
<PAGE>   1
                                                                     EXHIBIT 4.2


                                  NOVAVAX, INC.

                          CERTIFICATE OF DESIGNATIONS
                                       OF
                                SERIES A CUSTOM
                          CONVERTIBLE PREFERRED STOCK

              (Pursuant to Section 151 of the General Corporation
                         Law of the State of Delaware)

                                 --------------


            Novavax, Inc., a Delaware corporation (the "Corporation"), in
accordance with the provisions of Section 103 of the General Corporation Law of
the State of Delaware DOES HEREBY CERTIFY:

            That pursuant to authority vested in the Board of Directors of the
Corporation (the "Board of Directors" or the "Board") by the Certificate of
Incorporation, as amended, of the Corporation, the Board of Directors, at a
meeting duly called and held on December 4, 1997, adopted a resolution providing
for the creation of a series of the Corporation's Preferred Stock, $.01 par
value, which series is designated "Series A Custom Convertible Preferred Stock",
which resolution is as follows:

            RESOLVED, that pursuant to authority vested in the Board of
Directors by the Certificate of Incorporation, as amended, the Board of
Directors does hereby provide for the creation of a series of the Preferred
Stock, $.01 par value (hereafter called the "Preferred Stock"), of the
Corporation, and to the extent that the voting powers and the designations,
preferences and relative, participating, optional or other special rights
thereof and the qualifications, limitations or restrictions of such rights have
not been set forth in the Amended and Restated Certificate of Incorporation, as
amended, of the Corporation, does hereby fix the same as follows:


            SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK

            SECTION 1. CERTAIN DEFINED TERMS. (a) All the agreements or
instruments defined in this Certificate of Designations shall mean such
agreements or instruments as the same may from time to time be supplemented or
amended or the terms thereof waived or modified to the extent permitted by, and
in accordance with, the terms thereof and of this Certificate of Designations.

            (b) The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):

            "Accrual Amount" means with respect to any share of Series A
Preferred Stock on any date an amount calculated at the rate of five percent per
annum of the Accrual Value of such share from the issuance date to the date of
determination.
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            "Accrual Value" means $1,000.00 per share of Series A Preferred
Stock.

            "Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or under common control with the subject Person. For purposes of
the term "Affiliate," the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or to cause the direction of the management and
policies of a Person, whether through the ownership of securities, by contract
or otherwise.

            "Aggregated Person" means, with respect to any holder of shares of
Series A Preferred Stock, any Person whose beneficial ownership of shares of
Common Stock would be aggregated with such holder's beneficial ownership of
shares of Common Stock for purposes of Section 13(d) of the 1934 Act and
Regulation 13D-G thereunder.

            "AMEX" means the American Stock Exchange, Inc.

            "Board of Directors" or "Board" means the Board of Directors of the
Corporation.

            "Business Combination Redemption Percentage" means with respect to a
redemption of shares of Series A Preferred Stock in accordance with Section
10(b)(6), the applicable percentage determined with respect to the date of
payment of the redemption price as follows:

                                                         Business Combination
      Date of Payment                                   Redemption Percentages
      ---------------                                   ----------------------

      Issuance Date through 360th day thereafter                 125%
      On or after 361st day after the Issuance Date              130%

            "Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.

            "Cash and Cash Equivalent Balances" of any Person on any date shall
be determined from such Person's books maintained in accordance with Generally
Accepted Accounting Principles, and means, without duplication, the sum of (1)
the cash accrued by such Person and its subsidiaries on a consolidated basis on
such date and available for use by such Person and its subsidiaries on such date
and (2) all assets which would, on a consolidated balance sheet of such Person
and its subsidiaries prepared as of such date in accordance with Generally
Accepted Accounting Principles, be classified as cash or cash equivalents.

            "Common Stock" means the Common Stock, $.01 par value, of the
Corporation.

            "Conversion Agent" means Boston EquiServe, or its duly appointed
successor who shall be serving as transfer agent and registrar for the Common
Stock and who shall have been authorized by the Corporation to act as conversion
agent for the Series A Preferred Stock in accordance with the Conversion Agent
Agreement and the name, address and telephone number of which shall have been
given to the holder of the Series A Preferred Stock by notice from the
Corporation.

            "Conversion Agent Agreement" means the Conversion Agent Agreement,
dated as of January 28, 1998, by and among the Corporation, the Conversion Agent
and the original holders of the shares of Series A Preferred Stock.


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            "Conversion Date" means the date on which a Conversion Notice is
actually received by the Conversion Agent, whether by mail, courier, personal
service, telephone line facsimile transmission or other means, in case of a
conversion at the option of a holder of shares of Series A Preferred Stock
pursuant to Section 10(a).

            "Conversion Floor Percentage" means, with respect to each Conversion
Date on or before the date which is 180 days after the Issuance Date, the
applicable percentage determined with respect to such Conversion Date as
follows:

                                                     Conversion Floor
      Conversion Date                                   Percentage
      ---------------                                   ----------

      Issuance Date through 30th day thereafter            105%

      31st through 60th day after Issuance Date            100%

      61st through 90th day after Issuance Date             95%

      91st through 120th day after Issuance Date            90%

      121st through 150th day after Issuance Date           85%

      151st through 180th day after Issuance Date           80%

            "Conversion Notice" means a Notice of Conversion of Series A Custom
Convertible Preferred Stock substantially in the form set forth in Section
14(a).

            "Conversion Price" for any Conversion Date

      (1) during the period commencing on the Issuance Date and ending on the
date which is 90 days after the Issuance Date, means 100% of the lowest Two-Day
Average Trading Price during the applicable Measurement Period for such
Conversion Date; and

      (2) on and after the date which is 91 days after the Issuance Date, shall
mean 94% of the lowest Two-Day Average Trading Price during the applicable
Measurement Period for such Conversion Date;

provided, however, that on any date on or before the 180th day after the
Issuance Date, the Conversion Price shall not be less than the product obtained
by multiplying (a) $5.403125 (subject to equitable adjustments from time to time
on terms reasonably acceptable to the Majority Holders for (1) stock splits, (2)
stock dividends, (3) combinations, (4) capital reorganizations (5) issuance to
all holders of Common Stock rights or warrants to purchase shares of Common
Stock, (6) the distribution by the Corporation to all holders of Common Stock of
evidences of indebtedness of the Corporation or cash (other than regular
quarterly cash dividends), and (7) similar events relating to the Common Stock,
in each such case which occur, or with respect to which "ex-" trading of the
Common Stock begins on or after the date of filing of this Certificate of
Designations with the Secretary of State of the State of Delaware and on or
before the applicable Conversion Date, in each case on a basis consistent with
the adjustments set forth in the definition of Trading Price) times (b) the
Conversion Floor Percentage applicable to the Conversion Date for which the
Conversion Price is being


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determined; provided further, however, that the Conversion Price shall not be
greater than $6.33 (subject to equitable adjustments from time to time on terms
reasonably acceptable to the Majority Holders for (1) stock splits, (2) stock
dividends, (3) combinations, (4) capital reorganizations (5) issuance to all
holders of Common Stock rights or warrants to purchase shares of Common Stock,
(6) the distribution by the Corporation to all holders of Common Stock of
evidences of indebtedness of the Corporation or cash (other than regular
quarterly cash dividends), and (7) similar events relating to the Common Stock,
in each such case which occur, or with respect to which "ex-" trading of the
Common Stock begins on or after the date of filing of this Certificate of
Designations with the Secretary of State of the State of Delaware and on or
before the applicable Conversion Date, in each case on a basis consistent with
the adjustments set forth in the definition of Trading Price).

            "Corporation Notice" means a Corporation Notice substantially in the
form set forth in Section 14(h).

            "Generally Accepted Accounting Principles" for any Person means the
generally accepted accounting principles and practices applied by such Person
from time to time in the preparation of its audited financial statements.

            "Holder Notice" means a Holder Notice substantially in the form set
forth in Section 14(i).

            "Holder Registration Redemption Notice" means a Holder Registration
Redemption Notice substantially in the form set forth in Section 14(j).

            "Inconvertibility Day" means any Trading Day on which the
Corporation would not have been required to convert in accordance with Section
10(a) any shares of Series A Preferred Stock of any holder of shares of Series A
Preferred Stock as a consequence of the limitations set forth in Section 7(a)(1)
had all outstanding shares of Series A Preferred Stock held by such holder on
such Trading Day, other than such holder's Stockholder Approval Portion in the
case of any Trading Day on or before June 30, 1998, been converted into Common
Stock on such Trading Day, determined at the Conversion Price applicable on such
Trading Day and without regard to the limitation, if any on such holder
contained in the second sentence of Section 10(a).

            "Inconvertibility Notice" means a notice from the Corporation to a
holder of shares of Series A Preferred Stock in the form set forth in Section
14(b) or a notice from a holder of shares of Series A Preferred Stock to the
Corporation in the form set forth in Section 14(c).

            "Indebtedness" as used in reference to any Person means all
indebtedness of such Person for borrowed money, the deferred purchase price of
property, goods and services and obligations under leases which are required to
be capitalized in accordance with Generally Accepted Accounting Principles and
shall include all such indebtedness guaranteed in any manner by such Person or
in effect guaranteed by such Person through a contingent agreement to purchase
and all indebtedness for the payment or purchase of which such Person has
contingently agreed to advance or supply funds and all indebtedness secured by
mortgage or other lien upon property owned by such Person, although such Person
has not assumed or become liable for the payment of such indebtedness, and, for
all purposes hereof, such indebtedness shall be treated as though it has been
assumed by such Person.


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            "Issuance Date" means the first date of original issuance of any
shares of Series A Preferred Stock.

            "Junior Dividend Stock" means, collectively, the Common Stock and
any other class or series of capital stock of the Corporation ranking junior as
to dividends to the Series A Preferred Stock.

            "Junior Liquidation Stock" means, collectively, the Common Stock and
any other class or series of capital stock of the Corporation ranking junior as
to liquidation rights to the Series A Preferred Stock.

            "Liquidation Preference" means, for each share of Series A Preferred
Stock, the sum of (i) an amount equal to the Accrual Amount thereon to the date
of final distribution to the holders of shares of Series A Preferred Stock in
connection with the liquidation, dissolution or winding up of the Corporation
plus (ii) $1,000.

            "Majority Holders" means at any time the holders of shares of Series
A Preferred Stock which shares constitute a majority of the outstanding shares
of Series A Preferred Stock.

            "Mandatory Redemption Waiver" means an agreement of the Corporation
and a holder of shares of Series A Preferred Stock in the form set forth in
Section 14(e).

            "Market Price" of any security on any date means the closing bid
price of such security on such date on the AMEX or such other securities
exchange or other market on which such security is listed for trading which
constitutes the principal securities market for such security, as reported by
Bloomberg, L.P.

            "Maximum Share Amount" means 2,406,350 shares, or such greater
number of shares of Common Stock as shall be authorized and reserved for
issuance and as permitted by the rules of the AMEX or such other principal
securities exchange on which the Common Stock is listed at such time (such
amount to be subject to equitable adjustment from time to time on terms
reasonably acceptable to the Majority Holders for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock occurring after the date of filing this Certificate of Designations with
the Secretary of State of the State of Delaware), of Common Stock.

            "Maximum Share Amount Inconvertibility" means the occurrence of five
or more Inconvertibility Days within any period of ten consecutive Trading Days
which occurs on or after the fifth Trading Day after the Issuance Date and prior
to the date the Stockholder Approval shall have been obtained from the
stockholders of the Corporation or waived by the AMEX (or such other principal
securities exchange on which the Common Stock is listed at such time).

            "Measurement Period" means with respect to any Conversion Date, the
period of 25 consecutive Trading Days ending one Trading Day prior to such
Conversion Date.

            "NASD" means the National Association of Securities Dealers, Inc.

            "Nasdaq" means the Nasdaq National Market.

            "Net Cash and Cash Equivalent Balances" of any Person on any date
means the consolidated Cash and Cash Equivalent Balances of such Person and its
subsidiaries less the sum of (1) the amount of any outstanding Indebtedness of
such Person or any of its subsidiaries which, directly or indirectly, is secured
in whole or in part by, or restricts the use of, the consolidated Cash and Cash
Equivalent Balances of such Person and its subsidiaries plus (2) the 


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maximum amount which is not outstanding and which may be borrowed pursuant to
any revolving credit facility or any commitment to lend of or to such Person or
any of its subsidiaries which at the time it becomes outstanding will be secured
in whole or in part by, or will so restrict, Cash and Cash Equivalent Balances.

            "1934 Act" means the Securities Exchange Act of 1934, as amended.

            "1933 Act" means the Securities Act of 1933, as amended.

            "NYSE" means the New York Stock Exchange, Inc.

            "Optional Redemption Date" means the date which is three Business
Days after a holder of shares of Series A Preferred Stock who is entitled to
redemption rights under Section 11(a) and 11(b) gives a Holder Notice.

            "Optional Redemption Event" means any one of the following events:

            (1) For any period of five consecutive Trading Days following the
      Issuance Date there shall be no reported sale price of the Common Stock on
      any of the AMEX, the Nasdaq or the NYSE;

            (2) The Common Stock ceases to be listed for trading on the AMEX,
      the Nasdaq or the NYSE;

            (3) Any consolidation or merger of the Corporation or any subsidiary
      of the Corporation with or into another entity (other than a merger or
      consolidation of a subsidiary of the Corporation into the Corporation or a
      wholly-owned subsidiary of the Corporation) where the stockholders of the
      Corporation immediately prior to such transaction do not collectively own
      at least 51% of the outstanding voting securities of the surviving
      corporation of such consolidation or merger immediately following such
      transaction or the common stock of such surviving corporation is not
      listed for trading on the NYSE, the AMEX or the Nasdaq; or the sale of all
      or substantially all of the assets of the Corporation and its
      subsidiaries;

            (4) The taking of any action, including any amendment to the
      Certificate of Incorporation of the Corporation (other than any
      certificate designating a series of preferred stock of the Corporation)
      which materially and adversely affects the rights of the holders of shares
      of Series A Preferred Stock;

            (5) The inability for a period of 30 days (whether or not
      consecutive) of any holder of shares of Series A Preferred Stock to sell
      shares of Common Stock issued upon conversion of shares of Series A
      Preferred Stock pursuant to the Registration Statement (1) by reason of
      the requirements of the Act, the 1934 Act or any of the rules or
      regulations under either thereof or (2) due to the Registration Statement
      containing any untrue statement of material fact or omitting to state a
      material fact required to be stated therein or necessary to make the
      statements therein not misleading or any other failure of the Registration
      Statement to comply with the rules and regulations of the SEC; or

            (6) The Corporation shall fail or default in the timely performance
      of any material obligation to a holder of shares of Series A Preferred
      Stock under the terms of this Certificate of Designations or under the
      Subscription Agreement with such holder or any other agreement or document
      entered into in connection with the issuance of shares of Series A
      Preferred Stock, as such agreements and instruments may be amended from
      time to time.


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            "Optional Redemption Percentage" means, with respect to each
Optional Redemption Payment Date, the applicable percentage determined with
respect to such date as follows:

                                                    Optional Redemption
      Optional Redemption Payment Date                  Percentage
      --------------------------------                  ----------

      Issuance Date through 90th day thereafter            115.0%

      91st through 270th day after Issuance Date           117.5%

      271st Day after Issuance Date and thereafter         120.0%

            "Optional Redemption Price" means an amount in cash equal to the
product obtained by multiplying (a) the sum of (i) $1,000 plus (ii) an amount
equal to the Accrual Amount on the share of Series A Preferred Stock to be
redeemed to the applicable Optional Redemption Date times (b) the Optional
Redemption Percentage for the applicable Optional Redemption Date.

            "Option Share Surrender" means the surrender of shares of Common
Stock to the Corporation in payment of the exercise price or tax obligations
incurred in connection with the exercise of a stock option granted by the
Corporation to any of its employees, directors or consultants.

            "Parity Dividend Stock" means any class or series or the
Corporation's capital stock ranking, as to dividends, on a parity with the
Series A Preferred Stock.

            "Parity Liquidation Stock" means any class or series of the
Corporation's capital stock having parity as to liquidation rights with the
Series A Preferred Stock.

            "Permitted Indebtedness" means

            (1) Indebtedness not in excess of $250,000 aggregate principal
      amount which would be reflected on a consolidated balance sheet of the
      Corporation and its subsidiaries in accordance with Generally Accepted
      Accounting Principles;

            (2) Indebtedness other than for borrowed money, including, without
      limitation, Indebtedness, whether or not required to be capitalized,
      incurred in the ordinary course of business of the Corporation and its
      subsidiaries, including, without limitation, trade payables, expense
      accruals, taxes, wages, salaries and employee benefit programs,
      acquisition of property, guaranties or other contingent liabilities, lease
      or rental obligations and loss contingencies;

            (3) Indebtedness other than Indebtedness permitted under clause (1)
      of this definition, incurred after the Issuance Date and in an amount
      outstanding at any time not in excess of the product of (A) $540,000 times
      (B) the number of full calendar months following the Issuance Date to the
      date of determination, but not in excess of $6,480,000 aggregate principal
      amount outstanding at any time;

            (4) guarantees by the Corporation of Indebtedness of subsidiaries of
      the Corporation, so long as the Indebtedness of such subsidiaries so
      guaranteed by the Corporation is permitted under this Certificate of
      Designations;


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            (5) guarantees by the Corporation or any subsidiary of the
      Corporation arising out of the sale of accounts receivable by the
      Corporation or such subsidiary; and

            (6) contingent liabilities of the Corporation or any subsidiary of
      the Corporation represented by endorsements of negotiable instruments for
      collection of deposit in the ordinary course of business of the
      Corporation or such subsidiary.

            "Person" means an individual, partnership, corporation, limited
liability company, trust, incorporated organization, unincorporated association
or joint stock company.

            "Quarterly Cash Requirements" on any date means the consolidated net
cash used in operating activities of the Corporation and its subsidiaries for
the most recent fiscal quarter for which, at such date, the Corporation has
published a consolidated statement of cash flows, prepared in accordance with
Generally Accepted Accounting Principles, as shown on such statement.

            "Redemption Date" means (1) January 28, 2000; provided, however,
that if on such date the Corporation is not permitted to redeem shares of Series
A Preferred Stock solely by reason of an Optional Redemption Event as provided
in clause (y) of Section 9(a), then the date provided in this clause (1) shall
be March 29, 2000, and (2) January 29, 2001.

            "Redemption Election" means (1) a notice by a holder of Series A
Preferred Stock to the Corporation substantially in the form set forth in
Section 15(d) or (2) a notice by a holder of Series A Preferred Stock to the
Corporation included in paragraph 3 of the form of Inconvertibility Notice set
forth in Section 15(c).

            "Redemption Election Period" means, with respect to a particular
Maximum Share Amount Inconvertibility or Registration Restriction
Inconvertibility, the period of ten Business Days after the later of (x) the
date an Inconvertibility Notice with respect to such Maximum Share Amount
Inconvertibility or Registration Restriction Inconvertibility is given or (y)
the date such Inconvertibility Notice was required to have been given by the
Corporation.

            "Redemption Notice" means a Redemption Notice substantially in the
form set forth in Section 14(g).

            "Redemption Price" means

            (1) in the case of a Redemption Date on January 28, 2000 (or March
29, 2000, as the case may be), an amount in cash equal to the greater of (A) the
product obtained by multiplying (i) the sum of (a) $1,000 plus (b) an amount
equal to the Accrual Amount on the share of Series A Preferred Stock to be
redeemed to the date of payment of the Redemption Price times (ii) 110% and (B)
an amount equal to the product obtained by multiplying (x) the number of shares
of Common Stock which would, but for the redemption pursuant to Section 9(a), be
issuable on conversion in accordance with Section 10(a) of one share of Series A
Preferred Stock if a Conversion Notice were given by the holder of such share of
Series A Preferred Stock on the Redemption Date (determined without regard to
any limitation on beneficial ownership contained in the second sentence of
Section 10(a)) times (y) the greater of (aa) the Market Price of the Common
Stock on the Trading Day immediately preceding the Redemption Date and (bb)


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the arithmetic average of the Market Price of the Common Stock for the five
Trading Days ending on the Trading Day immediately preceding the Redemption
Date; and

            (2) in the case of a Redemption Date on January 29, 2001, an amount
in cash equal to the product obtained by multiplying (i) the sum of (x) $1,000
plus (y) an amount equal to the Accrual Amount on the shares of Series A
Preferred Stock to be redeemed to the date of payment of the Redemption Price
times (ii) 105%.

            "Registration Redemption Event" means the occurrence of either of
the following events:

      (a) the Corporation fails to file the Registration Statement within the
15-day period provided in Section 8(a)(1) of the Subscription Agreements; or

      (b) the SEC Effective Date shall not have occurred on or before the date
which is 90 days after the Issuance Date.

            "Registration Redemption Price" means an amount in cash equal to the
product obtained by multiplying (A) the sum of (i) $1,000 plus (ii) an amount
equal to the Accrual Amount on the share of Series A Preferred Stock to be
redeemed to the date of such redemption in accordance with Section 11(c) times
(B) 112.5%.

            "Registration Restriction Inconvertibility" means that (1) if,
notwithstanding Rule 416 under the 1933 Act or the provisions of Section 8(b) of
the Subscription Agreements, the Registration Statement is not deemed to cover
such indeterminate number of additional shares of Common Stock as shall be
issuable upon conversion of the shares of Series A Preferred Stock held by any
holder of shares of Series A Preferred Stock based on changes from time to time
in the Conversion Price, and (2) on any five Trading Days ending on or after the
SEC Effective Date within any period of ten consecutive Trading Days the number
of shares of Common Stock issuable upon conversion of all shares of Series A
Preferred Stock held by any holder of shares of Series A Preferred Stock had all
shares of Series A Preferred Stock held by such holder been converted in full
into Common Stock on each such Trading Day, determined at the Conversion Price
applicable on each such Trading Day and without regard to the limitation, if
any, on such holder contained in the second sentence of Section 10(a), would
exceed the number of shares of Common Stock covered by the Registration
Statement and available for sale by such holder pursuant to the Registration
Statement.

            "Registration Statement" means the Registration Statement required
to be filed by the Corporation with the SEC pursuant to Section 8 of the
Subscription Agreement.

            "SEC" means the United States Securities and Exchange Commission.

            "SEC Effective Date" means the date on which the Registration
Statement is first ordered effective by the SEC.

            "Securities" shall have the meaning, for purposes of the definition
of the term Trading Price, set forth in clause (iv) of the first proviso to the
definition of the term Trading Price.

            "Senior Dividend Stock" means any class or series of capital stock
of the Corporation ranking senior as to dividends to the Series A Preferred
Stock.

            "Senior Liquidation Stock" means any class or series of capital
stock of the Corporation ranking senior as to liquidation rights to the Series A
Preferred Stock.


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            "Series A Preferred Stock" means the Series A Custom Convertible
Preferred Stock of the Corporation.

            "Share Limitation Redemption Date" means each date on which the
Corporation is required to redeem shares of Series A Preferred Stock as provided
in Section 7(a).

            "Share Limitation Redemption Price" means an amount in cash equal to
the product obtained by multiplying (a) the sum of (i) $1,000 plus (ii) an
amount equal to the Accrual Amount on the share of Series A Preferred Stock to
be redeemed to the applicable Share Limitation Redemption Date times (b) 115%.

            "Stockholder Approval" means the approval by a majority of the votes
cast by the holders of shares of Common Stock (in person or by proxy) at a
meeting of the stockholders of the Corporation (duly convened at which a quorum
was present), or a written consent of holders of shares of Common Stock entitled
to such number of votes given without a meeting, of the issuance by the
Corporation of 20% or more of the Common Stock of the Corporation outstanding on
the Issuance Date for less than the greater of the book or market value of the
Common Stock on conversion of the Series A Preferred Stock, as and to the extent
required under Rule 713 of the AMEX as in effect from time to time or any
successor or replacement provision or any other similar requirement of the
principal securities exchange on which the Common Stock is listed from time to
time.

            "Stockholder Approval Portion" means two-thirteenths of the shares
of Series A Preferred Stock represented by each certificate for shares of Series
A Preferred Stock upon original issuance thereof, which amount shall be noted on
each certificate for shares of Series A Preferred Stock in accordance with
Section 7(a)(1).

            "Stockholder Approval Redemption Date" means the date which is five
Business Days after a Stockholder Approval Redemption Notice is given.

            "Stockholder Approval Redemption Notice" means a Stockholder
Approval Redemption Notice substantially in the form set forth in Section 14(f).

            "Stockholder Approval Redemption Price" means an amount in cash
equal to the product obtained by multiplying (a) the sum of (i) $1,000 plus (ii)
an amount equal to the Accrual Amount on the share of Series A Preferred Stock
to be redeemed to the applicable Stockholder Approval Redemption Date times (b)
105%.

            "Subscription Agreements" means the several Subscription Agreements,
dated as of January 23, 1998, by and between the Corporation and the holders of
shares of Series A Preferred Stock pursuant to which the shares of Series A
Preferred Stock were issued.

            "Tender Offer" means a tender offer as defined for purposes of
Regulation 14D and Rule 13e-4 under the 1934 Act.

            "Trading Day" means a day on whichever of (x) the national
securities exchange or (y) the Nasdaq which at the time constitutes the
principal securities market for the Common Stock is open for general trading.

            "Trading Price" of the Common Stock on any date means the lowest
sale price (regular way) for one share of Common Stock on such date, in a trade
in which, in the case of the use of the term Trading Price to determine the
Conversion Price in connection with any conversion of shares of Series A
Preferred Stock by a holder of shares of Series A Preferred 


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<PAGE>   11
Stock neither such holder nor any Affiliate of such holder is a buyer or seller,
on the first applicable among the following: (a) the national securities
exchange on which the shares of Common Stock are listed which constitutes the
principal securities market for the Common Stock or (b) the Nasdaq, in either
such case as reported by Bloomberg, L.P.; provided, however, that if during any
Measurement Period:

            (i) The Corporation shall declare or pay a dividend or make a
      distribution to all holders of the outstanding Common Stock in shares of
      Common Stock or fix any record date for any such action, then the Trading
      Price of the Common Stock for each day in such Measurement Period prior to
      the earlier of (1) the date fixed for the determination of stockholders
      entitled to receive such dividend or other distribution and (2) the date
      on which ex-dividend trading in the Common Stock with respect to such
      dividend or distribution begins shall be reduced by multiplying the
      Trading Price (determined without regard to this proviso) for each such
      day in such Measurement Period by a fraction of which the numerator shall
      be the number of shares of Common Stock outstanding at the close of
      business on the earlier of (1) the record date fixed for such
      determination and (2) the date on which ex-dividend trading in the Common
      Stock with respect to such dividend or distribution begins and the
      denominator shall be the sum of such number of shares and the total number
      of shares constituting such dividend or other distribution;

            (ii) The Corporation shall issue rights or warrants to all holders
      of its outstanding shares of Common Stock, or fix a record date for such
      issuance, which rights or warrants entitle such holders (for a period
      expiring within forty-five (45) days after the date fixed for the
      determination of stockholders entitled to receive such rights or warrants)
      to subscribe for or purchase shares of Common Stock at a price per share
      less than the Trading Price (determined without regard to this proviso)
      for any day in such Measurement Period which is prior to the end of such
      45-day period, then the Trading Price for such day shall be reduced so
      that the same shall equal the price determined by multiplying the Trading
      Price (determined without regard to this proviso) by a fraction of which
      the numerator shall be the number of shares of Common Stock outstanding at
      the close of business on the record date fixed for the determination of
      stockholders entitled to receive such rights or warrants plus the number
      of shares which the aggregate offering price of the total number of shares
      so offered would purchase at such Trading Price, and of which the
      denominator shall be the number of shares of Common Stock outstanding on
      the close of business on such record date plus the total number of
      additional shares of Common Stock so offered for subscription or purchase.
      In determining whether any rights or warrants entitle the holders to
      subscribe for or purchase shares of Common Stock at less than the Trading
      Price (determined without regard to this proviso), and in determining the
      aggregate offering price of such shares of Common Stock, there shall be
      taken into account any consideration received for such rights or warrants,
      the value of such consideration, if other than cash, to be determined in
      good faith by a resolution of the Board of Directors of the Corporation;

            (iii) The outstanding shares of Common Stock shall be subdivided
      into a greater number of shares of Common Stock or a record date for any
      such subdivision shall be fixed, then the Trading Price of the Common
      Stock for each day in such Measurement Period prior to the earlier of (1)
      the day upon which such subdivision becomes effective and (2) the date on
      which ex-dividend trading in the Common Stock with respect to such
      subdivision begins shall be proportionately reduced, and conversely, in
      case the outstanding shares of Common Stock shall be combined into a
      smaller number of shares of Common Stock, the Trading Price for each day
      in such Measurement Period prior to the earlier of (1) the date on which
      such combination becomes effective and (2) the date on which trading in
      the Common Stock on a basis which gives effect to such combination begins,
      shall be proportionately increased;


                                      -11-
<PAGE>   12
            (iv) The Corporation shall, by dividend or otherwise, distribute to
      all holders of its Common Stock shares of any class of capital stock of
      the Corporation (other than any dividends or distributions to which clause
      (i) of this proviso applies) or evidences of its indebtedness, cash or
      other assets (including securities, but excluding any rights or warrants
      referred to in clause (ii) of this proviso and dividends and distributions
      paid exclusively in cash and excluding any capital stock, evidences of
      indebtedness, cash or assets distributed upon a merger or consolidation)
      (the foregoing hereinafter in this clause (iv) of this proviso called the
      "Securities"), or fix a record date for any such distribution, then, in
      each such case, the Trading Price for any day in such Measurement Period
      prior to the earlier of (1) the record date for such distribution and (2)
      the date on which ex-dividend trading in the Common Stock with respect to
      such distribution begins shall be reduced so that the same shall be equal
      to the price determined by multiplying the Trading Price (determined
      without regard to this proviso) by a fraction of which the numerator shall
      be the Trading Price (determined without regard to this proviso) on such
      date less the fair market value (as determined in good faith by resolution
      of the Board of Directors of the Corporation) on such date of the portion
      of the Securities so distributed or to be distributed applicable to one
      share of Common Stock and the denominator shall be the Trading Price
      (determined without regard to this proviso); provided, however, that in
      the event the then fair market value (as so determined) of the portion of
      the Securities so distributed applicable to one share of Common Stock is
      equal to or greater than the Trading Price (determined without regard to
      this clause (iv) of this proviso) on any such day, in lieu of the
      foregoing adjustment, adequate provision shall be made so that the holders
      of shares of Series A Preferred Stock shall have the right to receive in
      payment of dividends on the shares of Series A Preferred Stock or upon
      conversion of the shares of Series A Preferred Stock, as the case may be,
      the amount of Securities the holders of shares of Series A Preferred Stock
      would have received had the number of shares of Common Stock to be issued
      in payment of such dividends on the shares of Series A Preferred Stock, or
      had the holders of shares of Series A Preferred Stock converted the shares
      of Series A Preferred Stock, in either such case immediately prior to the
      record date for such distribution. If the Board of Directors of the
      Corporation determines the fair market value of any distribution for
      purposes of this clause (iv) by reference to the actual or when issued
      trading market for any securities comprising all or part of such
      distribution, it must in doing so consider the prices in such market on
      the same day for which an adjustment in the Trading Price is being
      determined.

            For purposes of this clause (iv) and clauses (i) and (ii) of this
      proviso, any dividend or distribution to which this clause (iv) is
      applicable that also includes shares of Common Stock, or rights or
      warrants to subscribe for or purchase shares of Common Stock to which
      clause (i) or (ii) of this proviso applies (or both), shall be deemed
      instead to be (1) a dividend or distribution of the evidences of
      indebtedness, assets, shares of capital stock, rights or warrants other
      than such shares of Common Stock or rights or warrants to which clause
      (ii) of this proviso applies (and any Trading Price reduction required by
      this clause (iv) with respect to such dividend or distribution shall then
      be made) immediately followed by (2) a dividend or distribution of such
      shares of Common Stock or such rights or warrants (and any further Trading
      Price reduction required by clauses (i) and (ii) of this proviso with
      respect to such dividend or distribution shall then be made), except that
      any shares of Common Stock included in such dividend or distribution shall
      not be deemed "outstanding at the close of business on the date fixed for
      such determination" within the meaning of clause (i) of this proviso; or

            (v) The Corporation or any subsidiary of the Corporation shall (x)
      by dividend or otherwise, distribute to all holders of its Common Stock
      cash in (or fix any record date for any such distribution), or (y)
      repurchase or reacquire shares of its Common Stock 


                                      -12-
<PAGE>   13
      (other than an Option Share Surrender) for, in either case, an aggregate
      amount that, combined with (1) the aggregate amount of any other such
      distributions to all holders of its Common Stock made exclusively in cash
      after the Issuance Date and within the twelve (12) months preceding the
      date of payment of such distribution, and in respect of which no
      adjustment pursuant to this clause (v) has been made and (2) the aggregate
      amount of any cash plus the fair market value (as determined in good faith
      by a resolution of the Board of Directors of the Corporation) of
      consideration paid in respect of any repurchase or other reacquisition by
      the Corporation or any subsidiary of the Corporation of any shares of
      Common Stock (other than an Option Share Surrender) made after the
      Issuance Date and within the twelve (12) months preceding the date of
      payment of such distribution or making of such repurchase or
      reacquisition, as the case may be, and in respect of which no adjustment
      pursuant to this clause (v) has been made, exceeds 10% of the product of
      the Trading Price (determined without regard to this proviso) on any day
      in such Measurement Period prior to the earlier of (1) the record date
      with respect to such distribution and (2) the date on which ex-dividend
      trading in the Common Stock with respect to such distribution begins or
      the date of such repurchase or reacquisition, as the case may be, times
      the number of shares of Common Stock outstanding on such date, then, and
      in each such case, the Trading Price for such day shall be reduced so that
      the same shall equal the price determined by multiplying the Trading Price
      (determined without regard to this proviso) for such day by a fraction (i)
      the numerator of which shall be equal to the Trading Price (determined
      without regard to this proviso) for such day less an amount equal to the
      quotient of (x) the excess of such combined amount over such 10% and (y)
      the number of shares of Common Stock outstanding on such day and (ii) the
      denominator of which shall be equal to the Trading Price (determined
      without regard to this proviso) on such day; provided, however, that in
      the event the portion of the cash so distributed or paid for the
      repurchase or reacquisition of shares (determined per share based on the
      number of shares of Common Stock outstanding) applicable to one share of
      Common Stock is equal to or greater than the Trading Price (determined
      without regard to this clause (v) of this proviso) of the Common Stock on
      any such day, in lieu of the foregoing adjustment, adequate provision
      shall be made so that the holders of shares of Series A Preferred Stock
      shall have the right to receive in payment of dividends on shares of
      Series A Preferred Stock or upon conversion of shares of Series A
      Preferred Stock, as the case may be, the amount of cash the holders of
      shares of Series A Preferred Stock would have received had the number of
      shares of Common Stock to be issued in payment of such dividends on shares
      of Series A Preferred Stock, or had the holders of shares of Series A
      Preferred Stock converted shares of Series A Preferred Stock, in either
      such case, immediately prior to the record date for such distribution or
      the payment date of such repurchase, as applicable;

provided further, however, that if on any date there shall be no reported lowest
sale price (regular way) of such security, the "Trading Price" on such date
shall be the lowest sale price (regular way), in a trade in which, in the case
of the use of the term Trading Price to determine the Conversion Price in
connection with any conversion of shares of Series A Preferred Stock by a holder
of shares of Series A Preferred Stock, neither such holder nor any Affiliate of
such holder is a buyer or seller, of such security on the date next preceding
such date on which a lowest sale price (regular way) for such security has been
so reported.

            "Two-Day Average Trading Price" means, during any period, the lowest
arithmetic average of the Trading Price on each of two consecutive Trading Days
during such period.

            SECTION 2. DESIGNATION AND AMOUNT. The shares of such series shall
be designated as "Series A Custom Convertible Preferred Stock", and the number
of shares constituting the Series A Preferred Stock shall be 6,500, and shall
not be subject to increase.


                                      -13-
<PAGE>   14
            SECTION 3. SERIES A PREFERRED STOCK CAPITAL. The amount to be
represented in the capital account for the Series A Preferred Stock at all times
for each outstanding share of Series A Preferred Stock shall be an amount equal
to the product obtained by multiplying (1) the sum of (A) $1,000 plus (B) an
amount equal to the Accrual Amount on such share of Series A Preferred Stock to
the date of determination times (2) the Optional Redemption Percentage which
would be applicable to a redemption of a share of Series A Preferred Stock
pursuant to Sections 11(a) and 11(b) on the date of determination if such share
were required to be redeemed by the Corporation pursuant to Sections 11(a) and
11(b) on such date.

            SECTION 4. RANK. The shares of Series A Preferred Stock shall rank
senior to the Common Stock and any shares of any other series of Preferred Stock
or any shares of any other class of preferred stock of the Corporation, now or
hereafter issued, as to payment of dividends and distribution of assets upon
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary.

            SECTION 5. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares of
Series A Preferred Stock shall be entitled to receive, when, as, and if declared
by the Board of Directors out of funds legally available for such purpose,
dividends in such amounts as determined from time to time by the Board of
Directors. Dividends on the shares of Series A Preferred Stock shall not be
cumulative.

            If at any time any dividend on any Senior Dividend Stock shall be in
default, in whole or in part, no dividend shall be paid or declared and set
apart for payment on the Series A Preferred Stock unless and until all accrued
and unpaid dividends with respect to the Senior Dividend Stock, including the
full dividends for the then current dividend period, shall have been paid or
declared and set apart for payment, without interest. No dividends shall be paid
or declared and set apart for payment on any Parity Dividend Stock for any
period unless a dividend in the same amount per share shall have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Series A Preferred Stock. No dividends shall be paid or declared and set apart
for payment on the Series A Preferred Stock for any period unless all accrued
but unpaid dividends have been, or contemporaneously are, paid or declared and
set apart for payment on the Parity Dividend Stock for all dividend periods
terminating on or prior to the date of payment of such full dividends.

            Any references to "distribution" contained in this Section 5 shall
not be deemed to include any stock dividend or distributions made in connection
with any liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary.

            (b) Neither the Corporation nor any subsidiary of the Corporation
shall redeem, repurchase or otherwise acquire in any one transaction or series
of related transactions any shares of Common Stock, Junior Dividend Stock or
Junior Liquidation Stock if the number of shares so repurchased, redeemed or
otherwise acquired in such transaction or series of related transactions
(excluding any Option Share Surrender) is more than either (x) 5.0% of the
number of shares of Common Stock, Junior Dividend Stock or Junior Liquidation
Stock, as the case may be, outstanding immediately prior to such transaction or
series of related transactions or (y) 1% of the number of shares of Common
Stock, Junior Dividend Stock or Junior Liquidation Stock, as the case may be,
outstanding immediately prior to such transaction or series of related
transactions if such transaction or series of related transactions is with any
one Person or group of affiliated Persons, unless (x) at the time of such
redemption, repurchase or acquisition the Registration Statement is effective
and available for use by the holders of shares of Series A Preferred Stock named
as selling stockholders in the Registration Statement, (y) no Optional
Redemption Event or Registration Repurchase Event shall have occurred and (z)
the Corporation or such subsidiary offers to purchase for cash from each holder
of shares of Series A Preferred 


                                      -14-
<PAGE>   15
Stock at the time of such redemption, repurchase or acquisition the same
percentage of such holder's shares of Series A Preferred Stock as the percentage
of the number of outstanding shares of Common Stock, Junior Dividend Stock or
Junior Liquidation Stock, as the case may be, to be so redeemed, repurchased or
acquired at a purchase price per share of Series A Preferred Stock equal to the
product obtained by multiplying (1) the sum of (A) $1,000 plus (B) an amount
equal to the Accrual Amount on such share of Series A Preferred Stock to the
date of repurchase pursuant to Section 5(b) times (2) the Optional Redemption
Percentage which would be applicable to a redemption of a share of Series A
Preferred Stock pursuant to Sections 11(a) and 11(b) on the date of repurchase
pursuant to this Section 5(b) if such share were required to be redeemed by the
Corporation pursuant to Sections 11(a) and 11(b) on the date of repurchase
pursuant to this Section 5(b).

            (c) Neither the Corporation nor any subsidiary of the Corporation
shall (1) make any Tender Offer for outstanding shares of Common Stock, unless
the Corporation contemporaneously therewith makes an offer, or (2) enter into an
agreement regarding a Tender Offer for outstanding shares of Common Stock by any
Person other than the Corporation or any subsidiary of the Corporation, unless
such Person agrees with the Corporation to make an offer, in either such case to
each holder of outstanding shares of Series A Preferred Stock to purchase for
cash at the time of purchase in such Tender Offer the same percentage of shares
of Series A Preferred Stock held by such holder as the percentage of outstanding
shares of Common Stock offered to be purchased in such Tender Offer at a price
per share of Series A Preferred Stock equal to the greater of (i) the sum of (a)
the sum of (1) $1,000 plus (2) an amount equal to the Accrual Amount on such
share of Series A Preferred Stock to the date of purchase pursuant to this
Section 5(c) plus (b) an amount equal to the product obtained by multiplying (x)
the sum stated in the immediately preceding clauses (a)(1) and (a)(2) times (y)
the quotient (expressed as a percentage) obtained by dividing (A) the amount
determined by subtracting from 100 percent the applicable percentage which would
be used to determine the Conversion Price on the date of purchase pursuant to
such Tender Offer if a Conversion Notice were given by a holder of shares of
Series A Preferred Stock on such date by (B) the Conversion Price on the date of
purchase pursuant to such Tender Offer if a Conversion Notice were given by a
holder of shares of Series A Preferred Stock on such date and (ii) an amount
equal to the product obtained by multiplying (x) the number of shares of Common
Stock which would, but for the purchase pursuant to such Tender Offer, be
issuable on conversion in accordance with Section 10(a) of one share of Series A
Preferred Stock if a Conversion Notice were given by the holder of such share of
Series A Preferred Stock on the date of purchase pursuant to such Tender Offer
(determined without regard to any limitation on beneficial ownership contained
in the second sentence of Section 10(a)) times (y) the price per share of Common
Stock offered in such Tender Offer.

            SECTION 6. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series A Preferred Stock shall be entitled to receive out of the
assets of the Corporation, whether such assets constitute stated capital or
surplus of any nature, an amount per share of Series A Preferred Stock equal to
the Liquidation Preference, and no more, before any payment shall be made or any
assets distributed to the holders of Junior Liquidation Stock; provided,
however, that such rights shall accrue to the holders of Series A Preferred
Stock only in the event that the Corporation's payments with respect to the
liquidation preference of the holders of Senior Liquidation Stock are fully met.
After the liquidation preferences of the Senior Liquidation Stock are fully met,
the entire assets of the Corporation available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock and any
Parity Liquidation Stock in proportion to the respective preferential amounts to
which each is entitled (but only to the extent of such preferential amounts).
After payment in full of the liquidation price of the shares of the Series A
Preferred Stock and the Parity Liquidation Stock, the holders of such shares
shall not be entitled to any further participation in any distribution of assets
by the Corporation. Neither a consolidation or merger of the Corporation with
another corporation nor 


                                      -15-
<PAGE>   16
a sale or transfer of all or part of the Corporation's assets for cash,
securities, or other property in and of itself will be considered a liquidation,
dissolution, or winding up of the Corporation.

            SECTION 7.  MANDATORY REDEMPTION.

            (a) MANDATORY REDEMPTION BASED ON MAXIMUM SHARE AMOUNT. (1) (A)
Notwithstanding any other provision herein, unless the Stockholder Approval
shall have been obtained from the stockholders of the Corporation or waived by
the AMEX, the Corporation shall not be required to issue upon conversion of
shares of Series A Preferred Stock pursuant to Section 10 more than the Maximum
Share Amount. The Maximum Share Amount shall be allocated among the shares of
Series A Preferred Stock at the time of initial issuance thereof pro rata based
on the total number of authorized shares of Series A Preferred Stock provided in
Section 2. Each certificate for shares of Series A Preferred Stock initially
issued shall bear a notation as to the number of shares constituting the portion
of the Maximum Share Amount allocated to the shares of Series A Preferred Stock
represented by such certificate for purposes of conversion thereof. Upon
original issuance of any shares of Series A Preferred Stock, the certificate
therefor shall bear a notation as to the Stockholder Approval Portion of the
shares evidenced by such certificate.

            (B) Upon surrender of any certificate for shares of Series A
Preferred Stock for transfer or re-registration thereof (or, at the option of
the holder of such certificate, for conversion pursuant to Section 10(a) of less
than all of the shares of Series A Preferred Stock represented thereby), the
Corporation shall make a notation on the new certificate issued upon such
transfer or re-registration or evidencing such unconverted shares, as the case
may be, as to the number of shares of Common Stock from the Maximum Share Amount
remaining available for conversion of the shares of Series A Preferred Stock
evidenced by such new certificate. If any certificate for shares of Series A
Preferred Stock is surrendered for split-up into two or more certificates
representing an aggregate number of shares of Series A Preferred Stock equal to
the number of shares of Series A Preferred Stock represented by the certificate
so surrendered (as reduced by any contemporaneous conversion of shares of Series
A Preferred Stock represented by the certificate so surrendered), each
certificate issued on such split-up shall bear a notation of the portion of the
Maximum Share Amount and the Stockholder Approval Portion allocated thereto
determined by pro rata allocation of the remaining portion of the Maximum Share
Amount allocated to the certificate so surrendered and pro rata allocation of
the Stockholder Approval Portion of the certificate so surrendered. If any
shares of Series A Preferred Stock represented by a single certificate are
converted in full pursuant to Section 10, all of the portion of the Maximum
Share Amount allocated to such shares of Series A Preferred Stock which remains
unissued after such conversion shall be re-allocated pro rata to the outstanding
shares of Series A Preferred Stock held of record by the holder of record at the
close of business on the date of such conversion of the shares of Series A
Preferred Stock so converted, and if there shall be no other shares of Series A
Preferred Stock held of record by such holder at the close of business on such
date, then such portion of the Maximum Share Amount shall be allocated pro rata
among the shares of Series A Preferred Stock outstanding at the close of
business on such date.

            (2) (A) If (x) a Maximum Share Amount Inconvertibility occurs then,
unless the Stockholder Approval shall have been obtained from the stockholders
of the Corporation or waived by the AMEX, the Corporation shall and (y) if a
Registration Restriction Inconvertibility occurs, then the Corporation shall, in
each such case promptly, but in no event later than five Business Days after
each such occurrence, give an Inconvertibility Notice to each holder of shares
of Series A Preferred Stock (by telephone line facsimile transmission at such
number as such holder of shares of Series A Preferred Stock has specified in
writing to the Corporation for such purposes or, if such holder of shares of
Series A Preferred Stock shall not have specified any such number, by overnight
courier or first class mail, postage prepaid, at such holder's 


                                      -16-
<PAGE>   17
address as the same appears on the stock books of the Corporation) and any
holder of shares of Series A Preferred Stock may at any time after such
occurrence give an Inconvertibility Notice to the Corporation. If the
Corporation shall have given or been required to give any Inconvertibility
Notice, or if a holder of Series A Preferred Stock shall have given any
Inconvertibility Notice, then within the applicable Redemption Election Period
the holder receiving or giving or entitled to receive, as the case may be, such
Inconvertibility Notice shall have the right by a Redemption Election given to
the Corporation (which may be contained in the Inconvertibility Notice given by
such holder) to direct the Corporation to redeem the portion of such holder's
outstanding shares of Series A Preferred Stock (which, if applicable, shall be
all of such holder's outstanding shares of Series A Preferred Stock) as shall
not, on the Business Day prior to the date of such redemption, (x) be
convertible into shares of Common Stock by reason of a Maximum Share Amount
Inconvertibility or (y) be convertible into shares of Common Stock which are
covered by the Registration Statement and available for sale by such holder
pursuant to the Registration Statement by reason of a Registration Restriction
Inconvertibility, in each such case, within five Business Days after such holder
gives a Redemption Election to the Corporation, at a price per share equal to
the Share Limitation Redemption Price; provided, however, that (1) no such
redemption shall be made with respect to a Registration Restriction
Inconvertibility if, prior to the expiration of the applicable Redemption
Election Period, the Corporation and such holder shall, by a Mandatory
Redemption Waiver, waive the Corporation's obligation to make such redemption
and (2) if (i) the Registration Statement is and remains effective and available
for use by holders of shares of Series A Preferred Stock for resale of the
shares of Common Stock which are covered by the Registration Statement, (ii) the
Corporation files with the SEC an additional Registration Statement as and when
required by Section 8(b)(1) of the Subscription Agreements and (iii) the
Corporation maintains Net Cash and Cash Equivalent Balances at least equal to
three times the Corporation's Quarterly Cash Requirements, then the Corporation
shall not be required to redeem any shares of Series A Preferred Stock by reason
of a particular Registration Restriction Inconvertibility prior to the date
which is 45 days after such Registration Restriction Inconvertibility first
occurs. If a holder of shares of Series A Preferred Stock gives a Redemption
Election to the Corporation by reason of a Maximum Share Amount Inconvertibility
and, prior to the date the Corporation is required to redeem such holder's
shares of Series A Preferred Stock, the Corporation would have been able, within
the limitations set forth in Section 7(a)(1), to convert all of such holder's
outstanding shares of Series A Preferred Stock (determined without regard to the
limitation, if any, on such holder contained in the second sentence of Section
10(a)) on any two Trading Days within any period of three consecutive Trading
Days commencing after the period of ten consecutive Trading Days which gave rise
to the applicable Inconvertibility Notice from the Corporation or such holder of
shares of Series A Preferred Stock, as the case may be, had such holder given a
Conversion Notice for all of such holder's outstanding shares of Series A
Preferred Stock on each of such two Trading Days within such three-Trading Day
period, then the Corporation shall not be required to redeem any shares of
Series A Preferred Stock held by such holder by reason of such Inconvertibility
Notice.

            (B) An Inconvertibility Notice or a Redemption Election given by a
holder of shares of Series A Preferred Stock shall be deemed for all purposes to
be in proper form unless the Corporation notifies such holder in writing within
three Business Days after an Inconvertibility Notice or a Redemption Election
has been given (which notice shall specify all defects in the Inconvertibility
Notice or Redemption Election), and any Inconvertibility Notice or Redemption
Election containing any such defect shall nonetheless be effective on the date
given if such holder promptly undertakes in writing to correct all such defects.
In the absence of any such undertaking from such holder, no such claim of error
shall limit or delay performance of the Corporation's obligation to redeem all
inconvertible shares of Series A Preferred Stock as to which a Redemption
Election has been given and which shares are not in dispute.

            (3) Notwithstanding the giving of any Inconvertibility Notice by the
Corporation to one or more holders of Series A Preferred Stock or the giving or
the absence of 


                                      -17-
<PAGE>   18
any Inconvertibility Notice or Redemption Election by one or more holders of the
Series A Preferred Stock or any redemption of shares of Series A Preferred Stock
pursuant to Section 7(a)(2), thereafter the provisions of Section 7(a)(2) shall
continue to be applicable on any occasion unless, in the case of a Maximum Share
Amount Inconvertibility, the Stockholder Approval shall have been obtained or
waived by the AMEX.

            (4) On each Share Limitation Redemption Date (or such later date as
a holder surrenders such holder's certificate(s) for shares of Series A
Preferred Stock redeemed), the Corporation shall make payment in immediately
available funds of the applicable Share Limitation Redemption Price to the
holder of shares of Series A Preferred Stock to be redeemed to such account as
specified by such holder in writing to the Corporation at least one Business Day
prior to such Share Limitation Redemption Date. A holder of shares of Series A
Preferred Stock which are redeemed pursuant to this Section 7(a) shall not be
entitled to payment of the Share Limitation Redemption Price of such shares of
Series A Preferred Stock until such holder shall have surrendered the
certificate(s) for such shares of Series A Preferred Stock to the Corporation
or, in the case of the loss, theft or destruction of any such certificate, given
indemnity in accordance with Section 15(b). In connection with a redemption of
less than all of the shares of Series A Preferred Stock evidenced by a
particular certificate, promptly, but in no event later than three Trading Days
after surrender of such certificate to the Corporation, the Corporation shall
issue a replacement certificate for the shares of Series A Preferred Stock
evidenced by such certificate which have not been redeemed. Only whole shares of
Series A Preferred Stock may be redeemed. If the Corporation shall fail to pay
the Share Limitation Redemption Price of any shares of Series A Preferred Stock
in full when due, then the amount thereof shall bear interest to the extent not
prohibited by applicable law at the rate of 12% per annum from the due date
thereof until paid in full.

            (5) If the Corporation shall have failed to pay in full the Share
Limitation Redemption Price (other than by reason of a Maximum Share Amount
Inconvertibility), the Optional Redemption Price or the Registration Redemption
Price for any share of Series A Preferred Stock when the same is due and
payable, without in any way relieving the Corporation of its obligation to pay
such amount in accordance herewith (except to the extent expressly provided in
Section 7(a)(7)), the holder of such share of Series A Preferred Stock shall
have the right to convert such share of Series A Preferred Stock into Common
Stock in accordance with Section 10(a) (subject to the numerical limit contained
in the second sentence of Section (10(a)); provided, however, that the shares of
Common Stock received by the holder upon any such conversion in certain
circumstances may be subject to restrictions on resale by such holder arising
under applicable securities laws to the extent not registered for resale by the
holder pursuant to the Registration Statement.

            (6) If the Corporation shall have failed to pay in full the Share
Limitation Redemption Price for any portion (which, if applicable, may be all)
of any holder's shares of Series A Preferred Stock when the same is due and
payable by reason of a Maximum Share Amount Inconvertibility and the Stockholder
Approval shall not have been obtained, without in any way relieving the
Corporation of its obligation to pay such amount in accordance herewith (except
to the extent expressly provided in Section 7(a)(7)), upon the written request
of the Majority Holders, the Corporation shall use its best efforts to obtain a
waiver from AMEX (or such other principal securities exchange on which the
Common Stock is listed at such time) of the requirement for Stockholder Approval
for issuance of all shares of Common Stock issuable upon conversion of the
Series A Preferred Stock. If such waiver, in form reasonably satisfactory to the
Majority Holders, is not obtained within 15 days after the Corporation's receipt
of such request from the Majority Holders, and such Maximum Share Amount
Inconvertibility occurs on or after June 20, 1998, then the Corporation promptly
shall call a special meeting of its stockholders, to be held not later than 60
days after the expiration of the foregoing 15-day period, to seek the
Stockholder Approval for issuance of all shares of Common Stock issuable upon


                                      -18-
<PAGE>   19
conversion of the Series A Preferred Stock in accordance with Section 10.

            (7) If a holder of shares of Series A Preferred Stock converts all
or any portion of such holder's shares of Series A Preferred Stock pursuant to
Section 7(a)(5), the amount of the Share Limitation Redemption Price or the
Registration Redemption Price, as the case may be, due to such holder with
respect to the number of shares of Series A Preferred Stock so converted shall
be reduced by $1,000 for each share of Series A Preferred Stock so converted.

            (b) REDEMPTION BY REASON OF ABSENCE OF STOCKHOLDER APPROVAL. (1) If
on or before June 30, 1998, the Corporation shall not have obtained the
Stockholder Approval or a waiver by the AMEX of the requirement for the
Stockholder Approval, then each holder of shares of Series A Preferred Stock
shall have the right, at such holder's option, to require the Corporation to
redeem from such holder all or any portion of a number of shares of Series A
Preferred Stock equal to the lesser of (x) such holder's Stockholder Approval
Portion and (y) the number of outstanding shares of Series A Preferred Stock
held by such holder on the Stockholder Approval Redemption Date, in either such
case at a price per share of Series A Preferred Stock equal to the Stockholder
Approval Redemption Price. A holder may exercise such right by giving to the
Corporation a Stockholder Approval Redemption Notice at any time after June 30,
1998 and any such redemption shall be made by payment by the Corporation to such
holder by wire transfer of immediately available funds to such account as shall
be specified for such purpose by such holder of an amount equal to the aggregate
Stockholder Approval Redemption Price of all shares of Series A Preferred Stock
to be redeemed from such holder on the applicable Stockholder Approval
Redemption Date (or such later date as such holder surrenders such holder's
certificate(s) for shares of Series A Preferred stock redeemed). A Stockholder
Approved Redemption Notice may be revoked by the holder giving such Stockholder
Approval Redemption Notice by giving notice of such revocation to the
Corporation at any time prior to the time the Corporation pays the Stockholder
Approval Redemption Price to such holder.

            (2) A holder of shares of Series A Preferred Stock which are
redeemed pursuant to this Section 7(b) shall not be entitled to payment of the
Stockholder Approval Redemption Price of such shares of Series A Preferred Stock
until such holder shall have surrendered the certificate(s) for such shares of
Series A Preferred Stock to the Corporation or, in the case of the loss, theft
or destruction of any such certificate, given indemnity in accordance with
Section 15(b). In connection with a redemption pursuant to this Section 9(b) of
less than all of the shares of Series A Preferred Stock evidenced by a
particular certificate, promptly, but in no event later than three Business Days
after surrender of such certificate to the Corporation, the Corporation shall
issue and deliver to such holder a replacement certificate for the shares of
Series A Preferred Stock evidenced by such certificate which have not been
redeemed. If the Corporation shall fail to pay the Stockholder Approval
Redemption Price of any shares of Series A Preferred Stock in full when due,
then the amount thereof shall bear interest to the extent not prohibited by
applicable law at the rate of 12% per annum from the due date thereof until paid
in full.

            (3) A Stockholder Approval Redemption Notice given by a holder of
shares of Series A Preferred Stock shall be deemed for all purposes to be in
proper form unless the Corporation notifies such holder in writing within three
Business Days after such Stockholder Approval Redemption Notice has been given
(which notice shall specify all defects in the Stockholder Approval Redemption
Notice), and any Stockholder Approval Redemption Notice containing any such
defect shall nonetheless be effective on the date given if such holder promptly
undertakes in writing to correct all such defects. In the absence of any such
undertaking from such holders, no such claim of error shall limit or delay
performance of the Corporation's obligation to redeem all shares of Series A
Preferred Stock not in dispute. If the Corporation shall fail to pay the
Stockholder Approval Redemption Price in full to any holder of shares of Series
A Preferred Stock when due, then the amount thereof shall bear interest to the


                                      -19-
<PAGE>   20
extent not prohibited by applicable law at the rate of 12% per annum from the
due date thereof until paid in full.

            (c)   NO OTHER MANDATORY REDEMPTION.  The shares of Series A
Preferred Stock shall not be subject to mandatory redemption by the Corporation
except as provided in this Section 7 and in Section 11.

            SECTION 8. NO SINKING FUND. The shares of Series A Preferred Stock
shall not be entitled to the benefits of any sinking fund for the redemption or
repurchase of shares of Series A Preferred Stock.

            SECTION 9. REDEMPTION AT OPTION OF CORPORATION.

            (a) OPTIONAL REDEMPTION. (1) So long as (w) the Corporation shall be
in compliance in all material respects with its obligations to the holders of
the Series A Preferred Stock (including its obligations under the Subscription
Agreements and the provisions of this Certificate of Designations), (x) the
Registration Statement shall be effective on the date the Corporation gives the
Redemption Notice and on the Redemption Date, (y) no Registration Redemption
Event shall have occurred with respect to which any holder of shares of Series A
Preferred Stock shall have exercised redemption rights under Section 11(c) and
the Registration Redemption Price shall not have been paid and no Optional
Redemption Event shall have occurred with respect to which on the Redemption
Date any holder of shares of Series A Preferred Stock shall be entitled to
exercise redemption rights under Sections 11(a) and 11(b) or with respect to
which any holder of shares of Series A Preferred Stock shall have exercised such
rights and the Optional Redemption Price shall not have been paid and (z) on the
date the Corporation gives the Redemption Notice and on the Redemption Date, the
Corporation has Cash and Cash Equivalent Balances which are sufficient, after
taking into account the Corporation's cash requirements during the period from
the date the Redemption Notice is given to the Redemption Date, to pay the
Redemption Price of the shares of Series A Preferred Stock to be redeemed, the
Corporation shall have the right to redeem all or any part of the outstanding
shares of Series A Preferred Stock pursuant to this Section 9(a) at the
Redemption Price. In order to exercise it right of redemption under this Section
9(a), the Corporation shall give a Redemption Notice to the holders of shares of
Series A Preferred Stock not less than 30 or more than 60 days prior to the
Redemption Date. On the Redemption Date (or such later date as a holder of
shares of Series A Preferred Stock shall surrender to the Corporation the
certificate(s) for the shares of Series A Preferred Stock redeemed), the
Corporation shall pay to or upon the order of each holder of shares of Series A
Preferred Stock by wire transfer of immediately available funds to such account
as shall be specified for such purpose by such holder in an amount equal to the
Redemption Price of all of such holder's shares of Series A Preferred Stock to
be redeemed. A holder of shares of Series A Preferred Stock which are redeemed
pursuant to this Section 9(a) shall not be entitled to payment of the Redemption
Price of such shares of Series A Preferred Stock until such holder shall have
surrendered the certificate(s) for such shares of Series A Preferred Stock to
the Corporation or, in the case of the loss, theft or destruction of any such
certificate, given indemnity in accordance with Section 15(b). If the
Corporation shall fail to pay the Redemption Price of any shares of Series A
Preferred Stock in full when due, then the amount thereof shall bear interest to
the extent not prohibited by applicable law at the rate of 18% per annum from
the due date thereof until paid in full.

            (2) Notwithstanding the giving of a Redemption Notice, each holder
of shares of Series A Preferred Stock shall be entitled to convert in accordance
with Section 10 any shares of Series A Preferred Stock which are to be redeemed
at any time prior to (1) the Redemption Date or (2) if the Corporation fails to
pay the Redemption Price in full to such holder on the Redemption Date, the date
on which the Corporation pays the Redemption Price in full to such holder for
all shares of Series A Preferred Stock to be redeemed from such holder.


                                      -20-
<PAGE>   21
            (3) Any redemption of shares of Series A Preferred Stock pursuant to
this Section 9(a) shall be made as nearly as practical pro rata from all holders
of shares of Series A Preferred Stock outstanding.

            (4) Upon receipt by the Corporation from a holder of shares of
Series A Preferred Stock of certificates for shares of Series A Preferred Stock
evidencing a greater number of shares of Series A Preferred Stock than the
number of shares of Series A Preferred Stock to be redeemed in accordance with
this Section 9(a), the Corporation shall, within three Trading Days after such
surrender, issue and deliver to or upon the order of such holder a new
certificate for the balance of shares of Series A Preferred Stock, if any.

            (b) NO OTHER REDEMPTION AT THE OPTION OF THE CORPORATION. Except as
otherwise specifically provided in Section 9(a), the Corporation shall not have
any right to redeem any shares of Series A Preferred Stock at the option of the
Corporation.

            SECTION 10. CONVERSION.

            (a) CONVERSION AT OPTION OF HOLDER. The holders of the Series A
Preferred Stock may convert at any time all or from time to time any part of
their outstanding shares of Series A Preferred Stock consisting of at least 15
shares of Series A Preferred Stock (or such smaller number of shares held by a
holder) into fully paid and nonassessable shares of Common Stock and such other
securities and property as hereinafter provided. Commencing on the Issuance
Date, and at any time thereafter, each share of Series A Preferred Stock may be
converted at the office of the Conversion Agent or at such other additional
office or offices, if any, as the Board of Directors may designate, into such
number of fully paid and nonassessable shares of Common Stock (calculated as to
each conversion to the nearest 1/100th of a share) determined by dividing (x)
the sum of (i) $1,000 plus (ii) an amount equal to the Accrual Amount on the
share of Series A Preferred Stock being converted to the applicable Conversion
Date by (y) the Conversion Price on the applicable Conversion Date; provided,
however, that in no event shall any holder of shares of Series A Preferred Stock
be entitled to convert any shares of Series A Preferred Stock in excess of that
number of shares of Series A Preferred Stock upon conversion of which the sum of
(1) the number of shares of Common Stock beneficially owned by such holder
(including shares of Common Stock beneficially owned by all Aggregated Persons
of such holder) (other than shares of Common Stock deemed beneficially owned by
such holder or any Aggregated Person of such holder through the ownership of (x)
unconverted shares of Series A Preferred Stock and (y) the unconverted or
unexercised portion of any instrument which contains limitations similar to
those set forth in this sentence) and (2) the number of shares of Common Stock
issuable upon the conversion of the number of shares of Series A Preferred Stock
with respect to which the determination in this proviso is being made, would
result in beneficial ownership by such holder and all Aggregated Persons of such
holder of more than 4.9% of the outstanding shares of Common Stock. For purposes
of the proviso to the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the 1934 Act and Regulation
13D-G thereunder, except as otherwise provided in clause (1) of the proviso to
the immediately preceding sentence. For purposes of the proviso to the second
preceding sentence, the Corporation shall be entitled to rely, and shall be
fully protected in relying, on any statement or representation made by a holder
of shares of Series A Preferred Stock to the Corporation in connection with a
particular conversion, without any obligation on the part of the Corporation to
make any inquiry or investigation or to examine its records or the records of
any transfer agent for the Common Stock and without any liability of the
Corporation with respect thereto.

            (b) OTHER PROVISIONS. (1) The holders of shares of Series A
Preferred Stock at the close of business on the record date for any dividend
payment to holders of Series A 


                                      -21-
<PAGE>   22
Preferred Stock shall be entitled to receive the dividend payable on such shares
on the corresponding dividend payment date notwithstanding the conversion
thereof after the record date for such dividend payment or the Corporation's
default in payment of the dividend due on such dividend payment date; provided,
however, that the holder of shares of Series A Preferred Stock converted during
the period between the close of business on any record date for a dividend
payment and the opening of business on the corresponding dividend payment date
must pay to the Corporation, within five days after receipt by such holder, an
amount equal to the dividend payable on such shares on such dividend payment
date if such dividend is paid by the Corporation to such holder. A holder of
shares of Series A Preferred Stock on a record date for a dividend payment who
(or whose transferee) converts any of such shares into shares of Common Stock on
or after such dividend payment date will receive the dividend payable by the
Corporation on such shares of Series A Preferred Stock on such dividend payment
date, and the converting holder need not make any payment of the amount of such
dividend in connection with such conversion of shares of Series A Preferred
Stock. Except as provided above, no adjustment shall be made in respect of cash
dividends on Common Stock or Series A Preferred Stock that may be accrued and
unpaid at the date of conversion of shares of Series A Preferred Stock.

            (2) The right of the holders of Series A Preferred Stock to convert
their shares shall be exercised by delivering (which may be made by telephone
line facsimile transmission) a Conversion Notice to the Conversion Agent at the
address or telephone line facsimile transmission number provided in or pursuant
to the Conversion Agent Agreement. The number of shares of Common Stock to be
issued upon each conversion of shares of Series A Preferred Stock shall be the
number set forth in the applicable Conversion Notice, which number shall be
conclusive absent manifest error. The Corporation shall notify a holder who has
given a Conversion Notice of any claim of manifest error within one Trading Day
after such holder gives such Conversion Notice, and no such claim of error shall
limit or delay performance of the Corporation's obligation to issue upon such
conversion the number of shares of Common Stock which are not in dispute. A
Conversion Notice shall be deemed for all purposes to be in proper form unless
the Corporation notifies a holder of shares of Series A Preferred Stock being
converted within one Trading Day after a Conversion Notice has been given (which
notice shall specify all defects in such Conversion Notice), and any Conversion
Notice containing any such defect shall nonetheless be effective on the date
given if the converting holder agrees to correct all such defects promptly.

            (3) If a holder of Series A Preferred Stock elects to convert any
shares of Series A Preferred Stock in accordance with Section 10(a), such holder
shall not be required to surrender the certificate(s) representing such shares
of Series A Preferred Stock physically to the Corporation unless all of the
shares of Series A Preferred Stock represented thereby are so converted. Each
holder of shares of Series A Preferred Stock and the Corporation shall maintain
records showing the number of shares so converted and the dates of such
conversions or shall use such other method, satisfactory to such holder and the
Corporation, so as to not require physical surrender of such certificates upon
each such conversion. In the event of any dispute or discrepancy, such records
of the Corporation shall be controlling and determinative in the absence of
manifest error. Notwithstanding the foregoing, if any shares of Series A
Preferred Stock evidenced by a particular certificate therefor are converted as
aforesaid, the holder of Series A Preferred Stock may not transfer the
certificate(s) representing such shares of Series A Preferred Stock unless such
holder first physically surrenders such certificate(s) to the Corporation,
whereupon the Corporation will forthwith issue and deliver upon the order of
such holder of shares of Series A Preferred Stock new certificate(s) of like
tenor, registered as such holder of shares of Series A Preferred Stock (upon
payment by such holder of shares of Series A Preferred Stock of any applicable
transfer taxes) may request, representing in the aggregate the remaining number
of shares of Series A Preferred Stock represented by such certificate(s);
provided, however, that as a condition precedent to issuing any such
certificate(s) in any name other than that of the holder of record of the
certificate(s) so surrendered, the Corporation may 


                                      -22-
<PAGE>   23
require such proposed new holder of record to acknowledge in writing the number
of shares of Series A Preferred Stock to be represented by such new
certificate(s). Each holder of shares of Series A Preferred Stock, by acceptance
of a certificate for such shares, acknowledges and agrees that (1) by reason of
the provisions of this paragraph, following conversion of any shares of Series A
Preferred Stock represented by such certificate, the number of shares of Series
A Preferred Stock represented by such certificate may be less than the number of
shares stated on such certificate and by reason of Section 7(a), the number of
shares of Common Stock from the Maximum Share Amount allocated to the shares of
Series A Preferred Stock represented by such certificate for purposes of
conversion of such shares may be less than the number thereof stated on such
certificate and (2) the Corporation may place one or more legends on the
certificates for shares of Series A Preferred Stock which refers to or describes
the provisions of this paragraph and Section 7(a).

            (4) The Corporation shall pay any transfer tax arising in connection
with any conversion of shares of Series A Preferred Stock except that the
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery upon conversion of
shares of Common Stock or other securities or property in a name other than that
of the holder of the shares of the Series A Preferred Stock being converted as
shown on the stock books of the Corporation, and the Corporation shall not be
required to issue or deliver any such shares or other securities or property
unless and until the Person or Persons requesting the issuance thereof shall
have paid to the Corporation the amount of any such tax or shall have
established to the satisfaction of the Corporation that such tax has been paid.

            (5) The Corporation (and any successor corporation) shall take all
action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series A Preferred Stock
outstanding upon the basis hereinbefore provided are at all times reserved by
the Corporation (or any successor corporation), free from preemptive rights, for
such conversion, subject to the provisions of the next succeeding paragraph. If
the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series A Preferred Stock shall be convertible as herein
provided, the Corporation shall at the same time also make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Series A Preferred Stock on the new basis. If at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all of the outstanding shares of Series A Preferred
Stock, the Corporation promptly shall seek such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.

            (6) (A) In case of any consolidation or merger of the Corporation
with any other corporation (other than a wholly-owned subsidiary of the
Corporation) in which the Corporation is not the surviving corporation, or in
case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in the case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the Corporation shall make appropriate provision or cause appropriate
provision to be made so that each holder of shares of Series A Preferred Stock
then outstanding shall have the right thereafter to convert such shares of
Series A Preferred Stock into the kind of shares of stock and other securities
and property receivable upon such consolidation, merger, sale, transfer, or
share exchange by a holder of shares of Common Stock into which such shares of
Series A Preferred Stock could have been converted immediately prior to the
effective date of such consolidation, merger, sale, transfer, or share exchange
and on a basis which preserves the economic benefits of the conversion rights of
the holders of shares of Series A Preferred Stock 


                                      -23-
<PAGE>   24
on a basis as nearly as practical as such rights exist hereunder prior thereto.
If, in connection with any such consolidation, merger, sale, transfer, or share
exchange, each holder of shares of Common Stock is entitled to elect to receive
securities, cash, or other assets upon completion of such transaction, the
Corporation shall provide or cause to be provided to each holder of Series A
Preferred Stock the right to elect the securities, cash, or other assets into
which the Series A Preferred Stock held by such holder shall be convertible
after completion of any such transaction on the same terms and subject to the
same conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to exercise the
election). Notwithstanding the forgoing, in connection with any such merger,
consolidation, sale, transfer or exchange, the Corporation shall have the right,
in lieu of making provision for preservation of economic benefits of the
conversion rights of the holders of shares of Series A Preferred Stock, to
redeem all outstanding shares of Series A Preferred Stock immediately after
completion of such transaction at a redemption price per share of Series A
Preferred Stock in cash equal to the product obtained by multiplying (A) the sum
of (i) $1,000 plus (ii) an amount equal to the Accrual Amount on the share of
Series A Preferred Stock to be redeemed to the date of payment of the redemption
price times (B) the applicable Business Combination Redemption Percentage. Such
right of redemption shall be exercised by notice from the Corporation to the
holders of shares of Series A Preferred Stock stating that the Corporation is
exercising its redemption right under this Section 10(b)(6), which notice shall
be given at least 20 Trading Days and not more than 30 Trading Days prior to
completion of such transaction and shall specify that such redemption shall
occur on the Business Day immediately following the date of completion of such
transaction. On the date specified in such notice (or such later date as a
holder of shares of Series A Preferred Stock surrenders such holder's
certificates for shares of Series A Preferred Stock redeemed) the Corporation
shall make payment in immediately available funds of the applicable Business
Combination Redemption Price to each holder of shares of Series A Preferred
Stock to be redeemed to such account as specified by such holder in writing to
the Corporation at least one Business Day prior to such payment of the Business
Combination Redemption Price. A holder of shares of Series A Preferred Stock
which are redeemed pursuant to this Section 10(b)(6) shall not be entitled to
payment of the Business Combination Redemption Price of such shares of Series A
Preferred Stock until such holder shall have surrendered the certificate(s) for
such shares of Series A Preferred Stock to the Corporation or, in the case of
the loss, theft or destruction of any such certificate, given indemnity in
accordance with Section 15(b). If the Corporation shall fail to pay the Business
Combination Redemption Price of any shares of Series A Preferred Stock in full
when due, then the amount thereof shall bear interest to the extent not
prohibited by applicable law at the rate of 12% per annum from the due date
thereof until paid in full. Notwithstanding the giving of a notice of redemption
pursuant to this Section 10(b)(6), each holder of shares of Series A Preferred
Stock shall be entitled to convert in accordance with this Section 10 any shares
of Series A Preferred Stock which are to be redeemed at any time prior to (1)
the redemption date specified in the notice of redemption or (2) if the
Corporation fails to pay the Business Combination Redemption Price in full to
such holder when due, the date on which the Corporation pays the Business
Combination Redemption Price in full to such holder for all shares of Series A
Preferred Stock to be redeemed from such holder. The Corporation shall not
effect any such transaction unless it shall have complied with the provisions of
this paragraph. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, or share exchanges.

            (B) Whenever the Corporation shall propose to take any of the
actions specified in this Section 10(b)(6), the Corporation shall cause a notice
to be mailed at least 20 days prior to the date on which the books of the
Corporation will close or on which the security holders entitled to participate
in such transaction will be determined, to the holders of record of the
outstanding Series A Preferred Stock on the date of such notice. Such notice
shall specify the action proposed to be taken by the Corporation and the date as
of which holders of record of the Common Stock shall participate in any such
actions or be entitled to exchange their Common 


                                      -24-
<PAGE>   25
Stock for securities or other property, as the case may be.

            (7) Upon receipt by the Conversion Agent from a holder of shares of
Series A Preferred Stock of a Conversion Notice, the Corporation shall issue and
deliver or cause to be issued and delivered to or upon the order of such holder
certificates for the Common Stock issuable upon such conversion by the close of
business on the third Trading Day after such Conversion Notice is received, and
as of the close of business on the date of such receipt such holder (or such
holder's assignee) shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, and all rights with respect to the shares
of Series A Preferred Stock so converted shall forthwith terminate except the
right to receive the Common Stock or other securities, cash, or other assets, as
herein provided, on such conversion. If a holder of Series A Preferred Stock
shall have given a Conversion Notice as provided herein, the Corporation's
obligation to issue and deliver the shares of Common Stock which are issuable
upon such conversion in accordance with the terms of this Certificate of
Designations shall be absolute and unconditional, irrespective of any action or
inaction by the converting holder to enforce the same, any waiver or consent
with respect to any provision thereof, the recovery of any judgment against any
Person or any action to enforce the same, any failure or delay in the
enforcement of any other obligation of the Corporation to the holder of record,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the holder or any other Person of any obligation to
the Corporation, or any violation or alleged violation of law by such holder or
any other Person, and irrespective of any other circumstance which might
otherwise limit such obligation of the Corporation to such holder in connection
with such conversion. If the Corporation fails to issue and deliver the
certificates for the Common Stock to the holder converting shares of Series A
Preferred Stock as and when required to do so, in addition to any other
liabilities the Corporation may have hereunder and under applicable law (1) the
Corporation shall pay or reimburse such holder on demand for all out-of-pocket
expenses, including, without limitation, reasonable fees and expenses of legal
counsel incurred by such holder as a result of such failure, (2) the percentage
used to calculate the Conversion Price applicable to such conversion shall be
reduced by one-tenth of a percentage point from the percentage otherwise used to
calculate the Conversion Price applicable to such conversion and (3) such holder
may by written notice (which may be given by mail, courier, personal service or
telephone line facsimile transmission) or oral notice (promptly confirmed in
writing) given at any time prior to delivery to such holder of the certificates
for the shares of Common Stock issuable upon such conversion of shares of Series
A Preferred Stock, rescind such conversion, whereupon such holder shall have the
right to convert such shares of Series A Preferred Stock thereafter in
accordance herewith; provided, however, that the Corporation shall not be liable
to a holder of shares of Series A Preferred Stock under the preceding clause (1)
or clause (2) to the extent the failure of the Corporation to deliver or cause
to be delivered such shares of Common Stock results from fire, flood, storm,
earthquake, shipwreck, strike, war, acts of terrorism, crash involving
facilities of a common carrier, act of God or any similar event outside the
control of the Corporation (it being understood that the actions or failure to
act of the Conversion Agent shall not be deemed an event outside the control of
the Corporation except to the extent resulting from fire, flood, storm,
earthquake, shipwreck, strike, war, acts of terrorism, crash involving
facilities of a common carrier, acts of God, the bankruptcy, liquidation or
reorganization of the Conversion Agent under any bankruptcy, insolvency or other
similar law or any similar event outside the control of the Conversion Agent). A
holder of shares of Series A Preferred Stock who has given a Conversion Notice
shall notify the Corporation in writing (or by telephone conversation, confirmed
in writing) as promptly as practicable after becoming aware that shares of
Common Stock issued on conversion of such holder's shares of Series A Preferred
Stock have not been received as provided in this Section 10(b)(7); provided,
however, that any failure by such holder so to notify the Corporation shall not
relieve the Corporation of its obligation to issue and deliver shares of Common
Stock upon conversion of shares of Series A Preferred Stock as and when required
by this Section 10.


                                      -25-
<PAGE>   26
            (8) No fractional shares of Common Stock shall be issued upon
conversion of Series A Preferred Stock but, in lieu of any fraction of a share
of Common Stock which would otherwise be issuable in respect of the aggregate
number of shares of Series A Preferred Stock surrendered for conversion at one
time by the same holder, the Corporation shall pay in cash to such holder at the
time of issuance of shares of Common Stock in connection with such conversion an
amount equal to the product of (i) the arithmetic average of the Market Price of
a share of Common Stock on the three consecutive Trading Days ending on the
Trading Day immediately preceding the Conversion Date times (ii) such fraction
of a share of Common Stock.

            SECTION 11. REDEMPTION UPON AN OPTIONAL REDEMPTION EVENT; ABSENCE OF
SEC REGISTRATION.

            (a) REDEMPTION RIGHT UPON OPTIONAL REDEMPTION EVENT. If an Optional
Redemption Event occurs, then each holder of shares of Series A Preferred Stock
shall have the right, at such holder's option, to require the Corporation to
redeem all of such holder's shares of Series A Preferred Stock, or any portion
thereof, on the date that is three Business Days after the date of the Holder
Notice given with respect to such Optional Redemption Event. Each holder of
shares of Series A Preferred Stock shall have the right to require the
Corporation to redeem all or any such portion of such holder's shares of Series
A Preferred Stock if an Optional Redemption Event occurs at any time while any
of such holder's shares of Series A Preferred Stock are outstanding at a price
equal to the Optional Redemption Price.

            (b) NOTICES; METHOD OF EXERCISING OPTIONAL REDEMPTION RIGHTS, ETC.
(1) On or before the fifth Business Day after the occurrence of an Optional
Redemption Event, the Corporation shall give to each holder of outstanding
shares of Series A Preferred Stock a Corporation Notice of the occurrence of
such Optional Redemption Event and of the redemption right set forth herein
arising as a result thereof. The Corporation Notice shall set forth:

      (i) the date by which the optional redemption right must be exercised, and

      (ii) a description of the procedure (set forth below) which each such
holder must follow to exercise such holder's optional redemption right.

No failure of the Corporation to give a Corporation Notice or defect therein
shall limit the right of any holder of shares of Series A Preferred Stock to
exercise the optional redemption right or affect the validity of the proceedings
for the redemption of such holder's shares of Series A Preferred Stock.

            (2) To exercise its optional redemption right, each holder of
outstanding shares of Series A Preferred Stock shall deliver to the Corporation
on or before the thirtieth day after a Corporation Notice is given to such
holder (or if no Corporation Notice has been given to such holder, within forty
days after such holder first learns of the Optional Redemption Event) a Holder
Notice to the Corporation setting forth the name of such holder, and number of
such holder's shares of Series A Preferred Stock to be redeemed. A Holder Notice
may be revoked by such holder giving such Holder Notice by giving notice of such
revocation to the Corporation at any time prior to the time the Corporation pays
the Optional Redemption Price to such holder.

            (3) If a holder of shares of Series A Preferred Stock shall have
given a Holder Notice, on the date which is three Business Days after the date
such Holder Notice is given (or such later date as such holder surrenders such
holder's certificates for the shares of Series A Preferred Stock redeemed) the
Corporation shall make payment in immediately available funds of the applicable
Optional Redemption Price to such account as specified by such holder in writing
to the Corporation at least one Business Day prior to the applicable redemption
date. A holder of shares of Series A Preferred Stock which are redeemed pursuant
to Sections 11(a) and 


                                      -26-
<PAGE>   27
11(b) shall not be entitled to payment of the Optional Redemption Price of such
shares of Series A Preferred Stock until such holder shall have surrendered the
certificate(s) for such shares of Series A Preferred Stock to the Corporation
or, in the case of the loss, theft or destruction of any such certificate, given
indemnity in accordance with Section 15(b).

            (c) REDEMPTION RIGHT FOR ABSENCE OF SEC REGISTRATION. If a
Registration Redemption Event occurs, then each holder of shares of Series A
Preferred Stock shall have the right by complying with the requirements of this
Section 11(c), at such holder's option, to require the Corporation to redeem all
of such holder's shares of Series A Preferred Stock, or from time to time any
portion thereof, by making payment of the Registration Redemption Price to such
holder in immediately available funds to such account as specified by such
holder by notice to the Corporation, on the date that is three Business Days
after the date a Holder Registration Redemption Notice is given by such holder
(or such later date as such holder surrenders to the Corporation the
certificate(s) for the shares of Series A Preferred Stock redeemed). A holder of
shares of Series A Preferred Stock shall exercise its right to require
redemption pursuant to this Section 11(c) by giving a Holder Registration
Redemption Notice at any time prior to the SEC Effective Date. If a holder of
shares of Series A Preferred Stock shall have given a Holder Registration
Redemption Notice, the Corporation shall redeem such holder's shares of Series A
Preferred Stock or the portion of such holder's shares of Series A Preferred
Stock as stated in such Holder Registration Redemption Notice at a price per
share equal to the Registration Redemption Price. A holder of shares of Series A
Preferred Stock which are redeemed pursuant to this Section 11(c) shall not be
entitled to payment of the Registration Redemption Price of such shares of
Series A Preferred Stock until such holder shall have surrendered the
certificate(s) for such shares of Series A Preferred Stock to the Corporation
or, in the case of the loss, theft or destruction of any such certificate, given
indemnity in accordance with Section 15(b). A Holder Registration Redemption
Notice may be revoked by the holder giving such Holder Registration Redemption
Notice by giving notice of such revocation to the Corporation at any time prior
to the time the Corporation pays the Registration Redemption Price to such
holder.

            (d) OTHER. (1) If the Corporation fails to pay in full when due the
Optional Redemption Price or the Registration Redemption Price, as the case may
be, for the number of shares of Series A Preferred Stock specified in a Holder
Notice or a Registration Redemption Notice, as the case may be, then the amount
thereof shall bear interest to the extent not prohibited by applicable law at
the rate of 12% per annum from the due date thereof until paid in full.

            (2) In connection with a redemption pursuant to this Section 11 of
less than all of the shares of Series A Preferred Stock evidenced by a
particular certificate, promptly, but in no event later than three Business Days
after surrender of such certificate to the Corporation, the Corporation shall
issue and deliver to such holder a replacement certificate for the shares of
Series A Preferred Stock evidenced by such certificate which have not been
redeemed.

            (3) A Holder Notice or a Holder Registration Redemption Notice given
by a holder of shares of Series A Preferred Stock shall be deemed for all
purposes to be in proper form unless the Corporation notifies such holder in
writing within three Business Days after such Holder Notice or Holder
Registration Redemption Notice has been given (which notice shall specify all
defects in the Holder Notice or Holder Registration Redemption Notice), and any
Holder Notice or Holder Registration Redemption Notice containing any such
defect shall nonetheless be effective on the date given if such holder promptly
undertakes in writing to correct all such defects. In the absence of any such
undertaking from such holder, no such claim of error shall limit or delay
performance of the Corporation's obligation to redeem all shares of Series A
Preferred Stock not in dispute.


                                      -27-
<PAGE>   28
            SECTION 12. VOTING RIGHTS; CERTAIN RESTRICTIONS.

            (a) VOTING RIGHTS. Except as otherwise required by law or expressly
provided herein, shares of Series A Preferred Stock shall not be entitled to
vote on any matter.

            (b) CERTIFICATE OF INCORPORATION; CERTAIN STOCK. The affirmative
vote or consent of the holders of a majority of the outstanding shares of the
Series A Preferred Stock, voting separately as a class, will be required for (1)
any amendment, alteration, or repeal, whether by merger or consolidation or
otherwise, of the Corporation's Restated Certificate of Incorporation if the
amendment, alteration, or repeal materially and adversely affects the powers,
preferences, or special rights of the Series A Preferred Stock, or (2) the
creation and issuance of any Senior Dividend Stock or Senior Liquidation Stock;
provided, however, that any increase in the authorized Preferred Stock of the
Corporation or the creation and issuance of any stock which is both Junior
Dividend Stock and Junior Liquidation Stock shall not be deemed to affect
materially and adversely such powers, preferences, or special rights and any
such increase or creation and issuance may be made without any such vote by the
holders of Series A Preferred Stock except as otherwise required by law; and
provided further, however, that no such amendment, alteration or repeal shall
(i) reduce the Optional Redemption Price, Redemption Price, Registration
Redemption Price, Share Limitation Redemption Price, Stockholder Approval
Redemption Price or the amount payable to a holder of shares of Series A
Preferred Stock pursuant to Section 5(b), 5(c) or 10(b)(6)(A), (ii) reduce the
percentage in, or otherwise change the definition of Majority Holders, (iii)
change the method of calculating the Conversion Price in a manner adverse to the
holders of shares of Series A Preferred Stock or reduce the number of shares of
Common Stock issuable upon any conversion of shares of Series A Preferred Stock
or (iv) amend, modify or repeal any provision of this Section 12(b), unless in
each such case referred to in the preceding clauses (i) through (iv) such
amendment, modification or repeal has been approved by the affirmative vote or
consent of the holders of all outstanding shares of Series A Preferred Stock,
voting separately or as a class.

            (c) REPURCHASES OF SERIES A PREFERRED STOCK. The Corporation shall
not repurchase or otherwise acquire any shares of Series A Preferred Stock
(other than pursuant to Section 7(a), Section 9(a) or Section 11) unless the
Corporation offers to repurchase or otherwise acquire simultaneously a pro rata
portion of each holder's shares of Series A Preferred Stock for cash at the same
price per share.

            (d) OTHER. So long as any shares of Series A Preferred Stock are
outstanding:

            (1) LIMITATION ON INDEBTEDNESS. During the period from the Issuance
Date through the date which is 360 days after the Issuance Date, the Corporation
will not itself, and will not permit any subsidiary of the Corporation to,
create, assume, incur, in any manner become liable in respect of, including,
without limitation, by reason of any business combination transaction, or suffer
to exist (all of which are referred to herein as "incurring"), any Indebtedness
other than Permitted Indebtedness.

            (2) PAYMENT OF OBLIGATIONS. The Corporation will pay and discharge,
and will cause each subsidiary of the Corporation to pay and discharge, when due
all their respective obligations and liabilities which are material to the
Corporation and its subsidiaries taken as a whole, including, without
limitation, tax liabilities, except where the same may be contested in good
faith by appropriate proceedings.

            (3) MAINTENANCE OF PROPERTY; INSURANCE. (A) The Corporation will
keep, and will cause each subsidiary of the Corporation to keep, all material
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.


                                      -28-
<PAGE>   29
            (B) The Corporation will maintain, and will cause each subsidiary of
the Corporation to maintain, with financially sound and responsible insurance
companies, insurance against loss or damage by fire or other casualty and such
other insurance, including but not limited to, product liability insurance, in
such amounts and covering such risks as is reasonably adequate for the conduct
of their businesses and the value of their properties.

            (4) CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The
Corporation will continue, and will cause each subsidiary of the Corporation to
continue, to engage in business of the same general type as conducted by the
Corporation and its operating subsidiaries at the time this Certificate of
Designations is filed with the Secretary of State of the State of Delaware, and
will preserve, renew and keep in full force and effect, and will cause each
subsidiary of the Corporation to preserve, renew and keep in full force and
effect, their respective corporate existence and their respective material
rights, privileges and franchises necessary or desirable in the normal conduct
of business.

            (5) COMPLIANCE WITH LAWS. The Corporation will comply, and will
cause each subsidiary of the Corporation to comply, in all material respects
with all applicable laws, ordinances, rules, regulations, decisions, orders and
requirements of governmental authorities and courts (including, without
limitation, environmental laws) except (i) where compliance therewith is
contested in good faith by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Corporation and its subsidiaries taken as a
whole.

            (6) INVESTMENT COMPANY ACT. The Corporation will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended, or any successor provision.

            (7) TRANSACTIONS WITH AFFILIATES. The Corporation will not, and will
not permit any subsidiary of the Corporation, directly or indirectly, to pay any
funds to or for the account of, make any investment (whether by acquisition of
stock or Indebtedness, by loan, advance, transfer of property, guarantee or
other agreement to pay, purchase or service, directly or indirectly, any
Indebtedness, or otherwise) in, lease, sell, transfer or otherwise dispose of
any assets, tangible or intangible, to, or participate in, or effect any
transaction in connection with, any joint enterprise or other joint arrangement
with, any Affiliate of the Corporation, except, on terms to the Corporation or
such subsidiary no less favorable than terms that could be obtained by the
Corporation or such subsidiary from a Person that is not an Affiliate of the
Corporation, as determined in good faith by the Board of Directors; provided,
however, that nothing in this Section 12(d)(7) shall prohibit any transaction
described in clause (5), (6) or (7) of the definition of the term "Permitted
Investments" in the Subscription Agreements which transaction would, if engaged
in with the proceeds of the sale of the Series A Preferred Stock, be permissible
under clause (1) of Section 5(f) of the Subscription Agreements.

            SECTION 13. OUTSTANDING SHARES. For purposes of this Certificate of
Designations, all shares of Series A Preferred Stock shall be deemed outstanding
except (i) from the date a Conversion Notice is given by a holder of Series A
Preferred Stock, all shares of Series A Preferred Stock converted into Common
Stock; (ii) from the date of registration of transfer, all shares of Series A
Preferred Stock held of record by the Corporation or any subsidiary or Affiliate
(as defined herein) of the Corporation (other than any original holder of shares
of Series A Preferred Stock) and (iii) from the applicable Share Limitation
Redemption Date, Redemption Date, Optional Redemption Date, date of redemption
pursuant to Section 11(c) or Stockholder Approval Redemption Date all shares of
Series A Preferred Stock which are redeemed, so long as in each case the Share
Limitation Redemption Price, Redemption Price, the Optional 


                                      -29-
<PAGE>   30
Redemption Price, Registration Redemption Price or Stockholder Approval
Redemption Price, as the case may be, of such shares of Series A Preferred Stock
shall have been paid by the Corporation as and when due hereunder.

            SECTION 14. FORMS OF NOTICES.

            (a) NOTICE OF CONVERSION OF SERIES A CUSTOM CONVERTIBLE PREFERRED
STOCK.

                              NOTICE OF CONVERSION
                                       OF
                   SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK
                                       OF
                                  NOVAVAX, INC.

TO:   Boston EquiServe,
         as Conversion Agent
      150 Royall Street
      Canton Massachusetts  02021

      Attention:

      Facsimile No.:  (781) 575-2549


            (1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock"), of Novavax, Inc., a Delaware
corporation (the "Corporation"), the undersigned (the "Holder") hereby elects to
convert _____________________ shares of the Preferred Stock (each having a
conversion amount per share equal to the sum of (i) $1,000.00 plus (ii) an
amount equal to the Accrual Amount on such share to the Conversion Date) into
shares of Common Stock, $.01 par value (the "Common Stock"), of the Corporation,
at a Conversion Price per share of Common Stock equal to $_____________________,
or such other securities into which the Preferred Stock is currently
convertible. Capitalized terms used in this Notice and not otherwise defined
herein have the respective meanings provided in the Certificate of Designations
of the Preferred Stock.

            (2) The number of shares of Common Stock issuable upon the
conversion of the shares of Preferred Stock to which this Notice relates is
____________.

            (3) If the conversion of shares of Preferred Stock by this Notice is
based on the Trading Prices during a Measurement Period, set forth below or on a
schedule which accompanies this Notice are the Trading Prices during the
Measurement Period applicable to this Notice and an indication of the two
Trading Prices used to determine the Conversion Price set forth above.

                  Date                   Trading Price

            1.    ____________,____      $____________

            2.    ____________,____      $____________

            3.    ____________,____      $____________

            4.    ____________,____      $____________


                                      -30-
<PAGE>   31
            5.    ____________,____      $____________

            6.    ____________,____      $____________

            7.    ____________,____      $____________

            8.    ____________,____      $____________

            9.    ____________,____      $____________

            10.   ____________,____      $____________

            11.   ____________,____      $____________

            12.   ____________,____      $____________

            13.   ____________,____      $____________

            14.   ____________,____      $____________

            15.   ____________,____      $____________

            16.   ____________,____      $____________

            17.   ____________,____      $____________

            18.   ____________,____      $____________

            19.   ____________,____      $____________

            20.   ____________,____      $____________

            21.   ____________,____      $____________

            22.   ____________,____      $____________

            23.   ____________,____      $____________

            24.   ____________,____      $____________

            25.   ____________,____      $____________

            (4) Please issue certificates for the number of shares of Common
Stock or other securities into which such number of shares of Preferred Stock is
convertible in the name(s) specified immediately below or, if additional space
is necessary, on an attachment hereto:


      ____________________________        ____________________________
            Name                             Name

      ____________________________        ____________________________
            Address                          Address


                                      -31-
<PAGE>   32
      ____________________________        ____________________________
           SS or Tax ID Number                 SS or Tax ID Number

            (5) The Holder hereby represents to the Corporation that (a) the
exercise of conversion rights contained in this Notice does not violate the
provisions of Section 10(a) of the Certificate of Designations relating to
beneficial ownership in excess of 4.9% of the Common Stock and (b) the
Conversion Price set forth in this Notice is not based on a trade of shares of
Common Stock in which the Holder or any Affiliate of the Holder was the buyer or
seller.

            (6) If the shares of Common Stock issuable upon conversion of the
Preferred Stock have not been registered for resale under the 1933 Act, as
amended (the "Act"), the Holder represents and warrants that (i) the shares of
Common Stock not so registered are being acquired for the account of the Holder
for investment only, and not with a view to, or for resale in connection with,
the public distribution thereof other than pursuant to registration under the
1933 Act or an exemption from registration under the 1933 Act, and that the
Holder has no present intention of distributing or reselling the shares of
Common Stock not so registered other than pursuant to registration under the
1933 Act or an exemption from registration under the 1933 Act and (ii) the
Holder is an "accredited investor" as defined in Regulation D under the 1933
Act. The Holder further agrees that (A) the shares of Common Stock not so
registered shall not be sold or transferred unless either (i) they first shall
have been registered under the 1933 Act or (ii) the Corporation first shall have
been furnished with an opinion of legal counsel reasonably satisfactory to the
Corporation to the effect that such sale or transfer is exempt from the
registration requirements of the 1933 Act and (B) the Corporation may place a
legend on the certificate(s) for the shares of Common Stock not so registered to
that effect and place a stop-transfer restriction in its records relating to the
shares of Common Stock not so registered, all in accordance with the
Subscription Agreement, dated as of January 23, 1998.


                                    NAME:

Date _________________________      ____________________________________________
                                                  (print or type)

                                    ____________________________________________
                                                 Signature of Holder
                                           (Must be signed exactly as name
                                    appears on the Preferred Stock Certificate.)
  

            (b) FORM OF CORPORATION INCONVERTIBILITY NOTICE.

                       CORPORATION INCONVERTIBILITY NOTICE
               (SECTION 7(a)(2) OF CERTIFICATE OF DESIGNATIONS OF
                  SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)

TO:___________________________
        (Name of Holder)


            (1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock"), Novavax, Inc., a Delaware corporation
(the "Corporation"), hereby notifies the above-named Holder:


                                      -32-
<PAGE>   33
            (a) On             (fill in date) five Inconvertibility Days had
occurred in a period of ten Trading Days and on such date             (fill in
number) shares of Preferred Stock and the related Accrual Amounts became
inconvertible by reason of the occurrence of five Inconvertibility Days within a
period of ten consecutive Trading Days.

      (b) The five Inconvertibility Days covered by this Notice and the
applicable Conversion Price on each such day are as follows:

       _______________________________                $_______________

       _______________________________                $_______________

       _______________________________                $_______________

       _______________________________                $_______________

       _______________________________                $_______________

            (2) The Inconvertibility Days referred to in this Notice relate to
(check (a) or (b)):

            [ ] (a) Maximum Share Amount Inconvertibility

            [ ] (b) Registration Restriction Inconvertibility

            (3) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Certificate of Designations for the
Preferred Stock.


Date _________________________      NOVAVAX, INC.

                                    By ______________________________
                                       Title:


            (c) FORM OF HOLDER INCONVERTIBILITY NOTICE.

                         HOLDER INCONVERTIBILITY NOTICE
               (SECTION 7(a)(2) OF CERTIFICATE OF DESIGNATIONS OF
                  SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)

TO:   NOVAVAX, INC.

            (1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock"), the undersigned (the "Holder"), hereby
notifies Novavax, Inc., a Delaware corporation (the "Corporation"):

            (a) On              (fill in date) five Inconvertibility Days had
occurred in a period of ten Trading Days and on such date            (fill in
number) shares of Preferred


                                      -33-
<PAGE>   34
Stock and the related Accrual Amounts became inconvertible by reason of the
occurrence of five Inconvertibility Days within a period of ten consecutive
Trading Days.

      (b) The five Inconvertibility Days covered by this Notice and the
applicable Conversion Price on each such day are as follows:

       _______________________________                $_______________

       _______________________________                $_______________

       _______________________________                $_______________

       _______________________________                $_______________

       _______________________________                $_______________

            (2) The Inconvertibility Days referred to in this Notice relate to
(check (a) or (b)):

            [ ] (a) Maximum Share Amount Inconvertibility

            [ ] (b) Registration Restriction Inconvertibility

            (3) If the following date and amounts are completed in this Notice,
the Holder hereby directs the Corporation to redeem the number of shares of
Preferred Stock set forth below in accordance with Section 7(a) of the
Certificate of Designations as set forth below:

            (a) Number of shares of Preferred Stock to be redeemed:
                               (fill in)

            (b) On               (fill in Share Limitation Redemption Date) or
such later date as the Holder shall surrender to the Corporation the
certificates for the shares of Preferred Stock redeemed, the Corporation shall
pay the Holder the Share Limitation Redemption Price per share of Preferred
Stock to be redeemed of $          . The Share Limitation Redemption Price is
equal to the product obtained by multiplying (A) the sum of (i) $1,000.00 plus
(ii) the Accrual Amount on such share to such Share Limitation Redemption Date
equal to $         times (B) 115%.

            (4) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Certificate of Designations for the
Preferred Stock.


Date _________________________      NAME OF HOLDER:

                                    ________________________________
                                             (print or type)


                                    By _____________________________
                                       Title:


                                      -34-
<PAGE>   35
            (d) FORM OF REDEMPTION ELECTION.

                            HOLDER REDEMPTION NOTICE
               (SECTION 7(a)(2) OF CERTIFICATE OF DESIGNATIONS OF
                  SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)

TO:   NOVAVAX, INC.

            (1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock"), the undersigned (the "Holder") hereby
notifies Novavax, Inc., a Delaware corporation (the "Corporation"), that the
Holder is exercising its right to require the Corporation to redeem       shares
of Preferred Stock in accordance with Section 7(a) of the Certificate of
Designations of the Preferred Stock. On              (fill in Share Limitation
Redemption Date) or such later date as the Holder shall surrender to the
Corporation the certificates for the shares of Preferred Stock redeemed, the
Corporation shall pay the Holder the Share Limitation Redemption Price per share
of Preferred Stock to be redeemed of $         . The Share Limitation Redemption
Price is equal to the product obtained by multiplying (A) the sum of (i)
$1,000.00 plus (ii) the Accrual Amount on such share to such Share Limitation
Redemption Date equal to $         times (B) 115%.

            (2) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Certificate of Designations.


Date _________________________      NAME OF HOLDER:

                                    _________________________________


                                    By ______________________________


            (e) FORM OF MANDATORY REDEMPTION WAIVER.

                           MANDATORY REDEMPTION WAIVER
               (SECTION 7(a)(2) OF CERTIFICATE OF DESIGNATIONS OF
                  SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)

            Novavax, Inc., a Delaware corporation (the "Corporation"), and the
undersigned holder (the "Holder") of shares of the Corporation's Series A Custom
Convertible Preferred Stock (the "Preferred Stock") hereby agree as follows:

            1. The Corporation's or the Holder's Inconvertibility Notice given
on               (the "Waiver Commencement Date"), if any, is hereby rescinded
and the Holder's shares of Preferred Stock shall not be redeemed pursuant to
Section 7(a) of the Certificate of Designations of the Preferred Stock by reason
of such Inconvertibility Notice or any inconvertibility of any of the Holders'
shares of Preferred Stock which may arise pursuant to Section 7(a) of the
Certificate of Designations of the Preferred Stock during the period ending on
the date set forth below in this Section 1 (the "Waiver Period").

      Date for end of Waiver Period:_______________, 199__

            2. If this Mandatory Redemption Waiver is given in connection with a


                                      -35-
<PAGE>   36
Registration Restriction Inconvertibility, promptly, but in no event later than
the date which is 15 days after the date of this Mandatory Redemption Waiver,
the Corporation shall file a Registration Statement with the SEC relating to the
resale by the Holder of the number of Registrable Securities (as defined in the
Holder's Subscription Agreement) set forth below in this Section 2, which
Registration Statement may be constituted in any manner which does not have the
effect of suspending or terminating the effectiveness of any and all
Registration Statements filed by the Corporation pursuant to Section 8(b)(1) of
the Subscription Agreement or otherwise with respect to the Registrable
Securities which names the Holder as a selling stockholder, and shall thereafter
use its best efforts to obtain effectiveness of such Registration Statement.
Such Registration Statement shall in all respects be deemed a Registration
Statement (as defined in the Certificate of Designations of the Preferred
Stock).

      Number of Registrable Securities:________________

            3. If the Corporation shall default in the performance of its
obligations set forth herein, this Mandatory Redemption Waiver shall cease to be
of further force and effect and the rights, liabilities and obligations of the
parties shall be restored to those which would have existed in the absence of
this Mandatory Redemption Waiver.

            4. This Agreement shall be governed by the laws of the State of New
York. Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings provided in the Certificate of Designations.

            IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers or other representatives thereunto
duly authorized as of the respective dates set forth below.

                                    NOVAVAX, INC.

                                    By __________________________________
                                       Title:

                                    Date:________________________________


                                    NAME OF HOLDER:

                                    _____________________________________



                                    By __________________________________
                                       Title:

                                    Date:________________________________


            (f) FORM OF STOCKHOLDER APPROVAL REDEMPTION NOTICE.

                     STOCKHOLDER APPROVAL REDEMPTION NOTICE
                 (SECTION 7(b) OF CERTIFICATE OF DESIGNATIONS OF
                  SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)


                                      -36-
<PAGE>   37
TO: NOVAVAX, INC.

            (1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock"), the undersigned (the "Holder") hereby
notifies Novavax, Inc., a Delaware corporation (the "Corporation"), that the
Holder is exercising its right to require the Corporation to redeem
        (fill in lesser of number outstanding and Stockholder Approval Portion)
shares of Preferred Stock in accordance with Section 7(b) of the Certificate of
Designations of the Preferred Stock. On                  (fill in Stockholder
Approval Redemption Date) or such later date as the Holder shall surrender to
the Corporation the certificates for the shares of Preferred Stock redeemed, the
Corporation shall pay the Holder the Stockholder Approval Redemption Price per
share of Preferred Stock to be redeemed of $           . The Stockholder
Approval Redemption Price is equal to the product obtained by multiplying (A)
the sum of (i) $1,000.00 plus (ii) the Accrual Amount on such share to the
Stockholder Approval Redemption Date equal to $           times (B) 105%.

            (2) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided in the Certificate of Designations.

Date:_________________________      NAME OF HOLDER:

                                    _________________________________


                                    By_______________________________


            (g FORM OF REDEMPTION NOTICE.

                                REDEMPTION NOTICE
                 (SECTION 9(a) OF CERTIFICATE OF DESIGNATIONS OF
                  SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)

TO:___________________________
        (Name of Holder)

            (1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock"), Novavax, Inc., a Delaware corporation
(the "Corporation"), hereby notifies the above-named holder (the "Holder") that
the Corporation is exercising its right to redeem           shares of Preferred
Stock held by the Holder in accordance with Section 9(a) of the Certificate of
Designations of the Preferred Stock. On              (fill in Redemption Date),
the Corporation shall pay the Holder the Redemption Price per share of Preferred
Stock to be redeemed. Check (a) or (b):

        [ ] (a) Based on clause (1) of the definition of the term Redemption 
                Price in the Certificate of Designations; or

        [ ] (b) Based on clause (2) of the definition of the term Redemption 
                Price in the Certificate of Designations.

            (2) Upon surrender to the Corporation of the certificate(s) for the
shares of Preferred Stock to be redeemed (but in no event earlier than the
Redemption Date), the Corporation will make payment of the applicable Redemption
Price in accordance with the 


                                      -37-
<PAGE>   38
Certificate of Designations.

            (3) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Certificate of Designations.


                                    NOVAVAX, INC.


                                    By _____________________________
                                       Title:

            (h) FORM OF CORPORATION NOTICE.

                               CORPORATION NOTICE
               (SECTION 11(b)(1) OF CERTIFICATE OF DESIGNATIONS OF
                  SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)

TO:__________________________
       (Name of Holder)

            (1) An Optional Redemption Event described in the Certificate of
Designations of the Series A Custom Convertible Preferred Stock (the "Preferred
Stock") of Novavax, Inc., a Delaware corporation (the "Corporation"), occurred
on _____________,____. As a result of such Optional Redemption Event, the
above-named holder (the "Holder") is entitled to exercise its optional
redemption rights pursuant to Section 11(b)(2) of the Certificate of
Designations.

            (2) The Holder's optional redemption right must be exercised on or
before _____________,____.

            (3) At or before the date set forth in the preceding paragraph (2),
the Holder must deliver to the Corporation:

      (a) a Holder Notice, in the form set forth in Section 14(h) of the
Certificate of Designations; and

      (b) the certificates for the shares of Preferred Stock to be redeemed,
duly endorsed for transfer to the Corporation the shares to be redeemed.

            (4) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Certificate of Designations.


Date _________________________      NOVAVAX, INC.


                                    By ______________________________
                                       Title:


                                      -38-
<PAGE>   39
            (i) FORM OF HOLDER NOTICE.

                                  HOLDER NOTICE
               (SECTION 11(b)(2) OF CERTIFICATE OF DESIGNATIONS OF
                  SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)

TO: NOVAVAX, INC.

            (1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock") of Novavax, Inc., a Delaware corporation
(the "Corporation"), the undersigned hereby elects to exercise its right to
require redemption by the Corporation pursuant to Sections 11(a) and 11(b) of
______ shares of Preferred Stock at an Optional Redemption Price per share equal
to an amount in cash equal to the product obtained by multiplying (a) the sum of
(i) $1,000 plus (ii) the Accrual Amount on each share of Series A Preferred
Stock to be redeemed to the date of redemption equal to $______ times (b) the
______% (fill in applicable Optional Redemption Percentage).

            (2) The aggregate Optional Redemption Price of all shares of
Preferred Stock to be redeemed is $______.

            (3) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Certificate of Designations.


Date:________________________       NAME OF HOLDER:



                                    By ______________________________
                                       Signature of Registered Holder

   (Must be signed exactly as name 
   appears on the stock certificate.)

            (j) FORM OF HOLDER REGISTRATION REDEMPTION NOTICE.

                      HOLDER REGISTRATION REDEMPTION NOTICE
                  (SECTION 11(c) OF CERTIFICATE OF DESIGNATIONS
                 OF SERIES A CUSTOM CONVERTIBLE PREFERRED STOCK)

TO: NOVAVAX, INC.

            (1) Pursuant to the terms of the Series A Custom Convertible
Preferred Stock (the "Preferred Stock") of Novavax, Inc., a Delaware corporation
(the "Corporation"), the undersigned (the "Holder") hereby elects to exercise
its right to require redemption by the Corporation pursuant to Section 11(c) of
the Certificate of Designations of the Preferred Stock of ______ shares of
Preferred Stock at a Registration Redemption Price per share in cash equal to
the product obtained by multiplying (A) the sum of (i) $1,000 plus (ii) the
Accrual Amount on each share of Series A Preferred Stock to be redeemed to the
date of such redemption in accordance with Section 11(c) equal to $______times
(B) 112.5%.

            (2) The aggregate Registration Redemption Price of all shares of
Preferred 


                                      -39-
<PAGE>   40
Stock to be redeemed is $______

            (3) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Certificate of Designations.


Date:_________________________      NAME OF HOLDER:___________________________




                                    By__________________________________
                                        Signature of Registered Holder
                                         (Must be signed exactly as name
                                         appears on the stock certificate.)
   


            SECTION 15. MISCELLANEOUS.

            (a) NOTICES. Any notices required or permitted to be given under the
terms of this Certificate of Designations shall be in writing and shall be sent
by mail or delivered personally (which shall include telephone line facsimile
transmission) or by courier and shall be deemed given five days after being
placed in the mail, if mailed, or upon receipt, if delivered personally or by
courier (a) in the case of the Corporation, addressed to the Corporation at 8320
Guilford Road, Suite C, Columbia, Maryland, Attention: Chief Financial Officer
(telephone line facsimile transmission number (301) 854-3901), with a copy to
White & McDermott, P.C., 65 William Street, Suite 209, Wellesley, Massachusetts
02181 (telephone line facsimile transmission number (781) 237-8120, or, in the
case of any holder of shares of Series A Preferred Stock, at such holder's
address or telephone line facsimile transmission number shown on the stock books
maintained by the Corporation with respect to the Series A Preferred Stock or
such other address as the Corporation shall have provided by notice to the
holders of shares of Series A Preferred Stock in accordance with this Section or
any holder of shares of Series A Preferred Stock shall have provided to the
Corporation in accordance with this Section.

            (b) REPLACEMENT OF CERTIFICATES. Upon receipt by the Corporation of
evidence reasonably satisfactory to the Corporation of the ownership of and the
loss, theft, destruction or mutilation of any certificate for shares of Series A
Preferred Stock and (1) in the case of loss, theft or destruction, of indemnity
from the record holder of the certificate for such shares of Series A Preferred
Stock reasonably satisfactory in form to the Corporation (and without the
requirement to post any bond or other security) or (2) in the case of
mutilation, upon surrender and cancellation of the certificate for such shares
of Series A Preferred Stock, the Corporation will execute and deliver to such
holder a new certificate for such shares of Series A Preferred Stock without
charge to such holder.


                                      -40-
<PAGE>   41
            IN WITNESS WHEREOF, Novavax, Inc. has caused this certificate to be
signed by Brenda L. Fugagli, its Chief Financial Officer, as of the 28th day of
January, 1998.

                                    NOVAVAX, INC.



                                    By: /s/ Brenda L. Fugagli
                                        -------------------------------
                                            Brenda L. Fugagli
                                            Chief Financial Officer


                                      -41-
