrender in accordance with the Call Notice of the certificates for any such shares so purchased (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the Call Notice shall so state), such shares shall be purchased by the Corporation at the applicable Mandatory Redemption Price. Notwithstanding the foregoing, if the Call Notice has been given pursuant to this Section 9 and any holder of shares of Series D Preferred Stock shall, prior to the close of business on the twentieth (20th) day after receipt of such Call Notice, give written notice to the Corporation pursuant to Section 5(b) hereof of the conversion of any or all of the shares to be purchased held by such holder (accompanied by a certificate or certificates for such shares, duly endorsed or assigned to the Corporation), then (i) the conversion of such shares to be purchased shall become effective as provided in Section 5 hereof and (ii) the Corporation's right to Call such shares to be purchased shall terminate. 10. Definitions. As used herein, the following terms shall have the respective meanings set forth below: "Additional Shares of Stock" means all shares of Common Stock issued by the Corporation after the Issue Date, other than (a) (i) Common Stock to be issued upon conversion of the Series D Preferred Stock, (ii) Common Stock to be issued upon conversion of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock, (iii) Common Stock to be issued upon exercise of the Warrants, (iv) Common Stock to be issued upon the exercise of currently outstanding warrants listed on Schedule 6 to the Stock and Warrant Purchase Agreements, other than the Warrants, and (v) up to 750,000 shares of Common Stock to be issued pursuant to the 1995 Stock Incentive Plan, and (b) from the date hereof until the fifth anniversary hereof, up to 500,000 shares in addition to the shares described in clause (a) hereof, provided that any change in the number of shares of Common Stock issuable upon exercise of the existing options, rights (including conversion rights) and warrants due to any amendment or modification of the terms thereof (but not as a result of the application of the current antidilution provisions thereof), or the exchange of any such option, right or warrant for any other option, right, warrant or security exercisable for or convertible into Common Stock, shall be included in the calculation of the 500,000 shares described in this clause (b). -19- "Affiliate", when used with respect to any Person, means (i) if such Person is a corporation, any officer or director thereof (other than a director elected pursuant to Section 4 hereof) and any Person which is, directly or indirectly, the beneficial owner (by itself or as part of any group) of more than five percent (5%) of any class of any equity security (within the meaning of the Securities Exchange Act of 1934, as amended) thereof, and, if such beneficial owner is a partnership, any general partner thereof, or if such beneficial owner is a corporation, any Person controlling, controlled by or under common control with such beneficial owner, or any officer or director of such beneficial owner or of any corporation occupying any such control relationship, (ii) if such Person is a partnership, any general or limited partner thereof, and (iii) any other Person which, directly or indirectly, controls or is controlled by or is under common control with such Person. For purposes of this definition, "control" (including the correlative terms "controlling", "controlled by" and "under common control with"), with respect to any Person, shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Business Day" means any day that is not a Saturday, a Sunday or any day on which banks in the State of New York are authorized or obligated to close. "Call" shall have the meaning set forth in Section 9(a). "Call Date" shall have the meaning set forth in Section 9(b). "Call Notice" shall have the meaning set forth in Section 9(b). "Common Stock" means the Corporation's Common Stock, par value $.01 per share, and shall also include any common stock of the Corporation hereafter authorized and any capital stock of the Corporation of any other class hereafter authorized which is not preferred as to dividends or assets over any other class of capital stock of the Corporation or which has ordinary voting power for the election of directors of the Corporation. "Conversion Price" means the Conversion Price per share of Common Stock into which the Series D Preferred Stock is convertible, as such Conversion Price may be adjusted pursuant to Section 5 hereof. The initial Conversion Price will be $2.00; provided that in the event that the Second Closing under the Stock and Warrant Purchase Agreements does not occur on or before June 30, 1999, then the Initial Conversion Price at which the Series D Preferred Stock is convertible shall be reduced to $1.20. -20- "Convertible Securities" means evidences of indebtedness, shares of preferred stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Stock, either immediately or upon the occurrence of a specified date or a specified event, other than the Series D Preferred Stock. "Designated Entity" means (i) as long as any shares of Series D Preferred Stock are held by any Fleming Holder, Fleming Capital Management, 320 Park Avenue, NY, NY 10022, Attention: Robert L. Burr and David J. Edwards and (ii) if no shares of Series D Preferred Stock are held by a Fleming Holder, the entity designated by the Transferee who holds the largest number of such shares (in which case such Transferee shall provide notice to the Corporation of such entity in accordance with Section 5(d) hereof). "Final Surrender Date" shall have the meaning set forth in Section 6(e). "Fleming Funds" means Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. "Fleming Holders" means (i) the Fleming Funds and (ii) any Affiliate, officer or employee of an Affiliate or investment fund managed by an Affiliate of the Fleming Funds to which the Fleming Funds may transfer record and/or beneficial ownership of any shares of Series D Preferred Stock (the "Shares") or any shares of Common Stock obtained or obtainable upon conversion of the Shares (the "Conversion Shares"). The transferor and the transferee shall notify the Company in writing as to the transferee's status as a Fleming Holder in accordance with this definition, and shall notify the Company if such transferee ceases to be a Fleming Holder. The Conversion Shares shall include any capital stock or other securities into which Conversion Shares are changed and any capital stock or other securities resulting from or comprising a reclassification, combination or subdivision of, or a stock dividend on, any Conversion Shares. "Fundamental Change" means any of the following events: (i) the sale (or functional equivalent of a sale) of all or substantially all of the assets of the Corporation; (ii) any event (A) which results in the registration of the Corporation's Common Stock under the Securities Exchange Act of 1934, as amended, to be no longer required; (B) requiring the Corporation to make a filing under Section 13(e) of the Securities Exchange Act of 1934, as amended; (C) reducing substantially or eliminating the public market for shares of Common Stock of the -21- Corporation; or (D) causing a delisting of the Corporation's Common Stock from the Nasdaq Stock Market; (iii) any consolidation of the Corporation with, or merger of the Corporation into, any other person, any merger of another person into the Corporation or any other business combination involving the Corporation which results in the holders of the Corporation's stock immediately prior to giving effect to such transaction owning shares of capital stock of the surviving corporation in such transaction representing (x) fifty percent (50%) or less of the total voting power of all shares of capital stock of such surviving corporation entitled to vote generally in the election of directors or (y) fifty percent (50%) or less of the total value of all capital stock of such surviving corporation; or (iv) the commencement by the Corporation of a voluntary case under the Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law; the consent by the Corporation to the entry of an order for relief in an involuntary case under such law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property; any assignment by the Corporation for the benefit of its creditors; any admission by the Corporation in writing of its inability to pay its debts generally as they become due; the entry of a decree or order for relief in respect of the Corporation by a court having jurisdiction in the premises in an involuntary case under Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and on account of any such event the Corporation shall liquidate, dissolve or wind up; or the liquidation, dissolution or winding up of the Corporation under any other circumstances. "Issue Date" means, as to any share of Series D Preferred Stock, the date of original issuance thereof by the Corporation. "Junior Securities" mean the Common Stock and any other class of capital stock or series of preferred stock existing on the date hereof, including the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock, or hereafter created by the Corporation which does not expressly provide that it ranks senior to or pari passu with the Series D Preferred Stock as to dividends, other distributions, liquidation preference or otherwise. -22- "Liquidation Value" shall have the meaning set forth in Section 3(a). "Mandatory Redemption Price" shall have the meaning set forth in Section 6(a). "Market Price" means, as to any security on the date of determination thereof, the average of the closing prices of such security's sales on all principal United States securities exchanges on which such security may at the time be listed, or, if there shall have been no sales on any such exchange on any day, the last trading price of such security on such day, or if such there is no such price, the average of the bid and asked prices at the end of such day, on the Nasdaq Stock Market, in each such case averaged for a period of twenty (20) consecutive Business Days prior to the day when the Market Price is being determined (except that, for purposes of the calculation of the Market Price under clause (i) of the first proviso in Section 9(a), such prices will be averaged for a period of thirty (30) consecutive days prior to the day when the Market Price is being determined under Section 9(a)); provided that if such security is listed on any United States securities exchange the term "Business Days" as used in this sentence means business days on which such exchange is open for trading. Notwithstanding the foregoing, with respect to the issuance of any security by the Corporation in an underwritten public offering, the Market Price shall be the per share purchase price paid by the underwriters. If at any time such security is not listed on any exchange or the Nasdaq Stock Market, the Market Price shall be deemed to be the fair value thereof determined by an investment banking firm of nationally recognized standing selected by the Board of Directors of the Corporation and acceptable to holders of a majority of the Series D Preferred Stock, as of the most recent practicable date when the determination is to be made, taking into account the value of the Corporation as a going concern, and without taking into account any lack of liquidity of such security or any discount for a minority interest. "Market Value" means the amount obtained by multiplying the Market Price by the number of securities issued. "Maximum Ownership" shall have the meaning set forth in Section 6(a) hereof. "Optional Redemption Price" shall have the meaning set forth in Section 6(a). "Parity Securities" mean any class of capital stock or series of preferred stock existing on the date hereof or hereafter created by the Corporation with the prior written consent of the Fleming Holders, which expressly provides that it -23- ranks pari passu with the Series D Preferred Stock as to dividends, other distributions, liquidation preference or otherwise. "Payment Amount" means such amount as is necessary to cause the net present value to equal zero as of any date of all Cash Inflows and all Cash Outflows (each as defined below) with respect to the Series D Preferred Stock being repurchased pursuant to Section 6 or held on the date of the distribution pursuant to Section 3, as the case may be, when calculated with an annual interest rate (compounded annually) equal to twelve percent (12%). "Cash Inflows" as used herein means all cash payments, including the Payment Amount, received by the holders of the Series D Preferred Stock as a dividend or distribution with respect to, or as consideration for the sale of, such Series D Preferred Stock (whether such payments are received from the Corporation or any other Person). "Cash Outflows" as used herein means the sum of all cash payments made by the holders of the Series D Preferred Stock to the Corporation to acquire such Series D Preferred Stock. (For the avoidance of doubt, Cash Inflows and Cash Outflows with respect to any Series D Preferred Stock not included in the Series D Preferred Stock being repurchased pursuant to Section 6 hereof as part of the transaction for which the Payment Amount is then being calculated shall not be included in the Cash Inflows and Cash Outflows used to make such calculation (for purposes of Section 6 only), and only the Cash Inflows and Cash Outflows with respect to the Series D Preferred Stock which are then being repurchased pursuant to Section 6 hereof in the transaction for which the Payment Amount is then being calculated shall be used in the Cash Inflows and Cash Outflows used to make such calculation (for purposes of Section 6 only).) "Person or "person" shall mean an individual, partnership, corporation, trust, unincorporated organization, joint venture, government or agency, political subdivision thereof, or any other entity of any kind. "Preferred Director" or "Preferred Directors" shall have the meaning set forth in Section 4(c). "Repurchase Date" shall have the meaning set forth in Section 6(d). "Second Closing" shall have the meaning set forth in the Stock and Warrant Purchase Agreements. "Senior Securities" mean any class of capital stock or series of preferred stock existing on the date hereof, including the Series C Convertible Preferred Stock, or hereafter created by the Corporation with the prior written consent of the Fleming Holders, which expressly provides that it ranks senior to the Series D -24- Preferred Stock as to dividends, other distributions, liquidation preference or otherwise. "Series A Convertible Preferred Stock" means the Corporation's Series A Convertible Preferred Stock, par value $.01 per share. "Series B Convertible Preferred Stock" means the Corporation's Series B Convertible Preferred Stock, par value $.01 per share. "Series C Convertible Preferred Stock" means the Corporation's Series C Convertible Preferred Stock, par value $.01 per share. "Series D Liquidation Preference" shall have the meaning set forth in Section 3(a). "Series D Preferred Stock" shall have the meaning set forth in the resolution paragraph in the preamble. "Stock and Warrant Purchase Agreements" mean each of the two Stock and Warrant Purchase Agreements dated as of the date hereof between the Corporation and the purchaser listed on the signature page of each such Agreement. "Stockholders' Meeting" shall have the meaning set forth in Section 5(g). "Transferees" shall mean any transferee (except for a Fleming Holder) of Shares or Conversion Shares (as such terms are defined within the definition of "Fleming Holders") from a Fleming Holder. Transferees shall not include a transferee of Shares or Conversion Shares sold in either a public offering pursuant to a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to Rule 144 under the Securities Act. "Warrants" shall mean Warrants to purchase the aggregate of up to the number of shares of Common Stock equal to 25% of the number of shares of Common Stock obtainable upon conversion of the Series D Preferred Stock issued pursuant to the Stock and Warrant Purchase Agreements, dated the date hereof, which rights and privileges are more fully set forth in the Stock and Warrant Purchase Agreements and the Warrant Certificates attached as Exhibit A-2 thereto. 11. Notices. (a) Except as may otherwise be provided for herein, all notices referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given (i) upon receipt, in the case of a notice of conversion given to the Corporation as -25- contemplated in Section 5(b) hereof or in the case of a notice of redemption at the holder's option given to the Corporation as contemplated in Section 6(d) hereof, or (ii) in all other cases, upon the earlier of (x) receipt of such notice, (y) three Business Days after the mailing of such notice if sent by registered mail (unless first-class mail shall be specifically permitted for such notice under the terms hereof) or (z) the Business Day following sending such notice by overnight courier, in any case with postage or delivery charges prepaid, addressed: if to the Corporation, to its offices at Castor & Kensington Avenues, Philadelphia, PA 19124-5694, Attention: President, or to an agent of the Corporation designated as permitted by the Certificate of Incorporation, or, if to any holder of the Series D Preferred Stock, to such holder at the address of such holder of the Series D Preferred Stock as listed in the stock record books of the Corporation, or to such other address as the Corporation or holder, as the case may be, shall have designated by notice similarly given. (b) The consent (or agreement as described in Section 5(d)(viii) hereof) of the Fleming Holders shall be deemed obtained if any of the following conditions are satisfied: (i) the Fleming Funds are the only holders of Series D Preferred Stock and the Designated Entity shall have obtained the consent of each Fleming Fund and shall have given notice to the Corporation to such effect in accordance with Section 10(a) hereof; (ii) the Fleming Funds are not the only holders of Series D Preferred Stock and the Designated Entity shall have obtained the consent of a majority of the outstanding shares of Series D Preferred Stock held by all Fleming Holders, and shall have given notice to the Corporation to such effect in accordance with Section 10(a) hereof; or (iii) no shares of Series D Preferred Stock are held by a Fleming Holder and the Designated Entity shall have obtained the consent of a majority of the outstanding shares of Series D Preferred Stock held by all Transferees, and shall have given notice to the Corporation to such effect in accordance with Section 10(a) hereof. -26- IN WITNESS WHEREOF, Global Pharmaceutical Corporation has caused this Certificate of Designations to be signed by its Chief Executive Officer and attested to by its Secretary, all as of the 26th day of February, 1999. GLOBAL PHARMACEUTICAL CORPORATION By: /s/ Barry R. Edwards -------------------------------------------- Name: Barry R. Edwards Title: President and Chief Executive Officer Attest: By: /s/ Cornel C. Spiegler -------------------------- Name: Cornel C. Spiegler Title: Secretary [Signature page to Certificate of Designations of the Series D Convertible Preferred Stock] -27- EX-99.6 5 STOCKHOLDERS' AGREEMENT Exhibit 6 STOCKHOLDERS' AGREEMENT This STOCKHOLDERS' AGREEMENT is dated as of March 2, 1999, among Global Pharmaceutical Corporation, a Delaware corporation (the "Company"), Barry R. Edwards ("Edwards"), Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. (collectively, the "Fleming Funds"). The Fleming Funds, any Fleming Holder and any Transferee are collectively referred to herein as the "Investor Group" and, individually, an "Investor." W I T N E S S E T H: WHEREAS, pursuant to the terms of the Stock and Warrant Purchase Agreements, dated as of March 2, 1999, between the Company and each of the Fleming Funds (the "Stock and Warrant Purchase Agreements"), the Fleming Funds have purchased 50,000 shares of the Company's Series D Convertible Preferred Stock, par value $.01 per share (the "Series D Preferred Stock"); WHEREAS, Edwards beneficially owns less than one percent (1%) of the outstanding shares of the Company's Common Stock, par value $.01 per share (the "Common Stock") (such shares, along with any shares of Common Stock or other equity securities of the Company that Edwards may subsequently acquire, the "Edwards Shares"); WHEREAS, it is a condition precedent to the Company's and the Fleming Funds' respective obligations to consummate the transactions contemplated by the Stock and Warrant Purchase Agreements that the parties hereto shall have entered into this Agreement; and WHEREAS, each of Edwards, the Company and the Fleming Funds desires to enter into this Agreement to regulate certain aspects of their relationship; NOW, THEREFORE, in consideration of the arguments and mutual covenants contained herein, the parties hereto hereby agree as follows: 1. Rights of Inclusion (Tag-Along Rights). (a) In the event Edwards proposes to Transfer any Edwards Shares (the "Transferor Shares") to any Person (the "Buyer"), as a condition to such Transfer, Edwards shall cause the Buyer to offer (the "Inclusion Offer") to purchase from each Investor, at each such Investor's option, up to that number of Investor Shares determined in accordance with Section 1(b) on the same terms and conditions as are applicable to the Transferor Shares (including any consideration to be received by Edwards in the form of bonuses, consulting fees, noncompetition payments, pursuant to employment arrangements or similar arrangements), except that each Investor shall not be required to provide any representation, warranty or other undertaking other than with respect to its ownership of, and authority to Transfer, the Investor Shares owned by it free of any liens or encumbrances. Edwards shall provide prompt written notice to each Investor (the "Inclusion Notice") setting forth all the terms and conditions of the Inclusion Offer, and each Investor may accept the Inclusion Offer in whole or in part by providing a written notice of acceptance with respect to Investor Shares owned by it to Edwards within twenty (20) days of delivery of the Inclusion Notice to it (the "Acceptance Notice"). (b) Each Investor shall have the right to sell, pursuant to the Inclusion Offer, Investor Shares representing the same percentage of all Investor Shares owned by it as the Transferor Shares are of all Edwards Shares (such percentage shall be calculated on the basis that all shares of Series D Preferred Stock owned by each Investor have been converted into shares of Common Stock at the current conversion price per share under Section 5 of the Certificate of Designations); provided, however, that if no Investor elects to exercise such right, Edwards shall nonetheless be entitled to Transfer all or any portion of the Transferor Shares described in the Inclusion Notice. In the event the number of Investor Shares for which the Investor Group elects to exercise such right, along with the Transferor Shares and any other shares of the Company to be sold by other stockholders pursuant to any similar rights granted to such other stockholders, exceed the number of shares which the Buyer is willing to purchase, the number of shares to be Transferred to the Buyer by each transferor shall be reduced so that each transferor is entitled to Transfer the same percentage of its shares included in its Acceptance Notice as each other transferor. If an Investor elects to exercise such right, such Investor may, in its sole discretion, determine the composition of the Investor Shares (i.e., the number of the shares of Series D Preferred Stock and Common Stock to be included in the Investor Shares) to be Transferred by it to the Buyer pursuant to the Inclusion Offer. In the event that any Investor chooses to include any shares of Series D Preferred Stock in the Investor Shares to be Transferred by it to the Buyer pursuant to the Inclusion Offer, any such Investor shall, prior to or simultaneously with such Transfer, convert such shares of Series D Preferred Stock into shares of Common Stock so that each Investor Transfers only Common Stock to the Buyer. 2 (c) Edwards shall have ninety (90) days, commencing on the date of the Inclusion Notice, in which to Transfer, on behalf of himself and the Investor Group up to the number of shares covered by the Inclusion Offer (including the Transferor Shares) to the Buyer. The terms of such Transfer, including, without limitation, price and form of consideration, shall be as set forth in the Inclusion Notice. If at the end of such ninety (90) day period Edwards has not completed the Transfer of the Transferor Shares and the Investor Shares (if any) proposed to be Transferred, Edwards may not proceed with such Transfer or any other Transfer without first giving a new Inclusion Notice pursuant to the provisions of this Section 1. (d) If Edwards is able to complete the Transfer of the Transferor Shares and the Investor Shares (if any) proposed to be Transferred within such ninety (90) day period, at the closing thereof, each Investor shall deliver to the Buyer a certificate or certificates representing the Investor Shares owned by it to be Transferred pursuant to the Inclusion Offer, free and clear of all liens and encumbrances, and the Buyer shall pay to each such Investor the purchase price for the Investor Shares so Transferred pursuant to this Section 1 and shall furnish such other evidence of the completion of such Transfer and the terms thereof as may be reasonably requested by the Investor Group. (e) The provisions of this Section 1 shall not apply to any Transfer or proposed Transfer by Edwards of Edwards Shares which represents twelve and one-half percent (12.5%) or less of the Edwards Shares held by Edwards on the date of such Transfer if such Transfer or proposed Transfer by Edwards of Edwards Shares, together with all other Transfers by Edwards of Edwards Shares on or prior to the date of such Transfer, represent thirty percent (30%) or less of the Edwards Shares held by Edwards on the date hereof, with Edwards Shares held by Edwards on the date of such Transfer to be appropriately adjusted to reflect any stock split, stock dividend, recapitalization or similar event; provided, however, that each Transfer of Edwards Shares that takes place within one year of any other Transfer to the same Person or any Affiliate of such Person shall be aggregated for purposes of such twelve and one-half percent (12.5%) threshold. In the event that Edwards desires to exercise an option to purchase shares of Common Stock of the Company, then Edwards may Transfer Edwards Shares to the extent necessary to obtain the funds to exercise such option and such Transfer shall not be included in the calculation of the percentages in this Section 1(e); provided that such option must expire within ninety (90) days of such Transfer. (f) The provisions of this Section 1 shall only apply to Edwards so long as Edwards is the Chief Executive Officer or an executive officer of the Company. 2. Board Observer Rights; Committees. (a) The Company agrees with the Fleming Funds that so long as any shares of Series D Preferred Stock are outstanding, the Fleming Holders (or if no shares of Series D Preferred Stock are held by a Fleming Holder, any Transferee consented to by the Company 3 (which consent shall not be unreasonably withheld) (the "Permitted Transferee")), shall have the right to have up to three (3) representatives (the "Fleming Observer" or "Fleming Observers") (subject to the provisions of Section 2(b) herein) attend and participate in meetings of the Company's Board of Directors, or any committee thereof, and the Company shall permit any Fleming Observer to attend and participate in all such meetings as an observer. A Fleming Observer shall not have the right to vote on any matter presented to the Board or any committee thereof. The Company shall give all Fleming Observers written notice of each meeting of the Board of Directors or any committee thereof and all written materials and other information given to the Company's directors and committee members in the same manner and at the same time such notices, materials and other information are given to the directors and committee members. The Company shall reimburse any Fleming Observer for travel and other expenses in connection with such meetings to the same extent that the Company reimburses its directors and committee members. If the Board of Directors or any committee thereof proposes to take any action by written consent in lieu of a meeting, the Company shall give written notice thereof to all Fleming Observers prior to the effective date of such consent describing the nature and substance of such action. (b) During such time that the holders of the Series D Preferred Stock have elected at least one director to the Company's Board of Directors (or have waived their right to so elect such director) pursuant to Section 4 of the Company's Certificate of Designations with respect to the Series D Preferred Stock (the "Investor Director"), the number of Fleming Observers that the Fleming Holders or the Permitted Transferee, as the case may be, shall be able to exercise their rights as provided in Section 2(a) shall be modified such that (x) in the event there is one (1) Investor Director, the Fleming Holders or the Permitted Transferee, as the case may be, shall have the right to have up to (2) Fleming Observers, (y) in the event there are two (2) Investor Directors, the Fleming Holders or the Permitted Transferee, as the case may be, shall have the right to have (1) Fleming Observer and (z) in the event there are three (3) Investor Directors, the Fleming Holders or the Permitted Transferee, as the case may be, shall not have the right to have any Fleming Observer. (c) So long as any shares of Series D Preferred Stock are outstanding, the Company and Edwards acknowledge that the parties to this Agreement desire that one Investor Director be appointed to the Executive, Compensation, Stock Option and Audit Committees of the Company's Board of Directors and at each time the Company's Board of Directors appoints committee members, agree to use their best efforts and take any other action necessary or appropriate to ensure such appointment; provided, however, that the agreements of this paragraph (c) shall terminate with respect to an Investor Director upon the Fleming Holders' or the Permitted Transferee's delivery of a written notice to the Company and Edwards to the effect that such Investor Director need not be appointed to the aforesaid committees. 4 3. Definitions. As used herein, the following terms shall have the respective meanings set forth below: "Acceptance Notice" shall have the meaning set forth in Section 1(a) hereof. "Affiliate" shall have the meaning given it in Section 3 of the Stock and Warrant Purchase Agreements. "Board" or "Board of Directors" shall have the meaning given it in Section 3 of the Stock and Warrant Purchase Agreements. "Buyer" shall have the meaning set forth in Section 1(a) hereof. "Capital Stock" means the Common Stock (including, without limitation, any Common Stock issuable upon conversion of the Series D Preferred Stock or upon exercise of the Warrants), Series D Preferred Stock and any other class of equity security which the Company may issue and any securities or other rights convertible, exchangeable or exercisable for or into any Capital Stock. "Certificate of Designations" shall have the meaning given it in Section 1(a) of the Stock and Warrant Purchase Agreements. "Common Stock" shall have the meaning set forth in the second WHEREAS clause hereof. "Company" shall have the meaning set forth in the first paragraph hereof. "Edwards" shall have the meaning set forth in the first paragraph hereof. "Edwards Shares" shall have the meaning set forth in the second WHEREAS clause hereof. "Fleming Funds" shall have the meaning set forth in the first paragraph hereof. "Fleming Holders" shall have the meaning given it in Section 3 of the Stock and Warrant Purchase Agreements. "Fleming Observer" shall have the meaning set forth in Section 2(a) hereof. "Fully Diluted Basis" means, with respect to the calculation of the number of shares of Capital Stock, as of each date of determination thereof, (i) all shares of Capital Stock 5 outstanding at the time of determination and (ii) all shares of Capital Stock issuable upon the exchange, exercise or conversion of any security or other right (other than any Capital Stock) then outstanding which is exchangeable, exercisable or convertible into Capital Stock. "Inclusion Notice" shall have the meaning set forth in Section 1(a) hereof. "Inclusion Offer" shall have the meaning set forth in Section 1(a) hereof. "Investor" shall have the meaning set forth in the first paragraph hereof. "Investor Director" shall have the meaning set forth in Section 2(b) hereof. "Investor Group" shall have the meaning set forth in the first paragraph hereof. "Investor Shares" means all Series D Preferred Stock and Common Stock owned by the Investor Group. "Permitted Transferee" shall have the meaning set forth in Section 2(a) hereof. "Person" means an individual, corporation, partnership, firm, association, joint venture, trust, unincorporated organization, governmental body, agency, political subdivision or other entity. "Pro Rata" means with respect to a stockholder, in proportion to the number of shares of Capital Stock on a Fully Diluted Basis owned by such stockholder. "Series D Preferred Stock" shall have the meaning set forth in the first WHEREAS clause hereof. "Stock and Warrant Purchase Agreements" shall have the meaning set forth in the first WHEREAS clause hereof. "Transfer" means, with respect to any security, any direct or indirect sale, transfer, assignment, hypothecation, pledge or any other disposition of such security or any interest therein. "Transferee" shall have the meaning given it in Section 3 of the Stock and Warrant Purchase Agreements. "Transferor Shares" shall have the meaning set forth in Section 1(a) hereof. "Warrants" shall have the meaning set forth in Section 1 of the Stock and Warrant Purchase Agreements. 6 4. Miscellaneous. (a) In the event of a breach by any party to this Agreement of its obligations under this Agreement, any party injured by such breach, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The parties agree that the provisions of this Agreement shall be specifically enforceable, it being agreed by the parties that the remedy at law, including monetary damages, for breach of any such provision will be inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. (b) Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement will be effective against any party hereto unless such modification, amendment or waiver is approved in writing by all parties hereto. The failure of any party to enforce any of the provisions of this Agreement will in no way be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. (c) All covenants and agreements in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. (d) All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or sent by nationally recognized overnight courier service to the parties at the following addresses or facsimile numbers: (i) If to an Investor, to: the address indicated on Schedule 1 to the Stock and Warrant Purchase Agreements. with a copy to: Morgan, Lewis & Bockius LLP 101 Park Avenue New York, NY 10178 Facsimile No.: (212) 309-6273 Attn: David W. Pollak, Esq. 7 (ii) If to the Company, to: Global Pharmaceutical Corporation Castor & Kensington Avenues Philadelphia, PA 19124-5694 Facsimile No.: (215) 289-5932 Attn: President with a copy to: Fulbright & Jaworski L.L.P. 666 Fifth Avenue, 31st Floor New York, NY 10103-3198 Facsimile No.: (212) 752-5958 Attn: Sheldon G. Nussbaum, Esq. (iii) If to Edwards, to: Barry R. Edwards Global Pharmaceutical Corporation Castor & Kensington Avenues Philadelphia, PA 19124-5694 Facsimile No.: (215) 289-5932 All such notices, requests and other communications will (x) if delivered personally to the address as provided in this Section 4(d), be deemed given upon delivery, (y) if delivered by facsimile transmission to the facsimile number as provided in this Section 4(d), be deemed given upon receipt and (z) if delivered by nationally recognized overnight courier service in the manner described above to the address as provided in this Section 4(d), be deemed given on the business day following the day it was sent (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice is to be delivered pursuant to this Section 4(d)). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other parties hereto. (e) The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof. (f) If any provision of this Agreement is held to be illegal, invalid or unenforceable, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (i) such provision will be fully severable, (ii) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (iii) the remaining provisions of this Agreement will remain 8 in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (iv) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provi sion as similar in terms to such illegal, invalid or unenforceable provision as may be possible. (g) This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to a contract executed and performed in such State without giving effect to the conflicts of laws principles thereof. (h) This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. [remainder of page intentionally left blank] 9 IN WITNESS WHEREOF, the parties have duly executed this Stockholders' Agreement as of the date first written above. GLOBAL PHARMACEUTICAL CORPORATION By: /s/ Barry R. Edwards -------------------------------------------- Name: Barry R. Edwards Title: President and Chief Executive Officer With respect to the obligations contained in Sections 1, 2(c), 3 and 4 hereof only: /s/ Barry R. Edwards ------------------------------------------------ Barry R. Edwards FLEMING US DISCOVERY FUND III, L.P. By: FLEMING US DISCOVERY PARTNERS, L.P., its general partner By: FLEMING US DISCOVERY, LLC, its general partner By: /s/ Robert L. Burr ------------------------------------ Robert L. Burr, member FLEMING US DISCOVERY OFFSHORE FUND III, L.P. By: FLEMING US DISCOVERY PARTNERS, L.P., its general partner By: FLEMING US DISCOVERY, LLC, its general partner By: Robert L. Burr ------------------------------------ Robert L. Burr, member [Signature page to Stockholders' Agreement] EX-99.7 6 REGISTRATION RIGHTS AGREEMENT Exhibit 7 ================================================================================ REGISTRATION RIGHTS AGREEMENT dated March 2, 1999 among Global Pharmaceutical Corporation, Fleming US Discovery Fund III, L.P., and Fleming US Discovery Offshore Fund III, L.P. ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I......................................................................1 DEMAND REGISTRATIONS...................................................1 1.1 Requests for Registration..............................1 1.2 Limitations on Demand Registrations....................2 1.3 Effective Registration Statement.......................3 1.4 Priority on Demand Registrations.......................3 1.5 Selection of Underwriters..............................3 1.6 Other Registration Rights..............................3 ARTICLE II.....................................................................4 OTHER REGISTRATIONS....................................................4 2.1 Right to Piggyback.....................................4 2.2 Priority on Primary Registrations......................4 2.3 Priority on Secondary Registrations....................4 2.4 Other Registrations....................................5 ARTICLE III....................................................................6 REGISTRATION PROCEDURES................................................6 ARTICLE IV....................................................................10 REGISTRATION EXPENSES.................................................10 4.1 Company's Fees and Expenses...........................10 4.2 Fees of Counsel to Holders............................10 ARTICLE V.....................................................................10 UNDERWRITTEN OFFERINGS................................................10 5.1 Demand Underwritten Offerings.........................10 5.2 Incidental Underwritten Offerings.....................11 ARTICLE VI....................................................................11 INDEMNIFICATION.......................................................11 6.1 Indemnification by the Company........................11 6.2 Indemnification by Holders............................12 6.3 Indemnification Procedures............................13 6.4 Indemnification of Underwriters.......................14 6.5 Contribution..........................................14 6.6 Timing of Indemnification Payments....................15 Page ---- ARTICLE VII...................................................................15 RULE 144..............................................................15 ARTICLE VIII..................................................................16 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS...........................16 ARTICLE IX....................................................................16 MERGERS, ETC..........................................................16 ARTICLE X.....................................................................16 DEFINITIONS...........................................................16 ARTICLE XI....................................................................18 MISCELLANEOUS.........................................................18 11.1 No Inconsistent Agreements............................18 11.2 Adjustments Affecting Registrable Securities..........18 11.3 Remedies..............................................18 11.4 Amendments and Waivers................................19 11.5 Successors and Assigns................................19 11.6 Notices...............................................19 11.7 Headings..............................................21 11.8 Gender................................................21 11.9 Invalid Provisions....................................21 11.10 Governing Law.........................................21 11.11 Counterparts..........................................21 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement is dated as of March 2, 1999, among Global Pharmaceutical Corporation, a Delaware corporation (the "Company"), Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. (collectively, the "Fleming Funds"). The Fleming Funds, any Fleming Holder and any Transferee are collectively referred to herein as the "Investors" and, individually, an "Investor." Capitalized terms used and not otherwise defined herein have the respective meanings ascribed thereto in Article X. W I T N E S S E T H: WHEREAS, simultaneously herewith, the Fleming Funds have purchased an aggregate of 50,000 shares of Series D Preferred Stock pursuant to the terms of the Stock and Warrant Purchase Agreements; WHEREAS, it is a condition to the consummation of the transactions contemplated by the Stock and Warrant Purchase Agreements that the Company and the Fleming Funds enter into this Agreement whereby the Company shall grant, and the Investors shall obtain, the rights relating to the registration of the Registrable Securities under the Securities Act, as set forth in this Agreement; NOW, THEREFORE, the parties hereto hereby agree as follows: ARTICLE I DEMAND REGISTRATIONS 1.1 Requests for Registration. (a) Subject to Section 1.2, at any time and from time to time on or after the date hereof, the Fleming Holders may request registration under the Securities Act of all or part of their Registrable Securities on Form S-1 or any similar long-form registration ("Long-Form Demand Registrations"). Thereafter, the Company will use its best efforts to promptly effect the registration of such Registrable Securities under the Securities Act on the form requested by the holder or holders making such registration request. All registrations requested pursuant to this Section 1.1 are referred to herein as "Demand Registrations." Upon receipt of a request for a Demand Registration, the Company will give prompt written notice (in any event within three (3) Business Days after its receipt of such request) of the request for a Demand Registration to all holders of Registrable Securities not making such request and will include in such Demand Registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within ten (10) days after the receipt of the Company's notice. The holders of the Registrable Securities making any such registration request may, at any time prior to the effective date of the registration statement relating to any Demand Registration, revoke such Demand Registration request by providing written notice to the Company. (b) On or before July 1, 1999, the Company shall prepare and file with the SEC a registration statement for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act (a "Shelf Registration") registering the resale from time to time by the Investors of all the Registrable Securities (the "Initial Shelf Registration"). The registration statement shall be on Form S-3 or another appropriate form permitting registration of such Registrable Securities for resale by the Investors. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time, the Company shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within thirty (30) days of such cessation of effectiveness amend the Shelf Registration in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or to promptly file an additional Shelf Registration covering all the Registrable Securities (a "Subsequent Shelf Registration"). 1.2 Limitations on Demand Registrations. (a) The holders of the Registrable Securities shall be entitled to (i) one (1) Long-Form Demand Registration and (ii) any number of Shelf Registrations. (b) The Company shall be entitled to postpone for a reasonable period of time not to exceed forty-five (45) days the declaration of effectiveness by the Securities and Exchange Commission (the "SEC") of any Long-Form Registration otherwise required to be prepared and filed by it if, at the time it receives a Demand Registration request for a Long-Form Registration or at any time during the process of registration, prior to being declared effective by the SEC, the Board of Directors of the Company determines, in its reasonable good faith judgment, that such registration would materially interfere with a business or financial transaction of substantial importance to the Company (other than an underwritten public offering of its securities), including, without limitation, any such transaction involving a material acquisition, consolidation, merger or corporate reorganization then pending or proposed by its Board of Directors involving the Company, and the Company promptly gives the holders of the Registrable Securities written notice of such determination, containing a general statement of the reasons for such postponement and an approximation of the anticipated delay; provided, however, that the Company shall not be entitled to postpone filing a registration statement in response to a Demand Registration for the twelve (12) months following the expiration of such forty-five day period. In the event the effectiveness of any registration statement is postponed pursuant to this paragraph, the holder or holders of the Registrable Securities making a -2- registration request shall have the right to withdraw such Demand Registration request by giving written notice to the Company within thirty (30) days after receipt of the notice of postponement (and, in the event of such withdrawal, the right of the holders of the Registrable Securities to such Demand Registration shall be reinstated). 1.3 Effective Registration Statement. (a) A Demand Registration requested pursuant to Section 1.1 of this Agreement shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective, (ii) if after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason, and the Registrable Securities covered thereby have not been sold, or (iii) if the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied by reason of (x) a failure by or inability of the Company to satisfy any thereof, or (y) the occurrence of an event outside the control of the holders of Registrable Securities. (b) A Demand Registration requested pursuant to Section 1.1(a) of this Agreement shall not be deemed to have been effected if holders of Registrable Securities are not able to register and sell at least 66-2/3% of the amount of Registrable Securities requested to be included in such registration; provided that in no case shall holders of Registrable Securities be permitted to utilize the provisions of this Section 1.3(b) on more than one occasion. 1.4 Priority on Demand Registrations. The Company will not include in any Demand Registration any securities which are not Registrable Securities without the written consent of the Fleming Holders. If other securities are permitted to be included in a Demand Registration which is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities exceeds the number of Registrable Securities which can be sold in such offering within a price range acceptable to the Fleming Holders, the Company will include in such registration prior to the inclusion of any securities which are not Registrable Securities the number of Registrable Securities requested to be included which in the opinion of such underwriters can be sold, pro rata among the respective holders on the basis of the amount of Registrable Securities requested to be offered thereby. 1.5 Selection of Underwriters. The Fleming Holders will have the right to select the underwriters and the managing underwriters to administer a Demand Registration and such underwriters and managing underwriters shall be reasonably acceptable to the Company. 1.6 Other Registration Rights. Except as otherwise provided in this Agreement, the Company may grant to any Person the right to request the Company to register any equity securities of the Company, or any securities convertible, exchangeable or exercisable for or into such securities ("Other Securities"); provided, however, that all such registration -3- rights shall be subordinate in all respects to the registration rights held by the holders of the Registrable Securities. ARTICLE II OTHER REGISTRATIONS 2.1 Right to Piggyback. Whenever the Company proposes to register any of its securities under the Securities Act (other than pursuant to a Demand Registration), and the registration form to be used may be used for the registration of Registrable Securities (a "Piggyback Registration"), the Company will give prompt written notice (in any event within three (3) Business Days after its receipt of notice of any exercise of other demand registration rights) to all holders of Registrable Securities of its intention to effect such a registration and will include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within ten (10) days after the receipt of the Company's notice. 2.2 Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, the Company will include in such registration (i) first, the securities the Company proposes to sell, (ii) second, (I) the Registrable Securities, (II) up to 165,000 shares of Common Stock issuable upon the exercise of warrants held by employees or officers or former employees or officers of Keane Securities (the "Keane Securities") and (III) up to 225,000 shares of Common Stock issuable upon the exercise of warrants held by Bear Stearns Small Cap Value Portfolio (the "Bear Stearns Securities"), requested to be included in such registration, provided, that if the managing underwriters in good faith determine that a lower number of securities should be included, then the Company shall be required to include in the underwriting only that lower number of securities, and the holders of Registrable Securities, Keane Securities and Bear Stearns Securities who have requested registration shall participate in the underwriting pro rata based upon their total ownership, on a fully diluted basis, of any such securities requested to be included in such registration and (iii) third, other securities requested to be included in such registration. 2.3 Priority on Secondary Registrations. (a) Subject to paragraph (b) of this Section 2.3, if a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company's securities, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, the Company will include in such registration (i) first, the securities requested to be included therein by the holders requesting such registration, (ii) second, the Registrable Securities, the Keane Securities and the Bear Stearns Securities requested to be included in such registration, provided, that if the managing -4- underwriters in good faith determine that a lower number of securities should be included, then the Company shall be required to include in the underwriting only that lower number of securities, and the holders of Registrable Securities, Keane Securities and Bear Stearns Securities who have requested registration shall participate in the underwriting pro rata based upon their total ownership, on a fully diluted basis, of any such securities requested to be included in such registration and (iii) third, other securities requested to be included in such registration. (b) If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company's securities, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, the Company will include in such registration (i) first, the securities requested to be included therein by the holders requesting such registration and the Registrable Securities, Keane Securities and Bear Stearns Securities requested to be included in such registration, provided, that if the managing underwriters in good faith determine that a lower number of securities should be included, then the Company shall be required to include in the underwriting only that lower number of securities, and the holders requesting such registration, the holders of Registrable Securities, Keane Securities and Bear Stearns Securities who requested to be included in such registration shall participate in the underwriting pro rata based upon their total ownership, on a fully diluted basis, of any such securities requested to be included in such registration and (ii) second, other securities requested to be included in such registration pursuant to piggyback rights. The Company hereby agrees that whenever it grants piggyback rights to any holder of its securities such holder's piggyback rights will be expressly subordinated to the piggyback rights granted to the holders of the Registrable Securities under this Article II. 2.4 Other Registrations. If the Company has previously filed a registration statement for a Long-Form Demand Registration with respect to Registrable Securities pursuant to Article I of this Agreement or pursuant to this Article II, and if such previous registration has not been withdrawn or abandoned, the Company will not file or cause to be effected any other registration of any of its equity securities or securities convertible, exchangeable or exercisable for or into its equity securities under the Securities Act (except on Form S-4 or S-8 or any successor form), whether on its own behalf or at the request of any holder or holders of such securities other than the holders of the Registrable Securities, until a period of at least six (6) months elapsed from the effective date of such previous registration. -5- ARTICLE III REGISTRATION PROCEDURES Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the Company will use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company will as expeditiously as possible or, in the case of clause (q) below, will not: (a) promptly prepare and file with the SEC a registration statement with respect to such Registrable Securities (such registration statement to include all information which the holders of the Registrable Securities to be registered thereby shall reasonably request) and use its best efforts to promptly cause such registration statement to become effective, provided that at least five days before filing a registration statement or prospectus or any amendments or supplements thereto, the Company will (i) furnish to counsel selected by the Fleming Holders, copies of all such documents proposed to be filed, and the Company shall not , in the case of a Demand Registration, file any such documents to which such counsel shall have reasonably objected on the grounds that such document does not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder, and (ii) notify each holder of Registrable Securities covered by such registration statement of (x) any request by the SEC to amend such registration statement or amend or supplement any prospectus or (y) any stop order issued or threatened by the SEC, and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (b) (i) promptly prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary (A) in the case of a Long-Form Demand Registration, to keep such registration statement effective for a period of not less than 180 days (except that such 180-day period shall be (I) shortened to the extent that all shares are sold thereunder, or (II) extended (x) by the length of any period that a stop order or similar proceeding is in effect which prohibits the distribution of the Registrable Securities, and (y) by the number of days during the period from and including the date on which each seller of Registrable Securities shall have received a notice delivered pursuant to clause (f) below until the date when such seller shall have received a copy of the supplemented or amended prospectus contemplated by clause (f) below), and (B) in the case of a Shelf Registration, keep such registration statement continually effective, (ii) comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (c) as soon as reasonably possible furnish to each seller of Registrable Securities, without charge, such number of conformed copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement -6- (including each preliminary prospectus and prospectus supplement and, in each case, including all exhibits) and such other documents as such seller may reasonably request, all in conformity with the requirements of the Securities Act, in order to facilitate the disposition of the Registrable Securities owned by such seller; (d) use its best efforts promptly to register or qualify the Shares under such other securities or blue sky laws of such jurisdictions as any seller thereof shall reasonably request, to keep such registration or qualification in effect for so long as such registration statement remains in effect and to do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller, provided, however, that the Company will not be required to (i) qualify generally to do business as a foreign corporation in any jurisdiction where it would not otherwise be required to qualify but for this clause (d), (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction; (e) in the case of a Long-Form Demand Registration or a Piggyback Registration to which the Fleming Holders are a party, furnish to each seller of Registrable Securities a signed copy, addressed to such seller (and the underwriters, if any) of an opinion of counsel for the Company or special counsel to the selling stockholders, dated the effective date of such registration statement (and, if such registration statement includes an underwritten public offering, dated the date of the closing under the underwriting agreement), reasonably satisfactory in form and substance to counsel selected by the Fleming Holders, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in opinions of issuer's counsel delivered to the underwriters in underwritten public offerings, and such other legal matters as the seller (or the underwriters, if any) may reasonably request; (f) promptly notify each seller of Registrable Securities, at a time when a prospectus relating to the Shares is required to be delivered under the Securities Act, of the Company's becoming aware that the prospectus included in such registration statement, as then in effect, contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made, and, at the request of any such seller, promptly prepare and furnish such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made; -7- (g) cause all of the Shares to be listed on each securities exchange on which similar securities issued by the Company are then listed or, if there shall then be no such listing, to be accepted for quotation as a Small Cap Security on The NASDAQ Stock Market; (h) provide a transfer agent and registrar for all of the Shares not later than the effective date of such registration statement; (i) enter into such customary arrangements and take all such other actions as the Fleming Holders or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of the Shares; (j) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement, in each case pursuant to confidentiality agreements, as appropriate; (k) cause the Company's officers to make presentations to potential purchasers of the Shares, as reasonably requested by any seller of Registrable Securities or any underwriter participating in any disposition pursuant to such registration statement in connection with one (1) Long-Form Demand Registration; (l) subject to other provisions hereof, use its best efforts to cause the Shares to be registered with or approved by such other governmental agencies or authorities or self-regulatory organizations as may be necessary to enable the sellers thereof to consummate the disposition of the Shares; (m) in connection with a Long-Form Demand Registration or Piggyback Registration (if any other participant in such Piggyback Registration receives a "comfort" letter as described herein), use its best efforts to obtain a "comfort" letter, dated the effective date of such registration statement (and, if such registration includes an underwritten offering, dated the date of the closing under the underwriting agreement), signed by the independent public accountants who have certified the Company's financial statements, addressed to each seller, and to the underwriters, if any, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and with respect to events subsequent to the date of such financial statements, as are customarily covered in accountants' letters delivered to the underwriters in underwritten public offerings of securities and such other financial matters as such seller (or the underwriters, if any) may reasonably request; -8- (n) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC and make available to its security holders, in each case as soon as practicable, an earnings statement covering a period of at least twelve months, beginning after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act; (o) permit any holder of Registrable Securities, which holder, in the sole judgment exercised in good faith of such holder, might be deemed to be a controlling person of the Company (within the meaning of the Securities Act or the Exchange Act), to participate in the preparation of any registration statement covering such holder's Registrable Securities and to include therein material, furnished to the Company in writing, which in the reasonable judgment of such holder should be included and which is reasonably acceptable to the Company; (p) use every reasonable effort to obtain the lifting at the earliest possible time of any stop order suspending the effectiveness of any registration statement or of any order preventing or suspending the use of any preliminary prospectus; (q) at any time file or make any amendment to a registration statement, or any amendment of or supplement to a prospectus (including amendments of the documents incorporated by reference into the prospectus), of which each seller of Registrable Securities or the managing underwriters shall not have previously been advised and furnished a copy or to which the sellers of Registrable Securities, the managing underwriters, or counsel for such sellers or for the underwriters shall reasonably object; and (r) make such representations and warranties (subject to appropriate disclosure schedule exceptions) to sellers of Registrable Securities and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters and selling holders, as the case may be, in underwritten public offerings of substantially the same type. Notwithstanding anything herein to the contrary, the Fleming Holders shall cease selling shares under a registration statement if the Company, upon the advice of counsel to the Company, which counsel shall confirm such advice to the Fleming Holders, determines that a registration statement requires an amendment or supplement and has requested in writing that such holder cease to sell under such registration statement, provided that any relevant time period contained in this Agreement shall be tolled until such time as the Fleming Holders shall receive notice in writing from the Company showing that such holder may continue to sell under such registration statement. -9- ARTICLE IV REGISTRATION EXPENSES 4.1 Company's Fees and Expenses. All expenses incident to the Company's performance of or compliance with this Agreement, including without limitation, all registration and filing fees, fees and expenses incident to the Company's or the Investors' performance of or compliance with a Shelf Registration pursuant to this Agreement and to the Stock and Warrant Purchase Agreements (whether or not any of the registration statements become effective), fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and expenses for listing or quoting the Shares on each securities exchange or The NASDAQ Stock Market on which similar securities issued by the Company are then listed or quoted, and fees and disbursements of counsel for the Company, any transfer agent and all independent certified public accountants, underwriters (excluding discounts and selling commissions) and other Persons retained by the Company in connection with any Demand Registration or any Piggyback Registration (all such expenses being herein called "Registration Expenses"), will be paid by the Company. 4.2 Fees of Counsel to Holders. In connection with any Demand Registration or any Shelf Registration hereunder), the Company will reimburse the holders of Registrable Securities covered by such registration for the reasonable fees and disbursements of one counsel chosen by the Fleming Holders. In connection with any Piggyback Registration, the holders of Registrable Securities covered by such registration shall pay for the fees of their own counsel, if applicable, but such holders shall not be obligated to pay any portion of the fees of counsel acting on behalf of any other holder or all holders of securities included in such registration. ARTICLE V UNDERWRITTEN OFFERINGS 5.1 Demand Underwritten Offerings. If requested by the underwriters for any underwritten offerings of Registrable Securities pursuant to a Demand Registration, the Company will enter into an underwriting agreement with such underwriters for such offering, such agreement to be reasonably satisfactory in substance and form to the Fleming Holders and the underwriters, and to contain such representations and warranties by the Company and such other terms as are generally included in agreements of this type, including, without limitation, indemnities customarily included in such agreements. The holders of Registrable Securities to be distributed by such underwriters may be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such holders of Registrable Securities and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement -10- be conditions precedent to the obligations of such holders of Registrable Securities. The Company shall cooperate with any such holder of Registrable Securities in order to limit any representations or warranties to, or agreements with, the Company or the underwriters to be made by such holder only to those representations, warranties or agreements regarding such holder, such holder's Registrable Securities and such holder's intended method of distribution and any other representation required by law. 5.2 Incidental Underwritten Offerings. If the Company at any time proposes to register any of its securities under the Securities Act as contemplated by Article II of this Agreement and such securities are to be distributed by or through one or more underwriters, the Company will, if requested by any holder of Registrable Securities as provided in Article II of this Agreement, arrange for such underwriters to include all the Registrable Securities to be offered and sold by such holder, subject to the limitations set forth in Article II hereof, among the securities to be distributed by such underwriters. The holders of Registrable Securities to be distributed by such underwriters shall be parties to the underwriting agreement between the Company and such underwriters, and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such holders of Registrable Securities and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such holders of Registrable Securities. The Company shall cooperate with any such holder of Registrable Securities in order to limit any representations or warranties to, or agreements with, the Company or the underwriters to be made by such holder only to those representations, warranties or agreements regarding such holder, such holder's Registrable Securities and such holder's intended method of distribution and any other representation required by law. ARTICLE VI INDEMNIFICATION 6.1 Indemnification by the Company. The Company agrees to indemnify and hold harmless, to the extent permitted by law, each of the holders of any Registrable Securities covered by any registration statement prepared pursuant to this Agreement, each other Person, if any, who controls such holder within the meaning of the Securities Act or the Exchange Act, and each of their respective directors, general partners and officers, as follows: (i) against any and all loss, liability, claim, damage and expense arising out of or based upon an untrue statement or alleged untrue statement of a material fact contained in any registration statement (or any amendment or supplement thereto), including all documents incorporated therein by reference, or in any preliminary prospectus or prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact required -11- to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense to the extent of the aggregate amount paid in settlement of any litigation, investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expense incurred by them in connection with investigating, preparing or defending against any litigation, investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission or any such alleged untrue statement or omission, to the extent that any such expense is not paid under clause (i) or (ii) above; provided, that this indemnity does not apply to any loss, liability, claim, damage or expense to the extent arising out of an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by or on behalf of any holder expressly for use in the preparation of any registration statement (or any amendment or supplement thereto), including all documents incorporated therein by reference, or in any preliminary prospectus or prospectus (or any amendment or supplement thereto); and provided further, that the Company will not be liable to any holder under the indemnity agreement in this Section 6.1, with respect to any preliminary prospectus or the final prospectus or the final prospectus as amended or supplemented, as the case may be, to the extent that any such loss, liability, claim, damage or expense of such controlling Person or holder results from the fact that such holder sold Registrable Securities to a Person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final prospectus or of the final prospectus as then amended or supplemented, whichever is most recent, if the Company has previously and timely furnished copies thereof to such holder and provided further, that the Company will not be liable to any holder under the indemnity agreement in this Section 6.1, with respect to a sale by such holder after such time as the Company, upon the written advice of counsel to the Company, a copy of which shall be provided to the Fleming Holders, provides notice that a registration statement requires an amendment or supplement and has requested in writing that such holder cease to sell under such registration statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such holder or any such director, officer, general partner, or other controlling person and shall survive the transfer of such securities by such seller. 6.2 Indemnification by Holders. In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder agrees to -12- indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 6.1 of this Agreement), to the extent permitted by law, the Company and its directors, officers and controlling Persons, and their respective directors, officers and general partners, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such holder, specifically stating that it is for use in the preparation of such registration statement, preliminary, final or summary prospectus or amendment or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company, or such holder, as the case may be, or any of their respective directors, officers, controlling Persons or general partners and shall survive the transfer of such securities by such holder. The obligations of each holder of Registrable Securities pursuant to this Section 6.2 are to be several and not joint; provided, that, with respect to each claim pursuant to this Section 6.2, each such holder's maximum liability under this Section shall be limited to an amount equal to the net proceeds actually received by such holder (after deducting any underwriting discount and expenses) from the sale of Registrable Securities being sold pursuant to such registration statement or prospectus by such holder. 6.3 Indemnification Procedures. Promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding involving a claim referred to in Section 6.1 or Section 6.2 of this Agreement, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under Section 6.1 or Section 6.2 of this Agreement except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof, unless a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, in which case the indemnifying party shall not be liable for the fees and expenses of (i) more than one counsel for all holders of Registrable Securities, selected by the Fleming Holders, or (ii) more than one counsel for the Company in connection with any one action or separate but similar or related actions. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be -13- obligated to pay the fees and expenses of such additional counsel or counsels. The indemnifying party will not, without the prior written consent of each indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not such indemnified party or any Person who controls such indemnified party is a party to such claim, action, suit or proceeding), unless such settlement, compromise or consent includes an unconditional release of such indemnified party from all liability arising out of such claim, action, suit or proceeding. Notwithstanding anything to the contrary set forth herein, and without limiting any of the rights set forth above, in any event any party will have the right to retain, at its own expense, counsel with respect to the defense of a claim. 6.4 Indemnification of Underwriters. The Company and each holder of Registrable Securities requesting registration shall provide for the foregoing indemnity in any underwriting agreement with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority other than the Securities Act. 6.5 Contribution. If the indemnification provided for in Sections 6.1 and 6.2 of this Agreement is unavailable or insufficient to hold harmless an indemnified party under such Sections, then each indemnifying party shall contribute to the amount paid or payable to such indemnified party as a result of the losses, claims, damages or liabilities referred to in Section 6.1 or Section 6.2 of this Agreement in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand, and the indemnified party on the other, in connection with statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations, including, without limitation, the relative benefits received by each party from the offering of the securities covered by such registration statement, the parties' relative knowledge and access to information concerning the matter with respect to which the claim was asserted and the opportunity to correct and prevent any statement or omission. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statements or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 6.5 were to be determined by pro rata or per capita allocation (even if the underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this Section 6.5. The amount paid to an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this Section 6.5 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim (which shall be limited as provided in Section 6.3 of this Agreement if the indemnifying party has assumed the defense of any such action in accordance with the provisions thereof) -14- which is the subject of this Section 6.5. Promptly after receipt by an indemnified party under this Section 6.5 of notice of the commencement of any action against such party in respect of which a claim for contribution may be made against an indemnifying party under this Section 6.5, such indemnified party shall notify the indemnifying party in writing of the commencement thereof if the notice specified in Section 6.3 of this Agreement has not been given with respect to such action; provided, that the omission to so notify the indemnifying party shall not relieve the indemnifying party from any liability which it may otherwise have to any indemnified party under this Section 6.5, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. The Company and each holder of Registrable Securities agrees with each other and the underwriters of the Registrable Securities, if requested by such underwriters, that (i) the underwriters' portion of such contribution shall not exceed the underwriting discount and (ii) the amount of such contribution shall not exceed an amount equal to the net proceeds actually received by such indemnifying party from the sale of Registrable Securities in the offering to which the losses, liabilities, claims, damages or expenses of the indemnified parties relate. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 6.6 Timing of Indemnification Payments. The indemnification required by this Article VI 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 expense, loss, damage or liability is incurred. ARTICLE VII RULE 144 The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any holder of Registrable Securities, make publicly available other information), and it will take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell shares of Registrable Securities without registration under the Securities Act within the limitation of the exemption provided by (i) Rule 144 or Rule 144A under the Securities Act, as such Rules may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any holder of Registrable Securities, the Company will deliver to such holder a written statement as to whether it has complied with such requirements. -15- ARTICLE VIII PARTICIPATION IN UNDERWRITTEN REGISTRATIONS No Person may participate in any underwritten registration hereunder unless such Person (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements and consistent with the provisions of this Agreement. ARTICLE IX MERGERS, ETC. The Company shall not, directly or indirectly, enter into any merger, consolidation, or reorganization in which the Company shall not be the surviving corporation unless the proposed surviving corporation shall, prior to such merger, consolidation, or reorganization, agree in writing to assume the obligations of the Company under this Agreement, and for that purpose references hereunder to "Registrable Securities" shall be deemed to be references to the securities that the Investors or the holders of Registrable Securities would be entitled to receive in exchange for Registrable Securities under any such merger, consolidation, or reorganization. ARTICLE X DEFINITIONS As used in this Agreement, the following defined terms shall have the meanings set forth below: "Business Day" means a day other than Saturday, Sunday or any day on which banks in the State of New York are authorized or obligated to close. "Common Stock" means the Company's Common Stock, par value $.01 per share. "Demand Registrations" shall have the meaning set forth in Section 1.1(a) hereof. "Designated Entity" means (i) as long as any Registrable Securities are held by any Fleming Holder, Fleming Capital Management, 320 Park Avenue, NY, NY 10022, Attention: Robert L. Burr and David J. Edwards and (ii) if no Registrable Securities are held by any Fleming Holder, the entity designated by the Transferee who holds the largest number of -16- Registrable Securities (in which case such Transferee shall provide notice to the Company of such entity in accordance with Section 11.6(a) hereof). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fleming Funds" shall have the meaning set forth in the first paragraph hereof. "Fleming Holders" shall have the meaning given it in Section 3 of the Stock and Warrant Purchase Agreements. "Initial Shelf Registration" shall have the meaning set forth in Section 1.1(b) hereof. "Investor" or "Investors" shall have the meaning set forth in the first paragraph hereof. "Long-Form Demand Registrations" shall have the meaning set forth in Section 1.1(a) hereof. "Other Securities" shall have the meaning set forth in Section 1.6 hereof. "Person" means any individual, corporation, partnership, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Registrable Securities" means (i) any shares of Common Stock issued or issuable upon conversion of the Series D Preferred Stock or exercise of the Warrants purchased by the Investors pursuant to the Stock and Warrant Purchase Agreements and (ii) any securities issued or issuable with respect to the Common Stock referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities, such securities will cease to be Registrable Securities when they have (x) been effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them or (y) been transferred pursuant to Rule 144 (or any similar rule then in force) under the Securities Act. "SEC" shall have the meaning set forth in Section 1.2 hereof. "Securities Act" means the Securities Act of 1933, as amended. -17- "Series D Preferred Stock" means the Company's Series D Convertible Preferred Stock, par value $.01 per share, which Series D Preferred Stock is convertible into shares of Common Stock. "Shares" means the shares of Registrable Securities registered on the registration statement filed with the SEC in connection with any Demand Registration or any Piggyback Registration. "Shelf Registration" shall have the meaning set forth in Section 1.1(b) hereof. "Stock and Warrant Purchase Agreements" means, collectively, the separate Stock and Warrant Purchase Agreements, dated as of March 2, 1999, between the Company and each of the Fleming Funds. "Subsequent Shelf Registration" shall have the meaning set forth in Section 1.1(b) hereof. "Transferees" shall have the meaning given it in Section 3 of the Stock and Warrant Purchase Agreements. "Warrants" shall mean Warrants to purchase shares of Common Stock as more fully set forth in the Stock and Warrant Purchase Agreements. ARTICLE XI MISCELLANEOUS 11.1 No Inconsistent Agreements. The Company will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement. 11.2 Adjustments Affecting Registrable Securities. The Company will not effect or permit to occur any combination, subdivision or reclassification of any of its securities which would adversely affect the ability of the holders of Registrable Securities to include Registrable Securities in a registration undertaken pursuant to this Agreement or which, to the extent within its control, would adversely affect the marketability of such Registrable Securities in any such registration (including, without limitation, effecting a stock split or a combination of shares). 11.3 Remedies. In the event of a breach by any party to this Agreement of its obligations under this Agreement, any party injured by such breach, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific -18- performance of its rights under this Agreement. The parties agree that the provisions of this Agreement shall be specifically enforceable, it being agreed by the parties that the remedy at law, including monetary damages, for breach of any such provision will be inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. 11.4 Amendments and Waivers. Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement will be effective against the Company or any holder of Registrable Securities, unless such modification, amendment or waiver is approved in writing by the Company and the Fleming Holders. The failure of any party to enforce any of the provisions of this Agreement will in no way be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. 11.5 Successors and Assigns. All covenants and agreements in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. In addition, whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of the Investors or the holders of Registrable Securities are also for the benefit of, and enforceable by, any subsequent holder of Registrable Securities. 11.6 Notices. (a) Subject to Section 11.6(b) hereof, all notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or sent by nationally recognized overnight courier service to the parties at the following addresses or facsimile numbers: (i) If to an Investor or a holder of Registrable Securities, to: Fleming Capital Management 320 Park Avenue NY, NY 10022 Facsimile No.: 212-508-3928 Attn: Robert L. Burr David J. Edwards with a copy to: Morgan, Lewis & Bockius LLP 101 Park Avenue New York, NY 10178 Facsimile No.: (212) 309-6273 Attn: David W. Pollak, Esq. -19- (ii) If to the Company, to: Global Pharmaceutical Corporation Castor & Kensington Avenues Philadelphia, PA 19124-5694 Facsimile No.: (215) 289-5932 Attn: Barry R. Edwards with a copy to: Fulbright & Jaworski L.L.P. 666 Fifth Avenue, 31st Floor New York, NY 10103-3198 Facsimile No.: (212) 752-5958 Attn: Sheldon G. Nussbaum, Esq. All such notices, requests and other communications will (x) if delivered personally to the address as provided in this Section 11.6(a), be deemed given upon delivery, (y) if delivered by facsimile transmission to the facsimile number as provided in this Section 11.6(a), be deemed given upon receipt and (z) if delivered by nationally recognized overnight courier service in the manner described above to the address as provided in this Section 11.6(a), be deemed given on the Business Day following the day it was sent (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice is to be delivered pursuant to this Section 11.6(a)). Any party may from time to time change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other parties hereto. (b) So long as any Fleming Holder holds any Registrable Securities, all notices and other communications hereunder shall be deemed given to all holders of the Registrable Securities when given to the Designated Entity in accordance with Section 11.6(a) hereof. The consent, selection, request, acceptance, choice, approval and other similar terms used in this Agreement (collectively, the "Consent") of the Fleming Holders shall be deemed obtained if any of the following conditions are satisfied: (i) the Fleming Funds are the only holders of the Registrable Securities and the Designated Entity shall have obtained the Consent of each Fleming Fund and shall have given notice to the Company to such effect in accordance with Section 11.6(a) hereof; (ii) the Fleming Funds are not the only holders of the Registrable Securities and the Designated Entity shall have obtained the Consent of the holders of a majority of the Registrable Securities held by all Fleming Holders, and shall have given notice to the Company to such effect in accordance with Section 11.6(a) hereof; or (iii) no Registrable Securities are held by a Fleming Holder and the Designated Entity shall have obtained the Consent of the holders of a majority of the Registrable Securities held by the Transferees, and -20- shall have given notice to the Company to such effect in accordance with Section 11.6(a) hereof; provided, however, that if the Consent relates to a particular Demand Registration or Piggyback Registration or otherwise only involves or affects certain holders of the Registrable Securities, only the Registrable Securities of the holders so participating in such registration or so involved or affected shall be included in the Consent required by clause (iii) of this paragraph. 11.7 Headings. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof. 11.8 Gender. Whenever the pronouns "he" or "his" are used herein they shall also be deemed to mean "she" or "hers" or "it" or "its" whenever applicable. Words in the singular shall be read and construed as though in the plural and words in the plural shall be construed as though in the singular in all cases where they would so apply. 11.9 Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (i) such provision will be fully severable, (ii) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (iii) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (iv) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 11.10 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to a contract executed and performed in such State without giving effect to the conflicts of laws principles thereof. 11.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. [remainder of page intentionally left blank] -21- IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first written above. GLOBAL PHARMACEUTICAL CORPORATION By: /s/ Barry R. Edwards -------------------------------------------- Name: Barry R. Edwards Title: President and Chief Executive Officer FLEMING US DISCOVERY FUND III, L.P. By: FLEMING US DISCOVERY PARTNERS, L.P., its general partner By: FLEMING US DISCOVERY, LLC, its general partner By: /s/ Robert L. Burr ------------------------------------ Robert L. Burr, member FLEMING US DISCOVERY OFFSHORE FUND III, L.P. By: FLEMING US DISCOVERY PARTNERS, L.P., its general partner By: FLEMING US DISCOVERY, LLC, its general partner By: /s/ Robert L. Burr ------------------------------------ Robert L. Burr, member [Signature page to Registration Rights Agreement] EX-99.8 7 WARRANT CERTIFICATE Exhibit 8 The Warrant Certificate, dated March 2, 1999, between Global Pharmaceutical Corporation and Fleming US Discovery Offshore Fund III, L.P., is substantially identical to the Warrant Certificate attached hereto (Warrant Certificate, dated March 2, 1999, between Global Pharmaceutical Corporation and Fleming US Discovery Fund III, L.P.) except that the former Warrant Certificate entitles Fleming US Discovery Offshore Fund III, L.P. to purchase up to 51,800 shares of the Common Stock of Global Pharmaceutical Corporation, and the latter Warrant Certificate entitles Fleming US Discovery Fund III, L.P. to purchase up to 323,200 shares of the Common Stock of Global Pharmaceutical Corporation. WARRANT CERTIFICATE NEITHER THE WARRANT REPRESENTED BY THIS CERTIFICATE NOR THE COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND NEITHER MAY BE SOLD OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW UNLESS AN EXEMPTION FROM REGISTRATION IS THEN AVAILABLE. WARRANT TO PURCHASE COMMON STOCK OF GLOBAL PHARMACEUTICAL CORPORATION Initial Issuance Date: March 2, 1999 No. 1 This is to certify that, FOR VALUE RECEIVED, the registered holder hereof, FLEMING US DISCOVERY FUND III, L.P. (together with any successors and assigns hereunder, the "Holder" or the "Holders"), is entitled to purchase, subject to the provisions of this Warrant Certificate, from GLOBAL PHARMACEUTICAL CORPORATION, a Delaware corporation (the "Company"), up to 323,200 shares (as such number may be adjusted in accordance with Section 5 hereof) of the Company's Common Stock, par value $0.01 per share (such class of stock, together with any capital stock of the Company into which such class of stock shall be converted, being referred to herein as "Common Stock"), at $4.00 per share (as such number may be adjusted in accordance with Section 5 hereof) (the "Exercise Price"). The number of shares of Common Stock to be received upon the exercise of this Warrant and the Exercise Price shall be adjusted from time to time as hereinafter set forth. The shares of Common Stock or other securities or property deliverable upon such exercise, as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares." This Warrant Certificate is one of the Warrant Certificates (the "Warrants", which term includes all Warrants issued in substitution therefor) originally issued in connection with the issue and sale by the Company of 50,000 shares of the Company's Series D Convertible Preferred Stock, par value $.01 per share (the "Series D Preferred Stock"). Pursuant to the Stock and Warrant Purchase Agreements, dated as of March 2, 1999 (the "Purchase Agreements"), between the Company and each of the Fleming Funds (the "Purchasers"), the Warrants and the Series D Preferred Stock shall be issued (i) on March 2, 1999 (the "First Closing") and (ii) on the date which is within five business days of the Company's 1999 annual meeting of stockholders (the "Stockholders' Meeting") or such other time and date as shall be mutually agreed to by the Company and the Purchaser, but in any event no later than June 30, 1999; provided that at such Stockholders' Meeting the appropriate corporate action has been taken to authorize sufficient additional shares of Common Stock to permit conversion in full of the Series D Convertible Preferred Stock into shares of Common Stock and to permit exercise in full of all Warrants issued on such date (the "Second Closing"). The Warrants originally so issued evidence rights to purchase an aggregate of up to 625,000 Warrant Shares at the Exercise Price of which (i) rights to purchase an aggregate of up to 375,000 Warrant Shares shall be issued at the First Closing, and (ii) rights to purchase an aggregate of up to 250,000 Warrant Shares at the Second Closing. The Purchase Agreement under which this Warrant was originally issued is herein referred to as the "Purchase Agreement." This Warrant is subject to the provisions, and is entitled to the benefits, of the Purchase Agreement. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Purchase Agreement. This Warrant Certificate shall not be valid and may not be transferred or exercised unless countersigned by the Company. 1. Exercise of Warrant. 1.1. Manner of Exercise. (a) This Warrant may be exercised by the Holder, in whole or in part, at any time or from time to time through and including March 31, 2004 (the "Expiration Date") during normal business hours on any Business Day (as defined in the Purchase Agreement) by surrender of this Warrant, duly countersigned by the Company, together with the form of subscription duly executed by such Holder in substantially the form attached as Annex A hereto, to the Company at its office designated pursuant to Section 8.2 of the Purchase Agreement (or, if such exercise is in connection with an underwritten public offering of Warrant Shares subject to this Warrant, at the location at which the underwriting agreement requires that such Warrant Shares be delivered). (b) Payment of the Exercise Price for the Warrant Shares shall be made at the principal offices of the Company, (i) by certified or bank check or wire transfer payable to the order of the Company, in any case, in an amount equal to (x) the number of Warrant Shares specified in such form of subscription, multiplied by (y) the then current Exercise Price or (ii) in 2 the manner provided in Section 1.6 hereof. The Holder shall thereupon be entitled to receive the number of Warrant Shares specified in such form of subscription (plus cash in lieu of any fractional share as provided in Section 1.3 hereof). 1.2. Effective Date. Each exercise of this Warrant pursuant to Section 1.1 hereof shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant is surrendered to the Company as provided in Section 1.1 hereof unless a later time is specified in writing by the Holder surrendering such Warrant (except that if such exercise is in connection with an underwritten public offering of Warrant Shares subject to this Warrant, then such exercise shall be deemed to have been effected upon such surrender of this Warrant unless a later time is specified in writing by the Holder surrendering such Warrant). On each such day that an exercise of this Warrant is deemed effected, the person or persons in whose name or names any certificate or certificates for Warrant Shares are issuable upon such exercise (as provided in Section 1.3 hereof) shall be deemed to have become the Holder or Holders of record thereof. 1.3. Warrant Share Certificates, Cash for Fractional Warrant Shares and Reissuance of Warrants. As promptly as practicable after the exercise of this Warrant, in whole or in part, and in any event within five (5) Business Days thereafter (unless such exercise shall be in connection with a public offering of Warrant Shares subject to this Warrant, in which event concurrently with such exercise), the Company at its expense (including the payment by it of any applicable issue, stamp or other taxes) will cause to be issued in the name of and delivered to the Holder or, subject to Section 6 of the Purchase Agreement, as the Holder may direct: (i) a certificate or certificates for the number of Warrant Shares to which the Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which the Holder would otherwise be entitled, cash in an amount equal to the same fraction of the Market Price (as defined in Section 5.7(F) hereof) per Warrant Share on the Business Day next preceding the date of such exercise; and (ii) in case such exercise is in part only, a new Warrant or Warrants, substantially identical hereto, representing the rights formerly represented by this Warrant which have not expired or been exercised. 1.4. Acknowledgment of Obligation. The Company will, at the time of or at any time after each exercise of this Warrant, upon the request of the Holder hereof or of any Warrant Shares issued upon such exercise, acknowledge in writing its continuing obligation to afford to such Holder all rights (including, without limitation, any rights to registration of any such Warrant Shares pursuant to the Registration Rights Agreement (as defined in the Purchase Agreement)) to which such Holder shall continue to be entitled under this Warrant, the Purchase Agreement and the Registration Rights Agreement; provided, that if any such Holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Company to afford such rights to such Holder. 3 1.5. Conditional Exercise. Notwithstanding any other provision hereof, if any exercise of any portion of this Warrant is to be made in connection with a public offering of Warrant Shares or any transaction described in Section 5.8 hereof, the exercise of any portion of this Warrant may, at the election of the Holder, be conditioned upon the consummation of the public offering or such transaction, in which case such exercise shall not be deemed to be effective until the consummation of such public offering or transaction. 1.6. Conversion of Warrant. In addition to and without limiting the rights of the Holder under the terms of this Warrant, the Holder shall have the option, but not the obligation, to convert this Warrant, or any portion hereof (the "Conversion Right"), into Warrant Shares as provided in this Section 1.6 at any time on or prior to the Expiration Date. Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the "Converted Warrant Shares"), the Company shall deliver to the Holder (without payment by the Holder of any Exercise Price or any cash or other consideration) that number of Warrant Shares equal to the quotient obtained by dividing (i) the value of this Warrant (or the specified portion hereof) on the effective date of the exercise of the Conversion Right, as provided in Section 1.2 hereof (the "Conversion Date"), which value shall be determined by subtracting (x) the aggregate exercise price of the Converted Warrant Shares immediately prior to the exercise of the Conversion Right from (y) the aggregate Market Price (determined as provided in Section 5.7(F) hereof) of such Converted Warrant Shares on the Conversion Date by (ii) the Market Price of one Warrant Share on the Conversion Date. Section 2. Reservation of Shares. The Company shall at all times after the date hereof and until the Expiration Date reserve and keep available, out of its authorized and unissued stock, solely for the purpose of effecting the issuance and delivery upon exercise of this Warrant, the number of Warrant Shares as shall be required for issuance and delivery upon exercise in full of this Warrant. The Company shall from time to time, in accordance with the laws of the State of Delaware, increase the authorized number of shares of Common Stock if at any time the number of shares of authorized but unissued Common Stock shall be insufficient to permit the exercise in full of this Warrant. Section 3. Transfer, Exchange, Assignment or Loss of Warrant. 3.1. Transfer. This Warrant may be assigned in whole or in part or transferred in whole or in part; subject, however, to compliance with the provisions of the Act and the rules and regulations promulgated thereunder. 3.2. Procedure for Assignment or Transfer. This Warrant shall be transferable only on the books of the Company maintained at Company's principal office upon delivery of this Warrant together with the form of assignment, in substantially the form attached as Annex B 4 hereto, duly completed and signed by the Holder or by its duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or authority to transfer in form acceptable to the Company. The Company may, in its discretion, require, as a condition to any transfer of Warrants, a signature guarantee by a participant in a recognized signature guarantee medallion program in the United States. Upon any registration of transfer, the Company shall deliver a new Warrant Certificate or Certificates of like tenor and evidencing in the aggregate a like number of Warrants to the person entitled thereto in exchange for this Certificate, subject to the limitations provided herein, without any charge except for any tax or other governmental charge imposed in connection therewith. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation thereof at the principal office of the Company together with a written notice signed by the holder thereof, specifying the names and denominations in which new Warrants are to be issued. 3.3. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification to the Company or (in the case of mutilation) presentation of this Warrant for surrender and cancellation, the Company will execute and deliver a new Certificate of like tenor in lieu thereof and any such lost, stolen, destroyed or mutilated Warrant shall thereupon become void. Section 4. Warrant Certificate Holder Not Deemed a Stockholder. The Holders shall not, solely because of holding this Warrant, be entitled to vote, receive dividends or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise of the Warrant for any purpose whatsoever, nor shall anything contained herein be construed to confer upon the Holders, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matters submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise), or to receive notice of meetings or other actions affecting stockholders, or to receive dividend or subscription rights, or otherwise, until this Warrant shall have been exercised in accordance with the provisions hereof. Section 5. Anti-Dilution. The number of Warrant Shares for which this Warrant is exercisable and/or the Exercise Price at which such Warrant Shares may be purchased upon exercise of this Warrant shall be subject to adjustment from time to time as set forth in this Section 5. The Company shall give the Holders notice of any event described below which requires an adjustment pursuant to this Section 5 at the time of such event. 5 5.1. Adjustment for Stock Splits and Combinations. If the Company at any time or from time to time after the date hereof, pays a stock dividend in shares of its Common Stock, issues any convertible debt securities, effects a subdivision of the outstanding Common Stock, combines the outstanding shares of Common Stock, issues by reclassification of shares of its Common Stock any shares of capital stock of the Company, makes a distribution of any of its assets (other than cash dividends payable out of earnings or retained earnings in the ordinary course of business) then, in each such case, (A) the Warrant Shares for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (B) the Exercise Price shall be adjusted to equal (x) the Exercise Price multiplied by the Warrant Shares for which this Warrant is exercisable immediately prior to the adjustment divided by (y) the Warrant Shares for which this Warrant is exercisable immediately after such adjustment. Any adjustment under this Section 5.1 shall become effective retroactively immediately after the record date in the case of a dividend and distribution and shall become effective immediately after the effective date in the case of a issuance, subdivision, combination or reclassification. 5.2. Issuance of Additional Shares of Stock. If the Company shall (except as hereinafter provided) issue or sell Additional Shares of Stock ("Additional Shares of Stock") for an aggregate amount of consideration exceeding one million dollars ($1,000,000) in exchange for consideration in an amount per Additional Share of Stock less than the Conversion Price (as defined in the Purchase Agreement) in effect immediately prior to such issuance or sale of Additional Shares of Stock, then the Exercise Price as to the Common Stock into which this Warrant is exercisable immediately prior to such adjustment shall be adjusted by multiplying the Exercise Price by a fraction, of which: (A) the numerator shall be (x) the number of shares of Common Stock outstanding immediately prior to such issuance or sale of Additional Shares of Stock plus (y) the number of shares of Common Stock which the aggregate amount of consideration, if any, received by the Company for the total number of such Additional Shares of Stock so issued or sold would purchase at the greater of (I) the Market Price per share of the Common Stock in effect immediately prior to such issuance or sale of Additional Shares of Stock or (II) the Exercise Price in effect immediately prior to such issuance or sale of Additional Shares of Stock, and (B) the denominator shall be the number of shares of Common Stock outstanding immediately after such issuance or sale of Additional Shares of Stock; provided, however, that such adjustment shall be made only if the Exercise Price determined from such adjustment shall be less than the Exercise Price in effect immediately prior to the issuance of such Additional Shares of Stock. 6 The provisions of this Section 5.2 shall not apply to any issuance of Additional Shares of Stock for which an adjustment is provided under Section 5.1. The following shall not be deemed to be issuances of Additional Shares of Stock under this Section 5.2: (a) (i) Common Stock to be issued upon conversion of the Series D Preferred Stock, (ii) Common Stock to be issued upon conversion of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock, (iii) Common Stock to be issued upon exercise of the Warrants, (iv) Common Stock to be issued upon the exercise of currently outstanding warrants listed on Schedule 6 to the Stock and Warrant Purchase Agreements, other than the Warrants, and (v) up to 750,000 shares of Common Stock to be issued pursuant to the 1995 Stock Incentive Plan, and (b) from the date hereof until the fifth anniversary hereof, up to 500,000 shares in addition to the shares described in clause (a) hereof, provided that any change in the number of shares of Common Stock issuable upon exercise of the existing options, rights (including conversion rights) and warrants due to any amendment or modification of the terms thereof (but not as a result of the application of the current antidilution provisions thereof), or the exchange of any such option, right or warrant for any other option, right, warrant or security exercisable for or convertible into Common Stock, shall be included in the calculation of the 500,000 shares described in this clause (b). 5.3. (A) Issuance of Warrants or Other Rights. If at any time (i) the Company shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell any warrants or other rights to subscribe for or purchase any Additional Shares of Stock or any Convertible Securities (as defined in the Certificate of Designations of the Series D Convertible Preferred Stock), whether or not the rights to exchange or convert thereunder are immediately exercisable, and the consideration, computed in accordance with section 5.7(A), received for such warrants or other rights or such Convertible Securities shall be less than the Exercise Price in effect immediately prior to the time of such issue or sale, then the Exercise Price shall be adjusted as provided in Section 5.2. No further adjustments of the Exercise Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such warrants or other rights or upon the actual issue of such Common Stock upon such conversion or exchange of such Convertible Securities. (B) Issuance of Convertible Securities. If at any time the Company shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to convert thereunder are immediately exercisable, and the consideration, computed in accordance with Section 5.7(A), received for such Convertible Securities shall be less than the Exercise Price in effect immediately prior to the time of such issue or sale, then the Exercise Price shall be adjusted as provided in Section 5.2. No adjustment of the Exercise Price shall be made under this Section 5.3(B) upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights pursuant to Section 5.3(A). No further adjustments of the Exercise Price shall be made upon the actual issue of such Common Stock upon conversion of such Convertible Securities and, if any issue or sale 7 of such Convertible Securities is made upon exercise of any warrant or other right to subscribe for or to purchase any such Convertible Securities for which adjustments of the Exercise Price have been or are to be made pursuant to other provisions of this Section 5, no further adjustments of the Exercise Price shall be made by reason of such issue or sale. 5.4. Decrease in Conversion Price of Series D Preferred Stock. If, at any time, there is a decrease in the Conversion Price of the Series D Preferred Stock under the Certificate of Designation of the Series D Convertible Preferred Stock such that there is a new Conversion Price (the "Decreased Conversion Price"), then (A) the Exercise Price as to the Common Stock into which this Warrant is exercisable immediately prior to such decrease in Conversion Price shall be adjusted by multiplying the Exercise Price by a fraction, of which (x) the numerator shall be the Decreased Conversion Price and (y) the denominator shall be the Conversion Price as to the Common Stock into which the Series D Preferred Stock is exercisable immediately prior to such decrease in Conversion Price and (B) the Warrant Shares for which this Warrant is exercisable immediately after the occurrence of such decrease in the Conversion Price shall be adjusted by multiplying the number of Warrant Shares for which this Warrant is exercisable immediately prior to the occurrence of such decrease in Conversion Price by a fraction, of which (x) the numerator shall be the Conversion Price as to the Common Stock into which the Series D Preferred Stock is exercisable immediately prior to such decrease in Conversion Price and (y) the denominator shall be the Decreased Conversion Price. The provisions of this Section 5.4 shall not apply to any decrease in Conversion Price for which an adjustment is provided under Section 5.1, 5.2 or 5.3 hereof. 5.5. Superseding Adjustments. If, at any time after any adjustment of the Exercise Price at which the Warrant is exercisable shall have been made pursuant to Section 5.3 as a result of any issuance of warrants, rights or Convertible Securities, (A) such warrants or rights, or the right of conversion or exchange in such other Convertible Securities, shall expire, and all or a portion of such warrants or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised, or (B) the consideration per share for which shares of Common Stock are issuable pursuant to such warrants or rights, or the terms of such other Convertible Securities, shall be increased solely by virtue of provisions therein contained for an automatic increase in such consideration per share upon the occurrence of a specified date or event, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to 8 have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such rights or options or other Convertible Securities on the basis of (C) treating the number of Additional Shares of Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (D) treating any such warrants or rights or any such other Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Common Stock or other property are issuable under such warrants or rights or other Convertible Securities; whereupon a new adjustment of the Exercise Price at which the Warrant is exercisable shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled. 5.6. Antidilution Adjustments Under Other Securities. Without limiting any other rights available hereunder to the Holders, if there is an antidilution adjustment (i) under any Convertible Securities other than the Series D Preferred Stock, whether issued prior to or after the date hereof, or (ii) under any rights, options or warrants to purchase Additional Shares of Stock, whether issued prior to or after the date hereof which, in either case, results in a reduction in the exercise or purchase price with respect to such security or rights or results in an increase in the number of Additional Shares of Stock obtainable under such Convertible Security, right, option or warrant, then an adjustment shall be made to the Exercise Price hereunder. Any such adjustment pursuant to this Section 5.6 shall be whichever of the following results in a lower Exercise Price: (A) a reduction in the Exercise Price equal to the percentage reduction in such exercise or purchase price with respect to such Convertible Security, right, option or warrant or (B) a reduction in the Exercise Price which will result in the same percentage increase in the number of shares of Common Stock available hereunder as the percentage increase in the number of Additional Shares of Stock available under such Convertible Security, right, option or warrant. Any such adjustment under this Section 5.6 shall only be made if it would result in a lower Exercise Price than that which would be determined pursuant to any other antidilution adjustment otherwise required hereunder as a result of the event or circumstance which triggered the adjustment to such Convertible Security, right, option or warrant, and if an adjustment is made pursuant to this Section 5.6, such other antidilution adjustment otherwise required hereunder shall not be made as a result of such event or circumstance. 5.7. Other Provisions Applicable to Adjustments under this Section. The following provisions shall be applicable to making adjustments of the Warrant Shares for which 9 this Warrant is exercisable and the Exercise Price at which such Warrant Shares may be purchased upon exercise of this Warrant provided for in this Section 5: (A) Computation of Consideration. To the extent that any Additional Shares of Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase any Additional Shares of Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company therefor, or, if such Additional Shares of Stock or Convertible Securities are offered by the Company for subscription, the subscription price, or, if such Additional Shares of Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price (subtracting (i) in any case, any amounts paid or receivable for accrued interest or accrued dividends, (ii) in the case of any public offering, any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof, and (iii) in the case of any transaction other than a public offering, any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof; provided that, in the case of clause (iii), such amount is in excess of eight percent (8%) of the aggregate costs of such transactions, and then only to the extent of such excess). To the extent that such issuance shall be for a consideration other than cash, then except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any Additional Shares of Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase such Additional Shares of Stock or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Stock, Convertible Securities, warrants or other rights, as the case may be. The consideration for any Additional Shares of Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants or other rights plus the additional consideration payable to the Company upon exercise of such warrants or other rights. The consideration for any Additional Shares of Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by the Company for issuing warrants or other rights to subscribe for or purchase such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or purchase of such Convertible Securities, plus the additional 10 consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange in such Convertible Securities. In case of the issuance at any time of any Additional Shares of Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such Additional Shares of Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. (B) When Adjustments to Be Made. The adjustments required by this Section 5 shall be made whenever and as often as any event requiring an adjustment shall occur, except that any adjustment of the Exercise Price that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 5.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made amount to a change in the Exercise Price of less than 1% of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 5 and not previously made, would result in a minimum adjustment or on the date of conversion. For the purpose of any adjustment, any event shall be deemed to have occurred at the close of business on the date of its occurrence. (C) Conversion or Transfer of Series D Preferred Stock. If, at any time, the Holder converts any shares of Series D Preferred Stock into Conversion Shares (as defined in the Purchase Agreements) or transfers any shares of Series D Preferred Stock in accordance with the Purchase Agreements, then the number of shares in this Warrant subject to the anti-dilution provisions pursuant to this Section 5, shall be adjusted by multiplying the number of shares in this Warrant subject to the anti-dilution provisions pursuant to this Section 5 immediately prior to such conversion or transfer by a fraction, of which (x) the numerator shall be the number of Shares that continue to be held by the Holder immediately after such conversion or transfer, as the case may be, and (y) the denominator shall be the total number of shares of Series D Preferred Stock held by such Holder, immediately prior to such conversion or transfer, as the case may be. (D) Fractional Interests. In computing adjustments under this Section 5, fractional interests in the Common Stock shall be taken into account to the nearest 1/100th of a share. (E) Challenge to Good Faith Determination. Whenever the Board of Directors of the Company shall be required to make a determination in good faith 11 of the fair value of any item under this Section 5, such determination may be challenged in good faith by a Holder and any dispute shall be resolved by an investment banking firm of recognized national standing jointly selected by the Company and such Holder. The fees of such investment banker shall be borne by such holder if the Company's calculation is determined to be between 95% and 105% of the calculation of such banker. (F) Determination of Market Price. "Market Price" means, as to any security on the date of determination thereof, the average of the bid and asked prices at the end of such day, on the Nasdaq Stock Market, in each such case averaged for a period of twenty (20) consecutive Business Days prior to the day when the Market Price is being determined (except that, for purposes of the calculation of the Market Price in Section 1.6, such prices will be averaged for a period of ten (10) consecutive Business Days prior to the day when the Market Price is being determined under Section 1.6); provided that if such security is listed on any United States securities exchange the term "Business Days" as used in this sentence means business days on which such exchange is open for trading. Notwithstanding the foregoing, with respect to the issuance of any security by the Company in an underwritten public offering, the Market Price shall be the per share purchase price paid by the underwriters. If at any time such security is not listed on any exchange or the Nasdaq Stock Market, the Market Price shall be deemed to be the fair value thereof determined by an investment banking firm of nationally recognized standing selected by the Board of Directors of the Company and acceptable to holders of a majority of the Warrants, as of the most recent practicable date when the determination is to be made, taking into account the value of the Company as a going concern, and without taking into account any lack of liquidity of such security or any discount for a minority interest. (G) Escrow of Property. If the Company shall take a record of the holders of its Stock for the purpose of entitling them to receive any distribution of any kind of property whatsoever, but prior to the payment of such distribution the Holder exercises this Warrant, upon payment of the Exercise Price, such property shall be held in escrow for the Holder by the Company to be issued to the Holder upon the occurrence of such distribution and to the extent such distribution actually takes place. Notwithstanding any other provision to the contrary herein, if the distribution for which such record was taken fails to occur or is rescinded, then such escrowed property shall be returned to the Company. (H) Meaning of "Issuance". References in this Agreement to "issuances" of stock by the Company include issuances by the Company of previously unissued shares and issuances or other transfers by the Company of treasury stock. 12 5.8. Reorganization, Reclassification, Merger or Consolidation. If the Company shall at any time reorganize or reclassify the outstanding shares of Common Stock (other than a change in par value, or from no par value to par value, or from par value to no par value, or as a result of a subdivision or combination) or consolidate with or merge into another corporation (where the Company is not the continuing corporation after such merger or consolidation), the Holders shall thereafter be entitled to receive upon conversion of the Warrant in whole or in part, the same kind and number of shares of stock and other securities, cash or other property (and upon the same terms and with the same rights) as would have been distributed to a holder upon such reorganization, reclassification, consolidation or merger had such holder converted its Series D Preferred Stock immediately prior to such reorganization, reclassification, consolidation or merger (subject to subsequent adjustments under this Section 5). The Conversion Price upon such conversion shall be the Conversion Price that would otherwise be in effect pursuant to the terms hereof. Notwithstanding anything herein to the contrary, the Company will not effect any such reorganization, reclassification, merger or consolidation unless prior to the consummation thereof, the corporation which may be required to deliver any stock, securities or other assets upon the conversion of the Series D Preferred Stock shall agree by an instrument in writing to deliver such stock, cash, securities or other assets to the holders of the Warrants. A sale, transfer or lease of all or substantially all of the assets of the Company to another person shall be deemed a reorganization, reclassification, consolidation or merger for the foregoing purposes. 5.9. Exceptions to Adjustment of Exercise Price. Anything herein to the contrary notwithstanding, the Company shall not make any adjustment of the Exercise Price in the case of the issuance of shares of Common Stock to holders of the Warrants upon exercise of all or any portion of their Warrants. 5.10. Chief Financial Officer's Opinion. Upon each adjustment of the Exercise Price and upon each change in the Warrant Shares issuable upon the exercise of this Warrant, and in the event of any change in the rights of a Holder by reason of other events herein set forth, then and in each such case, the Company will promptly obtain a certificate of the chief financial officer of the Company, stating the adjusted Exercise Price and the new Warrant Shares so issuable, or specifying the other shares of the Common Stock, securities or assets and the amount thereof receivable as a result of such change in rights, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. The Company will promptly mail a copy of such certificate to the Holders. If a Holder disagrees with such calculation, the Company agrees to obtain within thirty (30) business days an opinion of a firm of independent certified public accountants selected by the Company's Board of Directors and acceptable to such Holder to review such calculation and the opinion of such firm of independent certified public accountants shall be final and binding on the parties and shall be conclusive evidence of the correctness of the computation with respect to any such 13 adjustment of the Exercise Price and any such change in the number of Warrant Shares so issuable. 5.11. Company to Prevent Dilution. In case at any time or from time to time conditions arise by reason of action taken by the Company, which in the good faith opinion of its Board of Directors or a majority of the Holders are not adequately covered by the provisions of this Section 5, and which might materially and adversely affect the exercise rights of the Holders, the Board of Directors of the Company shall appoint such firm of independent certified public accountants acceptable to a majority of the Holders, which shall give their opinion upon the adjustment, if any, on a basis consistent with the standards established in the other provisions of this Section 5, necessary with respect to the Exercise Price, so as to preserve, without dilution (other than as specifically contemplated by this Warrant), the exercise rights of the Holders. Upon receipt of such opinion, the Board of Directors of the Company shall forthwith make the adjustments described therein. 5.12. No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of Section 5 hereof and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Warrants against impairment. Section 6. Character of Shares of Stock. All shares of the Common Stock issuable upon the exercise of this Warrant shall, when issued to a Holder, be duly authorized, validly issued, fully paid and nonassessable, free and clear of any lien or encumbrance and without any preemptive rights. Section 7. Notice to Holder. So long as this Warrant shall be outstanding, (i) if the Company shall pay any dividend or make any distribution upon the Common Stock, (ii) if the Company shall offer to the holders of Common Stock, for subscription or purchase by them, any shares of any class of stock of the Company or any other rights or (iii) if there shall be any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company, voluntary or involuntary dissolution, liquidation or winding up of the Company, then in any such event, the Company shall cause to be mailed by certified mail to each Holder, at least 30 days prior to the relevant date of the event described above, a notice containing a brief description of the proposed action and stating the date or expected date 14 on which a record is to be taken for the purpose of such dividend, distribution or rights, or the date or expected date such reclassification, reorganization, consolidation, merger, conveyance, lease or transfer, dissolution, liquidation or winding up shall take place or be voted upon by holders of the Common Stock of record, and the date or expected date as of which the holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon any such event. Section 8. Disposition of Warrant Shares. The stock certificates of the Company that will evidence the Warrant Shares or any other security issued or issuable upon exercise of this Warrant will be imprinted with a legend in substantially the following form: The securities represented by this Certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), or any applicable state securities laws and may not be sold or otherwise transferred (whether or not for consideration) unless registered under the Act and any applicable state securities laws unless an exemption from registration is then available. Except as provided in the Registration Rights Agreement, the Company does not agree to register any of the Warrant Shares for distribution in accordance with the provisions of the Act or any applicable state securities laws, and the Company has not agreed to comply with any exemption from registration under the Act or any applicable state securities laws for the resale of the Warrant Shares. Hence, it is the understanding of the Holder that by virtue of the provisions of certain rules respecting "restricted securities" promulgated by the Securities and Exchange Commission, the Warrant Shares may be required to be held indefinitely, unless and until registered under the Act and any applicable state securities laws unless an exemption from such registration is available, in which case the Holders may still be limited as to the number of Warrant Shares that may be sold. Section 9. Governing Law. This Warrant shall be construed in accordance with the laws of the State of New York applicable to contracts executed and to be performed wholly within such state without regard to any conflicts of laws principles. Section 10. Notice. Any notice, demand, document or other communication given or delivered hereunder shall be in writing, and may be (i) personally delivered, (ii) given or made by United States registered or certified mail, return receipt requested, postage prepaid, or (iii) given or made by overnight courier or express mail for delivery the next Business Day, delivery charges prepaid, addressed as follows: 15 If to the Company: Global Pharmaceutical Corporation Castor & Kensington Avenues Philadelphia, PA 19124-5694 Facsimile No.: (215) 289-5932 Attention: President with a copy to: Fulbright & Jaworski L.L.P. 666 Fifth Avenue, 31st Floor New York, NY 10103-3198 Facsimile No.: (212)752-5958 Attention: Sheldon G. Nussbaum, Esq. If to the Holder: c/o Fleming Capital Management 320 Park Avenue 11th Floor New York, New York 10022 Attention: Robert L. Burr David J. Edwards with a copy to: Morgan, Lewis & Bockius LLP 101 Park Avenue New York, New York 10178 Attention: David W. Pollak, Esq. The Company and the Holder shall each have the right to designate a different address for itself by notice similarly given. All such notices, demands, documents or other communication will be deemed to be delivered (i) upon receipt, if personally delivered, (ii) on the third full Business Day following the day of mailing, if sent by United States registered or certified mail and (iii) on the Business Day following the date it was sent, if sent by overnight courier or express mail for delivery the next Business Day. Section 11. Remedies. The Company stipulates that the remedies at law of the Holder in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise, in addition to any other remedies which may be available at law or in equity. 16 Section 12. Company Will Avoid Certain Actions. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, issue or sale of securities or otherwise, avoid or take any action which would have the effect of avoiding the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in carrying out all of the provisions of this Warrant Certificate and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant Certificate against dilution or other impairment, and in particular, will not cause the par value of any share of Common Stock to be or become greater than the then effective Exercise Price. Section 13. Company Will Not Close Books. The Company will at no time close its transfer books against the transfer of this Warrant or of any shares of Common Stock issued or issuable upon the exercise of this Warrant in any manner which interferes with the timely exercise of this Warrant. Section 14. Successors and Assigns. This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of the Holders hereof. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder. Section 15. Amendment. This Warrant Certificate may be modified or amended and any provision hereof may be waived by a writing executed by the Company and holders of Warrants representing a majority of the Warrant Shares obtainable upon exercise of the Warrants. Section 16. Headings. Section headings in this Warrant are for reference only and shall not affect the meaning or construction of any of the provisions hereof. [remainder of page intentionally left blank] 17 IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. GLOBAL PHARMACEUTICAL CORPORATION By: /s/ Barry R. Edwards -------------------------------------------- Name: Barry R. Edwards Title: President and Chief Executive Officer [Signature page to Warrant Certificate] ANNEX A FORM OF SUBSCRIPTION (To be executed only upon exercise of the Warrant in whole or in part) To Global Pharmaceutical Corporation The undersigned registered holder of the accompanying Warrant hereby irrevocably exercises such Warrant or portion thereof for, and purchases thereunder, _______(1)/ Warrant Shares (as defined in such Warrant) and herewith [makes payment therefor of $_______] [or] [makes payment therefor by conversion of _______ Warrant Shares represented by such Warrant pursuant to Section 1.6 of such Warrant]. The undersigned requests that the certificates for such Warrant Shares be issued in the name of, and delivered to, ____________________________, whose address is ____________________________________________. Dated: Name of Warrant Holder: _______________________________________________ (Name must conform in all respects to name of holder as specified on the face of the Warrant) _______________________________________________ (Street Address) _______________________________________________ (City) (State) (Zip Code) - -------- (1)/ Insert the number of Warrant Shares as to which this Warrant is being exercised. In the case of a partial exercise, a new Warrant or Warrants will be issued and delivered, representing the unexercised portion of this Warrant, to the holder surrendering the same. ANNEX B FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns and transfers unto ____________________________ [Name] of _____________ [Address] the right represented by the within Warrant to purchase ________ shares of Common Stock of Global Pharmaceutical Corporation to which the within Warrant relates, and appoints ____________________ Attorney to transfer such right on the books of Global Pharmaceutical Corporation with full power of substitution in the premises. Dated:________ _______________________________________________ (Name must conform to name of holder as specified on the face of the Warrant) _______________________________________________ (Street Address) _______________________________________________ (City) (State) (Zip Code) Signed in the presence of: _______________________________ -----END PRIVACY-ENHANCED MESSAGE-----