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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 13, 1999
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ROWECOM INC.
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(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-21379 04-3370008
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
725 Concord Street, Cambridge, MA 02138
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (617) 497-5800
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Item 5. Other Events.
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On October 13, 1999, RoweCom Inc. ("RoweCom") entered into a
Securities Purchase Agreement, pursuant to which RoweCom issued and sold to
two investors $20 million in aggregate original principal amount of
convertible promissory notes, and warrants to purchase up to 224,000 shares
of RoweCom's Common Stock. The notes are convertible into shares of
RoweCom's Common Stock on the terms and conditions set forth in the
Securities Purchase Agreement and the notes.
RoweCom also has an option, subject to certain conditions, to require
the investors to invest up to an additional $15 million in additional
convertible notes and warrants.
RoweCom also granted the investors certain rights to require the
registration under applicable securities laws of the shares of RoweCom
Common Stock issuable upon conversion of the notes and exercise of the
warrants.
Further and more detailed information with respect to this transaction
are set forth in the Securities Purchase Agreement, Registration Rights
Agreement, and forms of note and warrant, respectively, and the
registrant's press release, filed as exhibits hereto, and is incorporated
herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and
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Exhibits.
(c) Exhibits.
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Exhibit 99.1 Securities Purchase Agreement, dated as of October 13, 1999,
by and among RoweCom and the "Buyers" indicated therein
(note: exhibits and schedules omitted)
Exhibit 99.2 Form of Note issued pursuant to the Securities Purchase
Agreement
Exhibit 99.3 Form of Warrant issued pursuant to the Securities Purchase
Agreement
Exhibit 99.4 Registration Rights Agreement, dated as of October 13, 1999,
by and among RoweCom and the "Buyers" indicated therein
Exhibit 99.5 Press release of RoweCom dated October 14, 1999, announcing
the transactions described in this report
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ROWECOM INC.
By: /s/ Louis Hernandez, Jr.
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Louis Hernandez, Jr.,
Executive Vice President and
Chief Financial Officer
Dated: October 14, 1999
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EXHIBIT INDEX
Exhibit 99.1 Securities Purchase Agreement, dated as of October 13, 1999,
by and among RoweCom and the "Buyers" indicated therein
(note: exhibits and schedules omitted)
Exhibit 99.2 Form of Note issued pursuant to the Securities Purchase
Agreement
Exhibit 99.3 Form of Warrant issued pursuant to the Securities Purchase
Agreement
Exhibit 99.4 Registration Rights Agreement, dated as of October 13, 1999,
by and among RoweCom and the "Buyers" indicated therein
Exhibit 99.5 Press release of RoweCom dated October 13, 1999, announcing
the transactions described in this report
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EXHIBIT 99.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of October 13,
1999, by and among RoweCom Inc., a Delaware corporation, with headquarters
located at 725 Concord Avenue, Cambridge, Massachusetts 02138 (the "Company"),
and the investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("Regulation D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act");
B. The Company has authorized convertible notes of the Company, in the
form attached as Exhibit A (together with any convertible notes issued in
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replacement thereof in accordance with the terms thereof, the "Convertible
Notes"), which shall be convertible into shares of the Company's common stock,
par value $0.01 per share (the "Common Stock") (as converted, the "Conversion
Shares"), in accordance with the terms of the Convertible Notes;
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, (i) Convertible Notes in an aggregate principal amount of up to
$20,000,000 in the respective amounts set forth opposite each Buyer's name on
the Schedule of Buyers (the "Initial Notes"), and (ii) warrants (the "Initial
Warrants") to purchase up to 224,000 shares of Common Stock (as exercised
collectively, the "Initial Warrant Shares"), such Initial Warrants to be
substantially in the form attached as Exhibit B;
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D. Subject to the terms and conditions set forth in this Agreement, the
Company has the right to cause the Buyers to purchase (i) Convertible Notes in
the aggregate principal amount of up to $15,000,000 (pro rata based on the
aggregate principal amount of Initial Notes each Buyer purchased in relation to
the total aggregate principal amount of Initial Notes) (the "Additional Notes"
and, collectively with the Initial Notes, the "Notes") and (ii) warrants (the
"Additional Warrants" and, collectively with the Initial Warrants, the
"Warrants") to purchase up to a number of shares of Common Stock equal to the
quotient of (A) $4,200,000 divided by (B) 110% of the average Closing Sale Price
of the Common Stock on the 10 trading days immediately preceding the Additional
Closing Date (as exercised, collectively, the "Additional Warrant Shares" and,
collectively with the Initial Warrant Shares, the "Warrant Shares") (pro rata
based on the aggregate principal amount of Initial Notes each Buyer purchased in
relation to the total aggregate principal amount of Initial Notes) such
Additional Warrants to be substantially in the form attached as Exhibit B;
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit C (the "Registration Rights
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Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act, and the rules and regulations
promulgated thereunder, and applicable state securities laws.
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NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF NOTES.
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a. Purchase of Notes and Warrants. Subject to satisfaction (or
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waiver) of the conditions set forth in Sections 6(a) and 7(a), the Company shall
issue and sell to each Buyer and each Buyer severally agrees to purchase from
the Company the Initial Notes in the principal amount as set forth opposite such
Buyer's name on the Schedule of Buyers along with the Initial Warrants as set
forth opposite such Buyers named on the Schedule of Buyers (the "Initial
Closing"). The aggregate purchase price (the "Initial Purchase Price") of the
Initial Notes and the Initial Warrants at the Initial Closing shall be
$20,000,000. Subject to the satisfaction (or waiver) of the conditions set forth
in Sections 1(c), 1(d), 6(b) and 7(b), the Company may require that the Buyers
purchase the Additional Notes along with the Additional Warrants (the
"Additional Closing" and, together with the Initial Closing, the "Closings").
The aggregate purchase price (the "Additional Purchase Price") of the Additional
Notes and the Additional Warrants at the Additional Closing shall be
$15,000,000. "Business Day" means any day other than Saturday, Sunday or other
day on which commercial banks in the City of New York are authorized or required
by law to remain closed.
b. The Initial Closing Date. The date and time of the Initial
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Closing (the "Initial Closing Date") shall be 10:00 a.m. Central Time, within
three (3) Business Days following the date hereof, subject to satisfaction (or
waiver) of the conditions to the Initial Closing set forth in Sections 6(a) and
7(a) (or such later date as is mutually agreed to by the Company and the Buyer).
The Initial Closing shall occur on the Initial Closing Date at the offices of
Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois
60661-3693.
c. The Additional Closing Date. The date and time of the Additional
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Closing (the "Additional Closing Date") shall be 10:00 a.m. Central Time, on the
third Business Day following the date of receipt by each Buyer of the Additional
Effectiveness Notice (as defined below) which Additional Closing Date shall be
no more than 85 days following the Additional Note Notice Date (as defined
below), subject to satisfaction (or waiver) of the conditions to the Additional
Closing set forth in Sections 6(b) and 7(b) and the conditions set forth in this
Section 1(c) and Section 1(d), (or such later date as is mutually agreed to by
the Company and the Buyer). During the period beginning on and including the
date which is 120 days after the Initial Closing Date and ending on the first
anniversary of the Initial Closing Date (the "Additional Notice Period"), but
subject to the requirements of Sections 6(b) and 7(b) and satisfaction of the
Additional Notice Conditions and the Effectiveness Conditions (both as defined
in Section 1(d) below), the Company, on only one occasion, may require the
Buyers to purchase Additional Notes and the related Additional Warrants by
delivering written notice to each Buyer (the "Additional Note Notice") on any
date during the Additional Notice Period (the "Additional Note Notice Date").
The Company's Additional Note Notice shall set forth (i) the aggregate principal
amount of Additional Notes and related Additional Warrants the Company is
requiring each Buyer to
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purchase at the Additional Closing (pro rata based on the aggregate principal
amount of the Initial Notes each Buyer purchased in relation to the total
aggregate principal amount of Initial Notes). The Company shall deliver written
notice to each Buyer (the "Additional Effectiveness Notice") by facsimile and
overnight delivery within one (1) Business Day of the satisfaction of the
Effectiveness Conditions. The Additional Closing shall occur on the Additional
Closing Date at the offices of Katten Muchin & Zavis, 525 West Monroe Street,
Suite 1600, Chicago, Illinois 60661-3693. The Initial Closing Date and the
Additional Closing Date collectively are referred to in this Agreement as the
"Closing Dates."
d. The Additional Notice Conditions and the Effectiveness
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Conditions. Notwithstanding anything in this Agreement to the contrary, the
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Company shall not be entitled to deliver an Additional Note Notice unless all of
the following conditions (the "Additional Notice Conditions") are satisfied: (i)
at all times during the period beginning on the date which is 30 days before the
Additional Note Notice Date and ending on and including the Additional Note
Notice Date, the Initial Registration Statement shall have been effective and
available for the sale of all of the Initial Registrable Securities (as defined
in the Registration Rights Agreement); (ii) at all times during the period
beginning on the Initial Closing Date and ending on and including the Additional
Note Notice Date, the Common Stock shall have been designated for quotation on
The New York Stock Exchange, Inc. (the "NYSE") or the Nasdaq National Market and
shall not have been suspended from trading on such exchanges (other than
suspensions of not more than one day due to business announcements by the
Company) nor shall delisting or suspension by such exchanges have been
threatened either (A) in writing by such exchanges or (B) by falling below the
minimum listing maintenance requirements of such exchanges; (iii) during the
period beginning on the Initial Closing Date and ending on and including the
Additional Note Notice Date, there shall not have occurred either (A) the
consummation of a Change in Control (as defined in the Notes) or a public
announcement of a pending Change in Control which has not been abandoned or
terminated or (B) a Triggering Event (as defined in the Notes) or an event
which, with the passage of time, would constitute a Triggering Event, assuming
it were not cured; (iv) on each day during the period beginning on the Initial
Closing Date and ending on and including the Additional Note Notice Date, the
Company shall have delivered Conversion Shares upon conversion of the Notes on a
timely basis as set forth in Section 2(e)(ii) of the Notes and the Company
otherwise shall have been in compliance with the Transaction Documents (as
defined below) and shall not have breached any provision of the Transaction
Documents; (v) on each day during the period beginning 10 Business Days prior to
the Additional Note Notice Date and ending on the Additional Closing Date, the
Closing Sale Price of the Common Stock shall not have been less than $25.00 per
share (subject to appropriate adjustments for any stock dividends, stock splits
or other similar transactions with respect to the Common Stock); (vi) there
shall not have been a prior Additional Note Notice; and (vii) the Company shall
have either (A) delivered and not rescinded or revoked at least two Company's
Conversion Elections (as defined in the Notes) which in the aggregate, with all
other Company's Conversion Elections which have not been rescinded or revoked,
were for the conversion of not less than $10,000,000 of principal amount of the
Notes or (B) redeemed not less than $10,000,000 of principal amount of Notes.
Notwithstanding anything in this Agreement to the contrary, the Company shall
not be entitled to require the Buyer to purchase the Additional Notes unless, in
addition to the satisfaction of
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the Additional Notice Conditions and the requirements of Section 7(b), all of
the following conditions (the "Effectiveness Conditions") are satisfied: (i) at
all times during the period beginning on the Additional Note Notice Date and
ending on and including the Additional Closing Date, the Initial Registration
Statement shall have been effective and available for the sale of all of the
Registrable Securities; (ii) at all times during the period beginning on the
Additional Note Notice Date and ending on and including the Additional Closing
Date, the Common Stock shall have been designated for quotation on the NYSE or
the Nasdaq National Market and shall not have been suspended from trading on
such exchanges (other than suspensions of not more than one day due to business
announcements by the Company) nor shall delisting or suspension by such
exchanges have been threatened either (A) in writing by such exchanges or (B) by
falling below the minimum listing maintenance requirements of such exchanges;
(iii) during the period beginning on the Additional Note Notice Date and ending
on and including the Additional Closing Date, there shall not have occurred
either (A) the consummation of a Change in Control or a public announcement of a
pending Change in Control which has not been abandoned or terminated or (B) a
Triggering Event or an event which, with the passage of time, would constitute a
Triggering Event, assuming it were not cured; (iv) during the period beginning
on the Additional Note Notice Date and ending on and including the Additional
Closing Date, the Company shall have delivered Conversion Shares upon conversion
of the Notes on a timely basis as set forth in Section 2(e)(ii) of the Notes and
the Company otherwise shall have been in compliance with the Transaction
Documents (as defined below) and shall not have breached any provision of the
Transaction Documents; and (v) the Company shall have either (A) delivered and
not rescinded or revoked at least two Company's Conversion Elections which in
the aggregate, with all other Company Conversion Election which have not been
rescinded or revoked, was for the conversion of not less than $10,000,000 of
principal amount of the Notes or (B) redeemed not less than $10,000,000 of
principal amount of Notes, (vii) the Company shall have delivered an Additional
Note Notice on no more than one prior occasion and (viii) the Company shall have
received shareholder approval of the issuance of the Conversion Shares and
Warrant Shares consistent with the requirements of Section 4(k).
e. Form of Payment. On the Closing Date (i) each Buyer shall pay its
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pro rata portion of the Purchase Price to the Company for the Notes and the
related Warrants to be issued and sold to such Buyer by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, and (ii) the Company shall deliver to each Buyer Notes (in the
principal amounts as such Buyer shall request) (the "Note Certificates")
representing such principal amount of the Notes which such Buyer is then
purchasing along with the related Warrants, duly executed on behalf of the
Company and registered in the name of such Buyer.
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2. BUYER'S REPRESENTATIONS AND WARRANTIES.
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Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer (i) is acquiring the Notes and the
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Warrants, (ii) upon conversion of the Notes, will acquire the Conversion Shares
then issuable and (iii) upon exercise of the Warrants, will acquire the Warrant
Shares issuable upon exercise thereof (the Notes, the Warrants, the Conversion
Shares and the Warrant Shares, collectively are referred to herein as the
"Securities"), for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, such Buyer does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
--------------------------
investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
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Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such Securities.
d. Information. Such Buyer and its advisors, if any, have been
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furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions and received answers from
the Company concerning he transactions contemplated by this Agreement. Neither
such inquiries nor any other due diligence investigations conducted by such
Buyer or its advisors, if any, or its representatives shall modify, amend or
affect such Buyer's right to rely on the Company's representations and
warranties contained in Sections 3 and 9(m) below. Such Buyer understands that
its investment in the Securities involves a high degree of risk. Such Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.
e. No Governmental Review. Such Buyer understands that no United
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States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
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f. Transfer or Resale. Such Buyer understands that except as
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provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a form reasonably satisfactory to the Company,
to the effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company with reasonable assurance that such
Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of
the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
the Securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder. Notwithstanding the
foregoing, the Securities may be pledged in connection with a bona fide margin
account.
g. Legends. Such Buyer understands that the certificates or other
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instruments representing the Notes and the Warrants and, until such time as the
sale of the Conversion Shares and the Warrant Shares have been registered under
the 1933 Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Conversion Shares and the Warrant Shares, except
as set forth below, shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM
REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for sale under the 1933 Act, (ii)
in connection with a sale transaction, such holder
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provides the Company with an opinion of counsel, in a form reasonably
satisfactory to the Company, to the effect that a public sale, assignment or
transfer of such Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that such
Securities can be sold pursuant to Rule 144. Such Buyer acknowledges, covenants
and agrees to sell the Securities represented by a certificate(s) from which the
legend has been removed, only pursuant to (i) a registration statement effective
under the 1933 Act, or (ii) advice of counsel that such sale is exempt from
registration required by Section 5 of the 1933 Act.
h. Authorization; Enforcement. This Agreement and the Registration
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Rights Agreement have been duly and validly authorized by all necessary
corporate or partnership action on such Buyer's part, executed and delivered on
behalf of such Buyer and are valid and binding agreements of such Buyer
enforceable against such Buyer in accordance with their terms, subject as to
enforceability to general principles of equity and to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.
i. Residency. Such Buyer is a resident of that jurisdiction
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specified on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and its "Subsidiaries"
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(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest) (a complete list of which Subsidiaries is set forth in Schedule 3(a))
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are corporations duly organized and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the requisite
corporate power and authorization to own properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "Material Adverse Effect"
means any material adverse effect on the business, properties, assets,
operations, results of operations, financial condition or prospects of the
Company and its Subsidiaries taken as a whole, or on the transactions
contemplated hereby or by the agreements and instruments to be entered into in
connection herewith, or on the authority or ability of the Company to perform
its obligations under the Transaction Documents (as defined below).
b. Authorization; Enforcement; Compliance with Other Instruments.
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(i) The Company has the requisite corporate power and authority to enter into
and perform its obligations under this Agreement, the Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section
5), the Notes, the Warrants and each of the other agreements entered into by the
parties hereto in connection with the transactions contemplated
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by this Agreement (collectively, the "Transaction Documents"), and to issue the
Securities in accordance with the terms thereof, (ii) the execution and delivery
of the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including without limitation the
issuance of the Notes and the Warrants and the reservation for issuance and the
issuance of the Conversion Shares and the Warrant Shares issuable upon
conversion or exercise thereof, have been duly authorized by the Company's Board
of Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (iii) the Transaction Documents have
been duly executed and delivered by the Company, and (iv) this Agreement and the
Registration Rights Agreement and, when executed and delivered, the other
Transaction Documents, constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
c. Capitalization. The authorized capital stock of the Company
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consists of (i) 34,000,000 shares of Common Stock, of which as of the date
hereof 10,154,117 shares were issued and outstanding, 1,985,912 shares were
issuable and reserved for issuance pursuant to the Company's stock option and
purchase plans and no shares are issuable and reserved for issuance pursuant to
securities (other than the Notes and the Warrants) exercisable or exchangeable
for, or convertible into, shares of Common Stock and (ii) 23,000,000 shares of
preferred stock, of which as of the date hereof, no shares were issued and
outstanding. All of such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(c), (i) no shares of the Company's capital stock are subject to
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preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (ii) there are no outstanding debt
securities issued by the Company; (iii) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement); (v) there are no outstanding securities of the Company or any
of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries; (vi) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities as described in this Agreement; and
(vii) the Company does not have any stock appreciation rights or "phantom stock"
plans or agreements or any similar plan or agreement. The Company has furnished
to the Buyer true and correct copies of the
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Company's Certificate of Incorporation, as amended and as in effect on the date
hereof (the "Certificate of Incorporation"), and the Company's By-laws, as in
effect on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
d. Issuance of Securities. The Notes and the Warrants are duly
----------------------
authorized and, upon issuance in accordance with the terms hereof, shall be free
from all taxes, liens and charges with respect to the issue thereof. At least
1,557,335 shares of Common Stock (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(f) below) have been duly authorized
and reserved for issuance upon conversion of the Notes and exercise of the
Warrants. Upon conversion or exercise in accordance with the Notes or the
Warrants, as the case may be, the Conversion Shares and the Warrant Shares will
be validly issued, fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issue thereof, with the holders being entitled
to all rights accorded to a holder of Common Stock. The issuance by the Company
to the Buyer of the Securities is exempt from registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
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execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Notes and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the reservation for issuance and issuance of the
Conversion Shares and the Warrant Shares) will not (i) result in a violation of
the Certificate of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of the Company or
the By-laws; (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party; or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the principal market or
exchange on which the Common Stock is traded or listed) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Except as disclosed in
Schedule 3(e), neither the Company nor its Subsidiaries is in violation of any
- -------------
term of (i) its Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of the
Company or By-laws or their organizational charter or by-laws, respectively, or
(ii) any statute, rule or regulation applicable to the Company or its
Subsidiaries and neither the Company nor its Subsidiaries is in default under
any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order, except for such violations or defaults which would
not, either individually or in the aggregate, have a Material Adverse Effect.
The business of the Company and its Subsidiaries is not being conducted, and
shall not be conducted, in violation of any law, ordinance or regulation of any
governmental entity, except for such violation which would not, individually or
in the aggregate, have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and except such as have been obtained as of the
date hereof, the Company is not required to obtain any consent, authorization or
order of, or make any filing or registration
9
<PAGE>
with, any court or governmental agency or any regulatory or self-regulatory
agency in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents in accordance with the terms
hereof or thereof. Except as disclosed in Schedule 3(e), all consents,
-------------
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company and its Subsidiaries are unaware of any
facts or circumstances which might reasonably be expected to give rise to any of
the foregoing. The Company is not in violation of the listing requirements of
the Nasdaq National Market as in effect on the date hereof and on each of the
Closing Dates and has no actual knowledge of any facts which would reasonably
lead to delisting or suspension of the Common Stock by the Nasdaq National
Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since March 8, 1999, the
-----------------------------------
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the 1934 Act, (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC Documents"). A complete list of the Company's SEC Documents is set forth on
Schedule 3(f). As of their respective dates, the SEC Documents complied in all
- -------------
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements of the SEC with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Neither the
Company nor any of its Subsidiaries or any of their officers, directors,
employees or agents have provided the Buyers with any material, nonpublic
information. As of April 1, 2000, the Company expects to meet the requirements
for the use of Form S-3 for registration of the resale of the Registrable
Securities (as defined in the Registration Rights Agreement) by each Buyer.
g. Absence of Certain Changes. Except as disclosed in Schedule 3(g),
-------------------------- -------------
since March 8, 1999 there has been no material adverse change and no material
adverse development in the business, properties, operations, financial
condition, liabilities or results of operations of the Company or its
Subsidiaries, taken as a whole. The Company has not taken any steps, and does
not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge that its
10
<PAGE>
creditors intend to initiate involuntary bankruptcy proceedings or any knowledge
of any fact which would reasonably lead a creditor to do so.
h. Absence of Litigation. Except as disclosed in Schedule 3(h),
--------------------- ------------
there is no action, suit, proceeding, inquiry or investigation, which could,
individually or in the aggregate, have a Material Adverse Effect, before or by
any court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against the Company, the Common Stock or any of the Company's
Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or
directors in their capacities as such. Except as set forth in Schedule 3(h), to
the knowledge of the Company none of the directors or officers of the Company
have been involved as a defendant in securities related litigation during the
past five years.
i. Acknowledgment Regarding the Buyer's Purchase of Notes. The
------------------------------------------------------
Company acknowledges and agrees that each of the Buyers is acting solely in the
capacity of arm's length purchaser with respect to the Transaction Documents and
the transactions contemplated thereby. The Company further acknowledges that
each Buyer is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any of the Buyers or
any of their respective representatives or agents in connection with the
Transaction Documents and the transactions contemplated thereby is merely
incidental to such Buyer's purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
---------------------------------------------------
Circumstances. Except in connection with the acquisition of the Information
- -------------
Services Group of Dawson Holdings plc (the "Dawson Acquisition") and for the
issuance of the Notes and Warrants contemplated by this Agreement, no event,
liability, development or circumstance has occurred or exists with respect to
the Company or its Subsidiaries or their respective business, properties,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement (including
by way of incorporation by reference) filed with the SEC relating to an issuance
and sale by the Company of its Common Stock and which has not been publicly
disclosed.
k. No General Solicitation. Neither the Company, nor any of its
-----------------------
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act
11
<PAGE>
or any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of the Nasdaq National Market, nor
will the Company or any of its Subsidiaries take any action or steps that would
require registration of the Securities under the 1933 Act or cause the offering
of the Securities to be integrated with other offerings.
m. Employee Relations. Except in connection with the Dawson
------------------
Acquisition, neither the Company nor any of its Subsidiaries is involved in any
union labor dispute nor, to the knowledge of the Company or any of its
Subsidiaries, is any such dispute threatened. None of the Company's or its
Subsidiaries' employees is a member of a union and neither the Company nor any
of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relations with their employees
are good. Dr. Richard Rowe has not notified the Company's Board of Directors
that he intends to leave the Company or otherwise terminate his employment with
the Company.
n. Intellectual Property Rights. Except in connection with the
----------------------------
Dawson acquisition, the Company and its Subsidiaries own or possess adequate
rights or licenses to use all trademarks, trade names, service marks, service
mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
rights necessary to conduct their respective businesses as now conducted. Except
as set forth on Schedule 3(n), none of the Company's trademarks, trade names,
------------
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, government authorizations,
trade secrets or other intellectual property rights have expired or terminated,
or are expected to expire or terminate within two years from the date of this
Agreement, except where such expiration or termination would not, individually
or in the aggregate, have a Material Adverse Effect. The Company and its
Subsidiaries do not have any knowledge of any infringement by the Company or its
Subsidiaries of trademarks, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark
registrations, trade secrets or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on Schedule 3(n), no claim, action or proceeding
------------
has been made or brought against, or to the Company's knowledge, has been
threatened against, the Company or its Subsidiaries regarding trademarks, trade
name rights, patents, patent rights, inventions, copyrights, licenses, service
names, service marks, service mark registrations, trade secrets or other
infringement; and the Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and its
Subsidiaries have taken reasonable security measures to protect the
confidentiality and value of all of their intellectual properties and the
secrecy, confidentiality and value with respect to their trade secrets.
o. Regulatory Permits. The Company and its Subsidiaries possess all
------------------
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not, individually or in the aggregate, have a
Material Adverse Effect, and neither the Company nor any such Subsidiary
12
<PAGE>
has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
p. Internal Accounting Controls. The Company and each of its
----------------------------
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
q. Tax Status. The Company and each of its Subsidiaries has made or
----------
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and for which the Company has set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
r. Transactions With Affiliates. Except as set forth on Schedule
---------------------------- --------
3(r), in connection with the Dawson Acquisition and in the SEC Documents filed
- ---
at least ten days prior to the date hereof and other than the grant of stock
options disclosed on Schedule 3(c), none of the officers, directors, or
------------
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
s. Dilutive Effect. The Company understands and acknowledges that
---------------
the number of Conversion Shares issuable upon conversion of the Notes will
increase in certain circumstances. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Notes in accordance
with this Agreement and the Notes absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of the
stockholders of the Company.
t. Application of Takeover Protections. The Company and its board of
-----------------------------------
directors have taken all necessary action, if any, in order to render
inapplicable any control
13
<PAGE>
share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Certificate of Incorporation or the laws of the state of its incorporation which
is or could become applicable to the Buyers as a result of the Buyers and the
Company fulfilling their obligations under the Transaction Documents, including,
without limitation, the Company's issuance of the Securities and the Buyers'
ownership of the Securities.
u. Rights Agreement. As of the date hereof, the Company has not
----------------
adopted a shareholder rights plan or similar arrangement relating to
accumulation of beneficial ownership of Common Stock or a change in control of
the Company.
v. Year 2000 Compliance. Except in connection with the Dawson
--------------------
Acquisition, the Company has initiated a review and assessment of all areas
within its and each Subsidiary's business and operations that could be
materially adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by the Company or any of the Subsidiaries may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999). Based on the
foregoing, the Company believes that the computer applications that are
currently material to its or any Subsidiary's business and operations are
reasonably expected to be able to perform properly date-sensitive functions for
all dates before and after January 1, 2000.
w. Environmental Laws. The Company and its Subsidiaries (i) except
------------------
in connection with the Dawson Acquisition, are in compliance in all material
respects with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) except in connection with the Dawson
Acquisition, have received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective businesses,
except where the failure to receive such permits, licenses or approvals would
not, individually or in the aggregate, have a Material Adverse Effect and (iii)
are in compliance in all material respects with all terms and conditions of any
such permit, license or approval, except where the failure to be in compliance
or receive such permits, licenses or approvals would not, individually or in the
aggregate, have a Material Adverse Effect.
x. Title. The Company and its Subsidiaries have good and marketable
-----
title in fee simple to all real property owned by them and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(x) or such
------------
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
14
<PAGE>
y. Insurance. The Company and each of its Subsidiaries are insured by
---------
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Except in connection with the Dawson Acquisition, neither the Company
nor any such Subsidiaries has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations of
the Company and its Subsidiaries, taken as a whole.
z. No Other Agreements. The Company has not, directly or indirectly,
-------------------
made any agreements with any Buyer relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.
4. COVENANTS.
---------
a. Best Efforts. Each party shall use its best efforts timely to
------------
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a Form D with
-------------------
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for, or obtain
exemption for the Securities for, sale to the Buyers at the each of Closings
pursuant to this Agreement under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of any such action so
taken to the Buyers on or prior to each of the Closing Dates. The Company shall
make all filings and reports relating to the offer and sale of the Securities
required under applicable securities or "Blue Sky" laws of the states of the
United States following each of the Closing Dates.
c. Reporting Status. Until the earlier of (i) the date which is one
----------------
year after the date on which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto) and (ii) the date on which (A) the Investors
shall have sold all the Conversion Shares and the Warrant Shares and (B) none of
the Notes or the Warrants is outstanding (the "Reporting Period"), the Company
shall file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall not terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.
d. Use of Proceeds. The Company will use the proceeds from the sale
---------------
of the Notes for substantially the same purposes and in substantially the same
amounts as indicated in Schedule 4(d).
------------
15
<PAGE>
e. Financial Information. The Company agrees to send the following
---------------------
to each Investor (as defined in the Registration Rights Agreement) during the
Reporting Period: (i) within two (2) days after the filing thereof with the SEC,
a copy of its Annual Reports on Form 10-K or Form 10-KSB, its Quarterly Reports
on Form 10-Q or Form 10-QSB, any Current Reports on Form 8-K and any
registration statements (other than on Form S-8) or amendments filed pursuant to
the 1933 Act; (ii) on the same day as the release thereof, facsimile copies of
all press releases issued by the Company or any of its Subsidiaries and (iii)
copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.
f. Reservation of Shares. The Company shall take all action
---------------------
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than the sum of (A) 200% the number of shares of Common Stock
needed to provide for the issuance of the Conversion Shares and (B) 100% the
number of shares of Common Stock needed to provide for the issuance of the
Warrant Shares (without regard to any limitations on conversions or exercise
thereof).
g. Listing. The Company shall promptly secure the listing of all of
-------
the Registrable Securities (as defined in the Registration Rights Agreement)
upon each national securities exchange and automated quotation system (including
the Nasdaq National Market), if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents. The Company shall maintain the Common Stock's
authorization for listing on the Nasdaq National Market or the New York Stock
Exchange ("NYSE"). Neither the Company nor any of its Subsidiaries shall
voluntarily take any action which may result in the delisting or suspension of
the Common Stock on the Nasdaq National Market or NYSE (other than to switch
listings from the Nasdaq National Market to NYSE). The Company shall promptly,
and in no event later than the following Business Day, offer to provide to such
Buyer copies of any notices it receives from the Nasdaq National Market or NYSE
regarding the continued eligibility of the Common Stock for listing on such
automated quotation system or securities exchange, provided that such notices
shall not contain any material non-public information. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(h).
h. Expenses. Subject to Section 9(l) below, at the Initial Closing,
--------
the Company shall reimburse the Buyers for the Buyers' expenses (including legal
expenses, in connection with due diligence and negotiating and preparing the
Transaction Documents and consummating the transactions contemplated thereby) of
$40,000, which amount shall be deducted from the Initial Purchase Price.
i. Transactions With Affiliates. So long as (i) any Notes or
----------------------------
Warrants are outstanding or (ii) any Buyer owns Conversion Shares or Warrant
Shares with a market value of at least $500,000 the Company shall not, and shall
cause each of its Subsidiaries not to,
16
<PAGE>
enter into, amend, modify or supplement, or permit any Subsidiary to enter into,
amend, modify or supplement, any agreement, transaction, commitment or
arrangement with any of its or any Subsidiary's officers, directors, person who
were officers or directors at any time during the previous two years,
stockholders who beneficially own 5% or more of the Common Stock, or affiliates
or with any individual related by blood, marriage or adoption to any such
individual or with any entity in which any such entity or individual owns a 5%
or more beneficial interest (each a "Related Party"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
agreement, transaction, commitment or arrangement which is approved by a
majority of the disinterested directors of the Company or (c) any agreement,
transaction, commitment or arrangement on an arms-length basis on terms no less
favorable than terms which would have been obtainable from a person other than
such Related Party. For purposes hereof, any director who is also an officer of
the Company or any Subsidiary of the Company shall not be a disinterested
director with respect to any such agreement, transaction, commitment or
arrangement. "Affiliate" for purposes hereof means, with respect to any person
or entity, another person or entity that, directly or indirectly, (i) has a 5%
or more equity interest in that person or entity, (ii) has 5% or more common
ownership with that person or entity, (iii) controls that person or entity, or
(iv) shares common control with that person or entity. "Control" or "controls"
for purposes hereof means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.
j. Proxy Statement. The Company shall provide each stockholder
---------------
entitled to vote at the next meeting of stockholders of the Company, which
meeting shall occur on or before the Proxy Statement Trigger Date (the
"Stockholder Meeting Deadline"), a proxy statement, which has been previously
reviewed by the Buyers and a counsel of their choice, soliciting each such
stockholder's affirmative vote at such stockholder meeting for approval of the
Company's issuance of all of the Securities as described in this Agreement in
accordance with applicable law and the rules and regulations of the Nasdaq
National Market, and the Company shall use its best efforts to solicit its
stockholders' approval of such issuance of the Securities and cause the Board of
Directors of the Company to recommend to the stockholders that they approve such
proposal. If the Company fails to hold a meeting of its stockholders by the
Stockholder Meeting Deadline, then, as partial relief (which remedy shall not be
exclusive of any other remedies available at law or in equity), the Company
shall pay to each holder of Notes an amount in cash equal to the product of (i)
the principal amount of Notes held by such holder of Notes multiplied by (ii)
.015 multiplied by (iii) the quotient of (x) the number of days after the
Stockholder Meeting Deadline and prior to the date that a meeting of the
Company's stockholders is held, divided by (y) 30. The Company shall make the
payments referred to in the immediately preceding sentence within five days of
the earlier of (I) the holding of the meeting of the Company's stockholders and
(II) the last day of each 30-day period beginning on the Stockholder Meeting
Deadline. The "Proxy Statement Trigger Date" shall mean the first date after the
date of this Agreement on which the sum of (i) the number of Conversion Shares
issued or issuable upon conversion of the Notes (without regards to any
limitations on conversions) and (ii) the number of Warrant Shares issued upon
exercise of the Warrants (without regards to any limitations on Conversion),
each based on the Conversion Price in
17
<PAGE>
effect on the date of such determination, is greater than or equal to 15% of the
number of shares of Common Stock issued and outstanding immediately prior to the
Initial Closing.
k. Filing of Form 8-K. On or before the 1st day following each of
------------------
the Closing Dates and the Additional Note Notice Date, the Company shall file a
Form 8-K with the SEC describing the terms of the transaction contemplated by
the Transaction Documents and consummated at such Closing, in each case in the
form required by the 1934 Act.
l. Corporate Existence. So long as any Buyer beneficially owns any
-------------------
Notes or Warrants, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company's assets, except in the event
of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose common stock is listed for trading on the Nasdaq National
Market or NYSE.
18
<PAGE>
5. TRANSFER AGENT INSTRUCTIONS.
---------------------------
The Company shall issue irrevocable instructions to its transfer
agent, and any subsequent transfer agent, to issue certificates, registered in
the name of each Buyer or its respective nominee(s), for the Conversion Shares
and the Warrant Shares in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Notes or exercise of the Warrants
(in the form attached hereto as Exhibit E, the "Irrevocable Transfer Agent
---------
Instructions"). Prior to registration of the Conversion Shares and the Warrant
Shares under the 1933 Act, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof (in the case of the Conversion Shares and the Warrant Shares, prior to
registration of the Conversion Shares and the Warrant Shares under the 1933 Act)
will be given by the Company to its transfer agent with respect to the
Securities and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the Registration Rights Agreement. Nothing in this Section 5 shall affect
in any way each Buyer's obligations and agreements set forth in Section 2(g) to
comply with all applicable prospectus delivery requirements, if any, upon resale
of the Securities. If a Buyer provides the Company with an opinion of counsel,
in a form reasonable satisfactory to the Company, that registration of a resale
by such Buyer of any of such Securities is not required under the 1933 Act or
such Buyer provides the Company with reasonable assurances that the Securities
can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in
the case of the Conversion Shares and the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer and without any restrictive legends.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
----------------------------------------------
(a) The obligation of the Company hereunder to issue and sell the
Initial Notes and the Initial Warrants to each Buyer at the Initial Closing is
subject to the satisfaction, at or before the Initial Closing Date, of each of
the following conditions, provided that these conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole discretion
by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
19
<PAGE>
(ii) Such Buyer shall have delivered to the Company its pro
rata portion of the Initial Purchase Price for the Initial Notes and the
Initial Warrants being purchased by such Buyer at the Initial Closing by
wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
(iii) The representations and warranties of such Buyer contained
herein shall be true and correct as of the date when made and as of the
Initial Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and such
Buyer shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by such Buyer at or prior to the
Initial Closing Date.
(b) Any obligation of the Company hereunder to issue and sell the
Additional Notes and the Additional Warrants to each Buyer at the Additional
Closing is subject to the satisfaction, at or before the Additional Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have delivered to the Company its pro
rata portion of the Additional Purchase Price for the Additional Notes and
the Additional Warrants being purchased by such Buyer at the Additional
Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.
(ii) The representations and warranties of such Buyer contained
herein shall be true and correct as of the date when made and as of the
Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and such
Buyer shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by such Buyer at or prior to the
Additional Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
-------------------------------------------------
(a) The obligation of each Buyer hereunder to purchase the Initial
Notes and the Initial Warrants at the Initial Closing is subject to the
satisfaction, at or before the Initial Closing Date, of each of the following
conditions, provided that these conditions are for such Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion by providing the
Company and each Buyer with prior written notice thereof:
(i) The Company shall have executed each of the Transaction
Documents, and delivered the same to such Buyer.
20
<PAGE>
(ii) The Common Stock shall be designated for quotation on the
Nasdaq National Market or listed on NYSE, and shall not have been suspended
from trading on or delisted from such exchanges (excluding suspensions of
not more than one day due to business announcements by the Company) nor
shall delisting or suspension by such exchanges have been threatened either
(A) in writing by such exchanges or (B) by falling below the minimum
listing maintenance requirements of such exchanges and the Company has
complied with the listing requirements of the Nasdaq National Market for
the Conversion Shares and the Warrant Shares issuable upon conversion or
exercise of the Initial Notes and the Initial Warrants, as the case may be.
(iii) The representations and warranties of the Company
contained herein shall be true and correct as of the date when made and as
of the Initial Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date and the
Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the
Initial Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the
Initial Closing Date, to the foregoing effect and as to such other matters
as such Buyer may reasonably request, including, without limitation, an
update as of the Initial Closing Date regarding the representation
contained in Section 3(c) above.
(iv) Such Buyer shall have received the opinion of Bingham Dana
LLP dated as of the Initial Closing Date, in substantially the forms of
Exhibit D attached hereto.
---------
(v) The Company shall have executed and delivered to such
Buyer the Note Certificates for the Initial Notes and the Initial Warrants
being purchased by such Buyer at the Initial Closing.
(vi) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form reasonably
acceptable to such Buyer (the "Resolutions").
(vii) As of the Initial Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Initial Notes and exercise of
the Initial Warrants, at least 1,557,335 shares of Common Stock.
(viii) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit E attached hereto, shall have been delivered to and acknowledged
---------
in writing by the Company's transfer agent.
(ix) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the Company
and each domestic
21
<PAGE>
Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within ten
days of the Initial Closing Date.
(x) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) the By-laws, each as in effect at the
Initial Closing Date.
(xi) The Company shall have delivered to such Buyer a certified
copy of its Certificate of Incorporation as certified by the Secretary of
State of the State of Delaware within ten days of the Initial Closing Date.
(xii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Initial Closing
Date.
(xiii) The Company shall have delivered to the Buyers such other
documents relating to the transactions contemplated by the Transaction
Documents as the Buyers or their counsel may reasonably request.
(b) The obligation of each Buyer hereunder to purchase the Additional
Notes and the Additional Warrants at the Additional Closing is subject to the
satisfaction, at or before the Additional Closing Date, of each of the following
conditions, provided that these conditions are for such Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion by providing the
Company and each Buyer with prior written notice thereof:
(i) The Company shall have complied with the requirements of
Section 1(c) and all of the Additional Notice Conditions set forth in
Section 1(d) shall have been satisfied as of the Additional Closing Date.
(ii) The Common Stock shall be designated for quotation on the
Nasdaq National Market or listed on NYSE, and shall not have been suspended
from trading on or delisted from such exchanges nor shall delisting or
suspension by such exchanges have been threatened either (A) in writing by
such exchanges or (B) by falling below the minimum listing maintenance
requirements of such exchanges and the Company has complied with the
listing requirements of the Nasdaq National Market for the Conversion
Shares and the Warrant Shares issuable upon conversion or exercise of the
Additional Notes and the Additional Warrants, as the case may be.
(iii) The representations and warranties of the Company
contained herein shall be true and correct as of the date when made and as
of the Additional Closing Date as though made at that time (except for (A)
representations and warranties that speak as of a specific date and (B)
with respect to the representations made in Section 3(c) and the list of
Subsidiaries referred to in Section 3(a), events which occur on or after
the date of this Agreement and are disclosed in SEC filings made by the
Company at least ten Business Days prior to the Additional Note Notice
Date) and the
22
<PAGE>
Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the
Additional Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the
Additional Closing Date, to the foregoing effect and as to such other
matters as such Buyer may reasonably request, including, without
limitation, an update as of the Additional Closing Date regarding the
representation contained in Section 3(c) above.
(iv) Such Buyer shall have received the opinion of Bingham Dana
LLP dated as of the Additional Closing Date, in substantially the forms of
Exhibit D attached hereto.
---------
(v) The Company shall have executed and delivered to such
Buyer the Note Certificates for the Additional Notes and the Additional
Warrants being purchased by such Buyer at the Additional Closing.
(vi) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form reasonably
acceptable to such Buyer (the "Resolutions").
(vii) As of the Additional Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, at least the sum
of (A) 200% of the number of Conversion Shares issuable upon the conversion
of the Notes (as if the Additional Notes were issued and outstanding) and
(B) the number of Warrant Shares issuable upon the exercise of the Warrants
(as if the Additional Warrants were issued and outstanding).
(viii) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit E attached hereto, shall have been delivered to and acknowledged
---------
in writing by the Company's transfer agent.
(ix) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the Company
and each domestic Subsidiary in such corporation's state of incorporation
issued by the Secretary of State of such state of incorporation as of a
date within ten days of the Additional Closing Date.
(x) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) the By-laws, each as in effect at the
Additional Closing Date.
(xi) The Company shall have delivered to such Buyer a certified
copy of its Certificate of Incorporation as certified by the Secretary of
State of the State of Delaware within ten days of the Additional Closing
Date.
23
<PAGE>
(xii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Additional Closing
Date.
(xiii) The Registration Statement registering no less than the
sum of (A) 200% of the number of Conversion Shares then issuable upon the
conversion of all outstanding Notes (including the Additional Notes as if
they were issued and outstanding and without regard to any limitations on
conversion), (B) the number of Warrant Shares then issuable upon exercise
of all outstanding Warrants (including the Additional Warrants as if they
were issued and outstanding and without regard to any limitations on
exercise) and (C) the number of Conversion Shares and Warrant Shares that
are then held by the Buyers shall have been declared effective by the SEC
and shall be available for resale for all the Registrable Securities.
(xiv) the Company shall have received shareholder approval of
the issuance of the Conversion Shares and Warrant Shares consistent with
the requirements of Section 4(j).
(xv) The Company shall have delivered to the Buyers such other
documents relating to the transactions contemplated by the Transaction
Documents as the Buyers or their counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
---------------
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
officers, directors, employees and direct or indirect investors and any of the
foregoing persons' agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or any other certificate, instrument or document
contemplated thereby or (c) any cause of action, suit or claim brought or made
against such Indemnitee (other than a cause of action, suit or claim which is
(x) brought or made by the Company and (y) is not a shareholder derivative suit)
and arising out of or resulting from (i) the execution, delivery, performance or
enforcement of the Transaction Documents, (ii) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Securities or (iii) solely the status of such
24
<PAGE>
Buyer or holder of the Securities as an investor in the Company. To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
----------------------------
a. Governing Law; Jurisdiction; Jury Trial. The corporate laws of the
---------------------------------------
State of Delaware shall govern all issues concerning the relative rights of the
Company and its stockholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting the City of New York, borough of Manhattan for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
------------
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid
------------
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
25
<PAGE>
e. Entire Agreement; Amendments. This Agreement supersedes all other
----------------------------
prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Buyers which purchased at least two-thirds (2/3) of the
aggregate principal amount of the Initial Notes on the Initial Closing Date or,
if prior to the Initial Closing Date, the Buyers listed on the Schedule of
Buyers as being obligated to purchase at least two-thirds (2/3) of the aggregate
principal amount of the Notes proposed to be issued at the Initial Closing. No
provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Notes or Warrants then outstanding. No consideration shall be offered or paid
to any person to amend or consent to a waiver or modification of any provision
of any of the Transaction Documents unless the same consideration also is
offered to all of the parties to the Transaction Documents or holders of the
Notes as the case may be.
f. Notices. Any notices, consents, waivers or other communications
-------
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
RoweCom Inc.
725 Concord Avenue
Cambridge, Massachusetts 02138
Telephone: (617) 497-5800
Facsimile: (617) 497-6825
Attention: Louis Hernandez
Executive Vice President
and Chief Financial Officer
With a copy to:
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
26
<PAGE>
Telephone: (617) 951-8000
Facsimile: (617) 951-8736
Attention: Brian Keeler, Esq.
If to the Transfer Agent:
BankBoston N.A.
c/o EquiServe
Blue Hills Office Park
150 Royal Street
Canton, Massachusetts 02021
Telephone: (781) 575-4190
Facsimile: (781) 575-2420
Attention: Michael Simeoni
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, or at such other address and/or facsimile number and/or
to the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communications, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes. The Company shall not assign this
Agreement or any rights or obligations hereunder, including by merger or
consolidation, without the prior written consent of the Buyers which purchased
at least two-thirds (2/3) of the aggregate principal amount of the Initial Notes
on the Initial Closing Date. The rights under this Agreement shall be
assignable by a Buyer without consent of the Company. Notwithstanding the
foregoing, any assignment by a Buyer shall not release such Buyer from its
obligations hereunder unless such obligations are assumed by such assignee and
such Buyer has proved, to the Company's reasonable satisfaction, that such
assignee has the financial ability to satisfy such assignees obligations under
Sections 1(a) and (c). Notwithstanding anything to the contrary contained in
the Transaction Documents, the Buyers shall be entitled to pledge the Securities
in connection with a bona fide margin account.
h. No Third Party Beneficiaries. This Agreement is intended for the
----------------------------
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
27
<PAGE>
i. Survival. Unless this Agreement is terminated under Section 9(l),
--------
the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive each of
the Closings. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right to
---------
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of the Buyer, to make any
press release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. Further Assurances. Each party shall do and perform, or cause to
------------------
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Initial Closing shall not
-----------
have occurred with respect to a Buyer on or before three (3) Business Days from
the date hereof due to the Company's or the Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the non-breaching party's
failure to waive such unsatisfied condition(s)), the non-breaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(l), the Company shall remain obligated to reimburse non-breaching
Buyers for expenses up to the amount described in Section 4(h) above.
m. Placement Agent. The Company acknowledges that it has engaged
---------------
J.C. Bradford & Co. as a placement agent in connection with the sale of the
Notes and the Warrants. The Company shall be responsible for the payment of any
placement agent's fees or brokers' commissions relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.
n. No Strict Construction. The language used in this Agreement will
----------------------
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each permitted transferee of the
--------
Securities shall have all rights and remedies set forth in the Transaction
Documents and all rights and remedies which such Buyer or permitted transferee
of the Securities have been granted at any
<PAGE>
time under any other agreement or contract and all of the rights which such
holders have under any law. Any person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a
-----------------
payment or payments to any Buyer hereunder or pursuant to the Registration
Rights Agreement or the Warrants or such Buyer enforces or exercises its rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
* * * * * *
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY: BUYER:
ROWECOM INC. HFTP INVESTMENT L.L.C.
By: Promethean Asset Management, L.L.C.
Its: Investment Manager
By: /s/ Louis Hernandez, Jr. By: /s/ James F. O'Brien, Jr.
-------------------------------- -----------------------------------
Name: Louis Hernandez, Jr. Name: James F. O'Brien, Jr.
Title: Executive Vice President and Its: Managing Member
Chief Financial Officer
LEONARDO, L.P.
By: Angelo, Gordon & Co., L.P.
By: /s/ Michael L. Gordon
-------------------------------
Name: Michael L. Gordon
Title: Chief Operating Officer
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Principal
Amount of
Investor Address Initial Notes Investor's Representatives' Address
Investor Name and Facsimile Number and Facsimile Number
- ---------------------------- --------------------------------------- ------------------ -------------------------------------
<S> <C> <C> <C>
HFTP Investment L.L.C. c/o Promethean Asset Management, L.L.C. $10,000,000 Promethean Investment Group, L.L.C.
750 Lexington Avenue 750 Lexington Avenue
22/nd/ Floor 22/nd/ Floor
New York, New York 10022 New York, New York 10022
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
John Floegel John Floegel
Telephone: 212-702-5200 Telephone: 212-702-5200
Facsimile: 212-758-9334 Facsimile: 212-758-9334
Residence: New York Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Telephone: 312-902-5200
Facsimile: 312-902-1061
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P. $10,000,000 c/o Angelo, Gordon & Co., L.P.
245 Park Avenue - 26/th/ Floor 245 Park Avenue - 26/th/ Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Telephone: 212-692-2035 Telephone: 212-692-2035
Facsimile: 212-867-6449 Facsimile: 212-867-6449
Residence: Cayman Island
</TABLE>
<PAGE>
SCHEDULES
---------
Schedule of Buyers
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(e) - Conflicts
Schedule 3(f) - SEC Documents
Schedule 3(g) - Material Changes
Schedule 3(h) - Litigation
Schedule 3(n) - Intellectual Property
Schedule 3(r) - Transactions with Affiliates
Schedule 3(x) - Liens
Schedule 4(d) - Use of Proceeds
EXHIBITS
--------
Exhibit A - Form of Notes
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Opinion of Counsel
Exhibit E - Form of Irrevocable Transfer Agent Instructions
<PAGE>
EXHIBIT 99.2
FORM OF NOTE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY SATISFACTORY TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW
THE TERMS OF THIS NOTE, INCLUDING SECTION 2(e)(viii) HEREOF. THE PRINCIPAL
AMOUNT AND THE INTEREST THEREON REPRESENTED BY THIS NOTE MAY BE LESS THAN THE
AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(e)(viii) OF THIS
NOTE.
CONVERTIBLE NOTE
----------------
_______ __, ______ $____________
FOR VALUE RECEIVED, RoweCom Inc., a Delaware corporation (the "Company"),
hereby promises to pay to the order of __________________ or registered assigns
("Holder") the principal amount of ___________________ Dollars
($________________), on the Maturity Date (as defined below), and to pay simple
interest ("Interest") on the unpaid principal balance hereof at the rate of 6.0%
per annum from the date hereof until the same becomes due and payable, whether
at, maturity or upon acceleration or by conversion or redemption in accordance
with the terms hereof or otherwise. Interest on this Note shall commence
accruing on the Issuance Date and shall be computed on the basis of a 365-day
year and actual days elapsed and shall be payable at the time of optional or
mandatory conversion or redemption of the principal to which such interest
relates in accordance with Section 1 hereof. Any amount of interest on this
Note which is not paid when due shall bear interest at the rate of 18% per annum
from the date thereof until the same is paid ("Default Interest").
<PAGE>
1. Payments of Principal and Interest. All payments of principal and
----------------------------------
interest on this Note (to the extent such principal and/or interest is not
converted into Common Stock in accordance with the terms hereof) shall be made
in lawful money of the United States of America by wire transfer of immediately
available funds to such account as the Holder may from time to time designate by
written notice in accordance with the provisions of this Note. Whenever any
amount expressed to be due by the terms of this Note is due on any day which is
not a Business Day (as defined below), the same shall instead be due on the next
succeeding day which is a Business Day and, in the case of any interest payment
date which is not the date on which this Note is paid in full, the extension of
the due date thereof shall not be taken into account for purposes of determining
the amount of interest due on such date. For purposes of this Note, "Business
Day" shall mean any day other than a Saturday, Sunday or a day on which
commercial banks in The City of New York are authorized or required by law or
executive order to remain closed. Each capitalized term used herein, and not
otherwise defined, shall have the meaning ascribed thereto in the Securities
Purchase Agreement, dated October __, 1999, pursuant to which this Note and the
Other Notes (as defined below) were originally issued (the "Securities Purchase
Agreement"). This Note and the Other Notes issued by the Company pursuant to
the Securities Purchase Agreement are collectively referred to in this Note as
the "Notes."
2. Conversion of Notes. This Note shall be convertible into shares of the
-------------------
Company's common stock, $0.01 par value per share (the "Common Stock"), on the
terms and conditions set forth in this Section 2.
(a) Certain Defined Terms. For purposes of this Note, the following
---------------------
terms shall have the following meanings:
(i) "Additional Amount" means, with respect to any principal
amount of Notes, the sum of (A) accrued and unpaid Interest on such
principal amount and (B) Default Interest, if any, on the interest
referred to in the immediately preceding clause (A).
(ii) "Approved Stock Plan" means any employee benefit plan
which has been approved by the Board of Directors of the Company,
pursuant to which the Company's securities may be issued to any
employee, officer, director or consultant for services provided to the
Company.
(iii) "Closing Sale Price" means, for any security as of any
date, the last closing trade price for such security on the Principal
Market as reported by Bloomberg, or, if the Principal Market is not
the principal securities exchange or trading market for such security,
the last closing trade price of such security on the principal
securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the
last closing trade price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported
by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the last
<PAGE>
closing ask price of such security as reported by Bloomberg, or, if no
last closing ask price is reported for such security by Bloomberg, the
average of the lowest ask price and the lowest bid price of any market
makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Sale Price cannot be
calculated for such security on such date on any of the foregoing
bases, the Closing Sale Price of such security on such date shall be
the fair market value as mutually determined by the Company and the
holders of Notes. If the Company and the holders of Notes are unable
to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 2(e)(iii) below with the
term "Closing Sale Price" being substituted for the term "Weighted
Average Price." All such determinations to be appropriately adjusted
for any stock dividend, stock split or other similar transaction
during such period.
(iv) "Conversion Price" means, as of any Conversion Date (as
defined below) or other date of determination (including, but not
limited to the Company Election Conversion Date (as defined in Section
hereof)), 93% of the Weighted Average Price of the Common Stock (the
"Daily Market Price"), provided that in no event shall the Conversion
Price exceed the Fixed Conversion Price, each in effect as of such
date and subject in each case to adjustment as provided herein.
(v) "Weighted Average Price" means, for any security as of any
date, the dollar volume-weighted average price for such security on
the Principal Market (as reported by Bloomberg through its "Volume at
Price" function) or, if the Principal Market is not the principal
securities exchange or trading market for such security, the dollar
volume-weighted average price of such security on the principal
securities exchange or trading market where such security is listed or
traded (as reported by Bloomberg through its "Volume at Price"
function), or if the foregoing do not apply, the dollar volume-
weighted average price of such security in the over-the-counter market
on the electronic bulletin board for such security as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported
for such security by Bloomberg, the average of the bid prices of each
of the market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Weighted
Average Price cannot be calculated for such security on such date on
any of the foregoing bases, the Weighted Average Price of such
security on such date shall be the fair market value as mutually
determined by the Company and the holders of the Notes. If the
Company and the holders of the Notes are unable to agree upon the fair
market value of the Common Stock, then such dispute shall be resolved
pursuant to Section 2(e)(iii) below. All such determinations to be
appropriately adjusted for any stock dividend, stock split or other
similar transaction during such period.
(vi) "Conversion Amount" means the sum of (A) the principal
amount of this Note to be converted, redeemed or otherwise with
respect to
3
<PAGE>
which this determination is being made and (B) the Additional Amount
with respect to such principal amount, provided that the Company has
not elected to pay such Additional Amount in cash as described in
Section 2(c)(ii).
(vii) "Fixed Conversion Price" means, with respect to any Note,
(A) as of any Conversion Date or other date of determination prior to
and including the date which is 457 days after the Initial Issuance
Date, $53.00 and (B) as of any Conversion Date or other date of
determination after the date which is 457 days after the Initial
Issuance Date, the arithmetic average of the Closing Sale Price of the
Common Stock on the 10 consecutive trading days immediately preceding
the date which is 457 days after the Initial Issuance Date, in each
case subject to adjustment as provided herein.
(viii) "Initial Issuance Date" means the first date on which any
Notes are issued pursuant to the Securities Purchase Agreement.
(ix) "Issuance Date" means, with respect to each Note, the
date of issuance of the applicable Note.
(x) "Maturity Date" means (i) for any Notes issued on the
Initial Issuance Date, the date which is 640 days after the Initial
Issuance Date and (ii) for any Notes issued after the Initial Issuance
Date, the later of (A) the date which is 640 days after the Initial
Issuance Date and (B) the date which is 365 days after the Issuance
Date of such Notes, subject to extension pursuant to Section
2(e)(vii).
(xi) "Other Notes" means the convertible notes, other than
this Note, issued by the Company pursuant to the Securities Purchase
Agreement.
(xii) "Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or
agency thereof.
(xiii) "Principal Market" means the Nasdaq National Market.
(xiv) "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(xv) "Convertible Securities" means any stock or securities
(other than Options) directly or indirectly convertible into or
exchangeable for Common Stock.
(b) Holder's Conversion Right; Mandatory Conversion. Subject to the
-----------------------------------------------
provisions of Sections 2(d) and 7, at any time or times on or after the Issuance
Date (as defined below), the Holder shall be entitled to convert any part of the
outstanding and unpaid Conversion Amount of this Note into fully paid and
nonassessable shares of Common Stock in accordance with Section 2(d), at the
Conversion Rate (as defined below). If any Conversion Amount of
4
<PAGE>
this Note remains outstanding on the Maturity, then, pursuant to Section
2(e)(vii), all of such Conversion Amount shall be converted at the Conversion
Rate as of such date in accordance with Section 2(d) or redeemed by the Company.
The Company shall not issue any fraction of a share of Common Stock upon any
conversion. All shares of Common Stock (including fractions thereof) issuable
upon conversion of this Note by the Holder shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a fraction of
a share of Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock up or down to the
nearest whole share.
(c) Conversion.
----------
(i) Conversion Rate. The number of shares of Common Stock
---------------
issuable upon conversion of a Conversion Amount of this Note pursuant to
Section 2(b) shall be determined according to the following formula (the
"Conversion Rate"):
Conversion Amount
-----------------
Conversion Price
(ii) Cash Payment of Additional Amount. Subject to the notice
---------------------------------
provisions of this Section 2(c)(ii), upon conversion pursuant to Sections
2(b) or 2(e)(vii), the Company shall have the right to elect to pay the
Additional Amount in cash, in lieu of conversion to Common Stock. If the
Company elects to pay the Additional Amount in cash, such cash shall be
paid simultaneously with the delivery to the holder of the certificates
representing the Common Stock issuable upon conversion in accordance with
Section 2(e)(ii). In order to exercise its right to pay any Additional
Amount in cash, the Company must advise each Holder of the Notes in writing
(the "Cash Payment Notice") that the Additional Amount shall be paid in
cash until such time as the Company shall terminate the Cash Payment Notice
by providing at least five (5) Business Days prior written notice of such
termination (the "Termination Notice"). The Cash Payment Notice shall set
forth the effective date of the Cash Payment Notice, which date shall be at
least five (5) Business Days after the date the Cash Payment Notice is
deemed to have been delivered pursuant to Section 25. The Termination
Notice shall be effective on the fifth Business Day after the date the
Termination Notice is deemed to have been delivered pursuant to Section 25
unless a later date shall be specified in the Termination Notice.
5
<PAGE>
(d) Limitations on Beneficial Ownership. The Company shall not effect
-----------------------------------
any conversion of this Note and no Holder shall have the right to convert
any portion of this Note pursuant to Section 2(b) to the extent that after
giving effect to such conversion such Person (together with such Person's
affiliates) would beneficially own in excess of 4.99% of the outstanding
shares of the Common Stock following such conversion. For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned
by a Person and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Note with respect to which the
determination of such sentence is being made, but shall exclude the number
of shares of Common Stock which would be issuable upon (i) conversion of
the remaining, nonconverted portion of this Note beneficially owned by such
Person and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
(including, without limitation, any warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein
beneficially owned by such Person and its affiliates. Except as set forth
in the preceding sentence, for purposes of this Section 2(d), beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. For purposes of this Section
2(d), in determining the number of outstanding shares Common Stock a Holder
may rely on the number of outstanding shares of Common Stock as reflected
in (1) the Company's most recent Form 10-Q or Form 10-K, as the case may
be, (2) a more recent public announcement by the Company or (3) any other
notice by the Company or its transfer agent setting forth the number of
shares of Common Stock outstanding. For any reason at any time, upon the
written or oral request of the Holder, the Company shall promptly confirm
orally and in writing to the Holder the number of shares Common Stock then
outstanding. In any case, the number of outstanding shares Common Stock
shall be determined after giving effect to exercises of Warrants (as
defined in the Securities Purchase Agreement) and conversions of the Notes
by the Holder and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.
(e) Mechanics of Conversion. The conversion of this Note at the option of
-----------------------
the Holder shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert this Note into
------------------------------
shares of Common Stock on any date (the "Conversion Date"), the Holder
hereof shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 11:59 p.m., Eastern Time on such date, a copy
of a fully executed notice of conversion in the form attached hereto
as Exhibit I (the "Conversion Notice") to the Company with a copy
thereof to the Company's designated transfer agent (the "Transfer
Agent") and (B) if required by Section 2(e)(viii), surrender to a
common carrier for delivery to the Company as soon as practicable
following such date the original Note being converted (or an
indemnification undertaking with respect to such Note in the case of
its loss, theft or destruction). The Holder shall use its best
efforts to deposit with an overnight courier service a copy of each
Conversion Notice within one (1) Business Day of facsimile
transmission of such Conversion Notice; provided,
6
<PAGE>
however, that the failure of any Holder to satisfy its obligations
under this sentence shall not effect the Conversion Date or the
obligations of the Company for any conversion of Notes.
(ii) Company's Response. Upon receipt by the Company of a copy
------------------
of a Conversion Notice, the Company (1) shall promptly, and in no
event later than one business day after receipt, immediately send, via
facsimile, a confirmation of receipt of such Conversion Notice to such
Holder and the Transfer Agent, which confirmation shall constitute an
instruction to the Transfer Agent to process such Conversion Notice in
accordance with the terms herein and (2) on or before the second
Business Day following the date of receipt by the Company of such
Conversion Notice (the "Share Delivery Date"), (A) issue and deliver
to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number
of shares of Common Stock to which the Holder shall be entitled, or
(B) provided the Transfer Agent is participating in The Depository
Trust Company ("DTC") Fast Automated Securities Transfer Program, upon
the request of the holder, credit such aggregate number of shares of
Common Stock to which the Holder shall be entitled to the holder's or
its designee's balance account with DTC through its Deposit Withdrawal
Agent Commission system. Subject to Section 2(e)(viii), if less than
the Conversion Amount of this Note is submitted for conversion, then
the Company shall, as soon as practicable and in no event later than
three (3) Business Days after receipt of the Note (the "Note Delivery
Date") and at its own expense, issue and deliver to the Holder a new
Note for the outstanding principal amount not converted.
(iii) Dispute Resolution. In the case of a dispute as to the
------------------
determination of the Weighted Average Price or the arithmetic
calculation of the Conversion Rate, the Company shall instruct the
Transfer Agent to issue to the Holder the number of shares of Common
Stock that is not disputed and shall submit the disputed
determinations or arithmetic calculations to the Holder via facsimile
within one (1) Business Day of receipt of such holder's Conversion
Notice. If such Holder and the Company are unable to agree upon the
determination of the Weighted Average Price or arithmetic calculation
of the Conversion Rate within one (1) Business Day of such disputed
determination or arithmetic calculation being submitted to the Holder,
then the Company shall within one (1) Business Day submit via
facsimile (A) the disputed determination of the Weighted Average Price
to an independent, reputable investment bank selected by the Company
and approved by the Holders of the Notes representing a majority of
the Conversion Amounts of the Notes then outstanding or (B) the
disputed arithmetic calculation of the Conversion Rate to the
Company's independent, outside accountant. The Company shall use its
best efforts to cause the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify
the Company and the Holders of the results no later than three (3)
Business Days from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's
7
<PAGE>
determination or calculation, as the case may be, shall be binding
upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to receive
-------------
the shares of Common Stock issuable upon a conversion of this Note
shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert.
-----------------------------------
(A) Cash Damages. If within five (5) Business Days after
------------
the Company's receipt of a facsimile or other copy of the
Conversion Notice the Company shall fail to issue a certificate
to the Holder or credit the Holder's balance account with DTC for
the number of shares of Common Stock to which such Holder is
entitled upon such Holder's conversion of this Note or, subject
to Section 2(e)(viii), the Company shall fail to issue a new Note
representing the principal amount to which such Holder is
entitled, if any, pursuant to Section 2(e)(ii), in addition to
all other available remedies which such Holder may pursue
hereunder and under the Securities Purchase Agreement (including
indemnification pursuant to Section 8 thereof), the Company shall
pay additional damages to such Holder for each date after the
Share Delivery Date such conversion is not timely effected and/or
each date after the Note Delivery Date such new Note is not
delivered in an amount equal to 0.5% of the product of (I) the
sum of the number of shares of Common Stock not issued to the
Holder on or prior to the Share Delivery Date and to which such
Holder is entitled and, in the event the Company has failed to
deliver a new Note to the Holder on or prior to the Note Delivery
Date, the number of shares of Common Stock issuable upon
conversion of the Conversion Amount represented by new Note, as
of the Note Delivery Date and (II) the Closing Sale Price of the
Common Stock on the Share Delivery Date, in the case of the
failure to deliver Common Stock, or the Note Delivery Date, in
the case of failure to deliver a new Note. If the Company fails
to pay the additional damages set forth in this Section 2(e)(v)
within five Business Days of the date incurred, then the Holder
entitled to such payments shall have the right at any time, so
long as the Company continues to fail to make such payments, to
require the Company, upon written notice, to immediately issue,
in lieu of such cash damages, the number of shares of Common
Stock equal to the quotient of (X) the aggregate amount of the
damages payments described herein divided by (Y) the Conversion
Price in effect on such Conversion Date as specified by the
Holder in the Conversion Notice.
(B) Void Conversion Notice; Adjustment to Conversion Price.
------------------------------------------------------
If for any reason the Holder has not received all of the shares
of Common Stock prior to the tenth (10th) Business Day after the
expiration
8
<PAGE>
of the Share Delivery Date with respect to a conversion of this
Note, then the Holder, upon written notice to the Company, may
void its Conversion Notice with respect to, and retain or have
returned, as the case may be, any principal amount of this Note
that has not been converted pursuant to such Holder's Conversion
Notice; provided that the voiding of a Holder's Conversion Notice
--------
shall not effect the Company's obligations to make any payments
which have accrued prior to the date of such notice pursuant to
Section 2(e)(v)(A) or otherwise. Thereafter, the Fixed Conversion
Price of the principal amount of this Note returned or retained
by the Holder for failure to timely convert shall be adjusted to
the lesser of (I) the Fixed Conversion Price as in effect on the
date on which the Holder voided the Conversion Notice and (II)
the lowest Closing Sale Price during the period beginning on the
Conversion Date and ending on the date such Holder voided the
Conversion Notice, subject to further adjustment as provided in
this Note.
(C) Redemption. If for any reason the Holder has not
----------
received all of the shares of Common Stock prior to the tenth
(10th) Business Day after the Share Delivery Date with respect to
a conversion of this Note (a "Conversion Failure"), then the
Holder, upon written notice to the Company, may require that the
Company redeem all of the Conversion Amount of this Note,
including the Conversion Amount previously submitted for
conversion and with respect to which the Company has not
delivered shares of Common Stock, in accordance with Section 3.
(vi) Pro Rata Conversion and Redemption. In the event the
----------------------------------
Company receives a Conversion Notice from more than one Holder of the
Notes for the same Conversion Date and the Company can convert some,
but not all, of the Notes submitted for conversion, the Company shall
convert from each Holder electing to have Notes converted at such time
a pro rata amount of such holder's Conversion Amount submitted for
conversion based on the principal amount of the Notes submitted for
conversion on such date by such Holder relative to the Conversion
Amount of all Notes submitted for conversion on such date.
(vii) Mandatory Conversion or Redemption at Maturity. If any
----------------------------------------------
Conversion Amount of this Note remains outstanding on the Maturity
Date, then all of the Conversion Amount, at the Company's option,
either (i) shall be converted at the Conversion Price for the Common
Stock as of such date as if the Holder had given the Conversion
Notice on the Maturity Date (a "Maturity Date Mandatory Conversion"),
or (ii) shall be redeemed as of such date (a "Maturity Date Mandatory
Redemption") for an amount in cash equal to the Conversion Amount on
the Maturity Date (the "Maturity Date Redemption Price"). The Company
shall be deemed to have elected a Maturity Date Mandatory Redemption
unless it delivers written notice to the Holder at least 20
9
<PAGE>
Business Days prior to the Maturity Date of its election to effect a
Maturity Date Mandatory Conversion. If the Company elects a Maturity
Date Mandatory Redemption, then on the Maturity Date the Company shall
pay to each the Holder outstanding on the Maturity Date, by wire
transfer of immediately available funds, an amount equal to the
Maturity Date Redemption Price. If the Company elects a Maturity Date
Mandatory Redemption and shall fail to redeem all of the Conversion
Amount of this Note outstanding on the Maturity Date by payment of the
Maturity Date Redemption Price, then in addition to any remedy the
Holder may have under this Note, the Securities Purchase Agreement and
the Registration Rights Agreement, the Holder shall have the option to
require the Company to convert any or all of the Conversion Amount
that the Company elected to redeem under this Section 2(e)(vii) and
for which the Maturity Date Redemption Price (together with any
interest thereon) has not been paid into the number of shares of
Common Stock the Holder would have received if the Holder had given a
Conversion Notice for such Conversion Amount on the Maturity Date.
(viii) Book-Entry. Notwithstanding anything to the contrary set
----------
forth herein, upon conversion of any portion of this Note in
accordance with the terms hereof, the Holder thereof shall not be
required to physically surrender this Note to the Company unless the
full Conversion Amount represented by this Note is being converted.
The Holder and the Company shall maintain records showing the
Conversion Amount so converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the Holder and
the Company, so as not to require physical surrender of this Note upon
each such conversion. In the event of any dispute or discrepancy,
such records of the Company shall be controlling and determinative in
the absence of manifest error. Notwithstanding the foregoing, if this
Note is converted as aforesaid, the Holder may not transfer this Note
unless the Holder first physically surrenders this Note to the
Company, whereupon the Company will forthwith issue and deliver upon
the order of the Holder a new Note of like tenor, registered as the
Holder may request, representing in the aggregate the remaining
Conversion Amount represented by this Note. The Holder and any
assignee, by acceptance of a this Note or such new Note, acknowledge
and agree that, by reason of the provisions of this paragraph,
following conversion of any portion of this Note, the Conversion
Amount (including the principal of this Note) represented by this Note
may be less than the principal amount and the accrued interest set
forth on the face hereof.
(f) Taxes. The Company shall pay any and all taxes that may be
-----
payable with respect to the issuance and delivery of Common Stock upon the
conversion of Notes.
(g) Adjustments to Conversion Price -- Dilution and Other Events. In
------------------------------------------------------------
addition to any other adjustments provided herein, the Conversion Price
will be subject to adjustment from time to time as provided in this Section
2(g).
10
<PAGE>
(i) Adjustment of Fixed Conversion Price upon Subdivision or
--------------------------------------------------------
Combination of Common Stock. If the Company at any time subdivides
---------------------------
(by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Fixed Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced.
If the Company at any time combines (by combination, reverse stock
split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Fixed Conversion
Price in effect immediately prior to such combination will be
proportionately increased.
(ii) Holder's Right of Alternative Variable Conversion Price
-------------------------------------------------------
Following Issuance of Convertible Securities. If the Company in any
--------------------------------------------
manner issues or sells Convertible Securities or Options that are
convertible into or exchangeable for Common Stock at a price which
varies or may vary with the market price of the Common Stock,
including by way of periodic resets to a fixed price (each of the
formulations for such variable price being herein referred to as, a
"Variable Price"), and such Variable Price is not calculated using the
same formula used to calculate the Daily Market Price in effect
immediately prior to the time of such issue or sale, the Company
shall provide written notice thereof via facsimile and overnight
courier to each Holder of the Notes ("Variable Notice") on the date of
issuance of such Convertible Securities or Options. If the holders of
Notes representing at least 2/3 of the aggregate Conversion Amount of
Notes then outstanding provide written notice to the Company via
facsimile and overnight courier (the "Variable Price Election Notice")
within 10 Business Days of receiving a Variable Notice that such
holders desire to replace the Daily Market Price then in effect with
the Variable Price described in such Variable Notice, then, from and
after the date of the Company's receipt of the Variable Price Election
Notice, the Daily Market Price will automatically be replaced with the
Variable Price. In the event that a Holder delivers a Conversion
Notice after the Company's issuance of Convertible Securities with a
Variable Price but before such Holder's receipt of the Company's
Variable Notice, then such Holder shall have the option by written
notice to the Company to rescind such Conversion Notice or to have the
Conversion Price be equal to such Variable Price for the conversion
effected by such Conversion Notice.
(iii) Other Events. If any event occurs of the type
------------
contemplated by the provisions of this Section 2(g) but not expressly
provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other
rights with equity features), then the Company's Board of Directors
will make an appropriate adjustment in the Conversion Price so as to
protect the rights of the holders of the Notes; provided that no such
adjustment will increase the Conversion Price as otherwise determined
pursuant to this Section 2(g).
11
<PAGE>
(iv) Notices.
--------
(A) Promptly upon any adjustment of the Conversion Price,
and in no event later than two (2) Business Days after such
adjustment, the Company will give written notice thereof to each
Holder of the Notes setting forth in reasonable detail, and
certifying, the calculation of such adjustment.
(B) The Company will give written notice to each Holder of
the Notes at least ten (10) days prior to the date on which the
Company closes its books or takes a record (I) with respect to
any dividend or distribution upon the Common Stock, (II) with
respect to any pro rata subscription offer to holders of Common
Stock or (III) for determining rights to vote with respect to any
Organic Change (as defined in Section 4(a)), dissolution or
liquidation, provided that such information shall be made known
to the public prior to or in conjunction with such notice being
provided to each such holder.
(C) The Company will also give written notice to each
Holder of the Notes at least ten (10) days prior to the date on
which any Organic Change, dissolution or liquidation will take
place, provided that such information shall be made known to the
public prior to or in conjunction with such notice being provided
to each such holder.
3. Redemption at Option of Holder.
------------------------------
(a) Redemption Option Upon Triggering Event. In addition to all other
---------------------------------------
rights of the Holder contained herein, after a Triggering Event (as defined
below), the Holder shall have the right, at the Holder's option, to require
the Company to redeem all or a portion of this Note at a price equal to the
greater of (i) 120% of the Conversion Amount and (ii) the product of (A)
the Conversion Rate for the Conversion Amount to be redeemed in effect at
such time as such Holder delivers a Notice of Redemption at Option of Buyer
(as defined below) and (B) the Weighted Average Price of the Common Stock
on the date immediately preceding such Triggering Event on which the
Principal Market, or the market or exchange where the Common Stock is then
traded, is open for trading ("Redemption Price").
(b) "Triggering Event". A "Triggering Event" shall be deemed to have
------------------
occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be declared
effective by the SEC on or prior to the date that is 30 days after the
applicable Effectiveness Deadline (as defined in the Registration
Rights Agreement);
(ii) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights
Agreement, the
12
<PAGE>
effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is
unavailable to the Holder for sale of all of such Holder's Registrable
Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement (other
than due to any Allowable Grace Period (as defined in the Registration
Rights Agreement)), and such lapse or unavailability continues for a
period of five consecutive trading days; provided that such five (5)
day period shall be extended to a total of 15 consecutive trading days
in the event that the Company makes an acquisition which is required
to be reported under Item 2 of Form 8-K and for which pro forma
financial information is required to be reported pursuant to Article
11 of Regulation S-X promulgated under the 1933 Act.
(iii) the suspension from trading or failure of the Common Stock
to be listed on the Nasdaq National Market or The New York Stock
Exchange, Inc. or for a period of five consecutive trading days or for
more than an aggregate of 10 trading days in any 365-day period;
(iv) the Company's or the Transfer Agent's (at the Company's
direction) notice to any Holder of Notes, including by way of public
announcement, at any time, of its intention not to comply with a
request for conversion of any Notes into shares of Common Stock that
is tendered in accordance with the provisions of the Notes;
(v) a Conversion Failure (as defined in Section 2(e)(v)(B));
(vi) upon the Company's receipt of a Conversion Notice, the
Company shall not be obligated to issue the shares of Common Stock
issuable upon such conversion of Notes due to the provisions of
Section 12; or
(vii) the Company breaches any representation, warranty,
covenant or other term or condition of the Securities Purchase
Agreement, the Registration Rights Agreement, the Warrants, this Note
or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated thereby and
hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 3(a) of the Securities
Purchase Agreement) and except, in the case of a breach of a covenant
which is curable, only if such breach continues for a period of at
least 10 days.
(c) Mechanics of Redemption at Option of Buyer. Within one (1) day
------------------------------------------
after the occurrence of a Triggering Event, the Company shall deliver
written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each Holder of the Notes. At any time after the
earlier of the Holder's receipt of a Notice of Triggering Event and the
Holder becoming aware of a Triggering Event, the Holder may require the
Company to redeem all of such Holder's Notes by delivering written notice
thereof via facsimile and overnight courier ("Notice of Redemption at
Option
13
<PAGE>
of Buyer") to the Company, which Notice of Redemption at Option of Buyer
shall indicate the Conversion Amount of the Notes that the Holder is
electing to redeem.
(d) Payment of Redemption Price. Upon the Company's receipt of a
---------------------------
Notice(s) of Redemption at Option of Buyer from any Holder of Notes, the
Company shall promptly, and in no event later than one (1) Business Day
after receipt of such notice, notify each Holder of Notes by facsimile of
the Company's receipt of such notices. The Company shall deliver the
applicable Redemption Price to the Holder within five Business Days after
the Company's receipt of a Notice of Redemption at Option of Buyer;
provided that the Holder's Notes shall have been so delivered to the
Transfer Agent. If more than one Holder of Notes submits Notes for
redemption and the Company is unable to redeem all of the Notes submitted
for redemption, the Company shall redeem a pro rata amount from each Holder
of Notes based on the Conversion Amount represented by the Notes submitted
for redemption by such Holder relative to the aggregate Conversion Amounts
of all Notes for redemption by all holders of Notes.
(e) Void Redemption. In the event that the Company does not pay the
---------------
Redemption Price within the time period set forth in Section 3(d), at any
time thereafter and until the Company pays such unpaid applicable
Redemption Price in full, the Holder shall have the option (the "Void
Optional Redemption Option") to, in lieu of redemption, require the Company
to promptly return to the Holder the Note that was submitted for redemption
by such Holder under this Section 3 and for which the applicable Redemption
Price (together with any interest thereon) has not been paid, by sending
written notice thereof to the Company via facsimile (the "Void Optional
Redemption Notice"). Upon the Company's receipt of such Void Optional
Redemption Notice, (i) the Notice of Redemption at Option of Buyer shall be
null and void with respect to that portion of the Note subject to the Void
Optional Redemption Notice, and (ii) the Company shall promptly, and in no
event later than one (1) Business Day after receipt of such notice, return
the Note subject to the Void Optional Redemption Notice, and (iii) the
Fixed Conversion Price of such portion of the Note shall be adjusted to the
lesser of (A) the Conversion Price as in effect on the date on which the
Void Optional Redemption Notice is delivered to the Company and (B) the
lowest Closing Sale Price during the period beginning on the date on which
the Notice of Redemption at Option of Buyer is delivered to the Company and
ending on the date on which the Void Optional Redemption Notice is
delivered to the Company.
(f) Disputes; Miscellaneous. In the event of a dispute as to the
-----------------------
determination of the Weighted Average Price, the Closing Sale Price or the
arithmetic calculation of the Redemption Price, such dispute shall be
resolved pursuant to Section 2(e)(iii) above with the term "Closing Sale
Price" being substituted for the term "Weighted Average Price" and the term
"Redemption Price" being substituted for the term "Conversion Rate". The
Holder's delivery of a Void Optional Redemption Notice and exercise of its
rights following such notice shall not effect the Company's obligations to
make any payments which have accrued prior to the date of such notice. In
the event of a redemption pursuant to this Section 3 of less than all of
the Conversion
14
<PAGE>
Amount of this Note, the Company shall promptly cause to be issued and
delivered to the Holder a new Note representing the remaining Conversion
Amount which has not been redeemed.
4. Other Rights of Holders.
-----------------------
(a) Reorganization, Reclassification, Consolidation, Merger or
----------------------------------------------------------
Sale. Any recapitalization, reorganization, reclassification, consolidation,
- ----
merger, sale of all or substantially all of the Company's assets to another
Person or other transaction which is effected in such a way that holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as "Organic Change." Prior to the
consummation of any (i) sale of all or substantially all of the Company's assets
to an acquiring Person or (ii) other Organic Change following which the Company
is not a surviving entity, the Company will secure from the Person purchasing
such assets or the successor resulting from such Organic Change (in each case,
the "Acquiring Entity") a written agreement (in form and substance reasonably
satisfactory to the holders of the Notes representing a majority of the
Conversion Amounts of the Notes then outstanding) to deliver to the Holder in
exchange for this Note, a security of the Acquiring Entity evidenced by a
written instrument substantially similar in form and substance to this Note, and
reasonably satisfactory to the holders the Notes representing a majority of the
Conversion Amounts of the Notes then outstanding. Prior to the consummation of
any other Organic Change, the Company shall make appropriate provision (in form
and substance reasonably satisfactory to the holders of Notes representing a
majority of the Conversion Amounts of the Notes then outstanding) to insure that
each of the Holder will thereafter have the right to acquire and receive in lieu
of or in addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of this Note such
shares of stock, securities or assets that would have been issued or payable in
such Organic Change with respect to or in exchange for the number of shares of
Common Stock which would have been acquirable and receivable upon the conversion
of this Note as of the date of such Organic Change (without taking into account
any limitations or restrictions on the convertibility of this Note).
(b) Optional Redemption Upon Change of Control. In addition to
------------------------------------------
the rights of the Holder under Section 4(a), upon a Change of Control (as
defined below) of the Company the Holder shall have the right, at the Holder's
option, to require the Company to redeem all or a portion of the Conversion
Amount represented by this Note equal to the Conversion Amount ("Change of
Control Redemption Price"). No sooner than 15 days nor later than 10 days prior
to the consummation of a Change of Control, but not prior to the public
announcement of such Change of Control, the Company shall deliver written notice
thereof via facsimile and overnight courier (a "Notice of Change of Control") to
the Holder. At any time during the period beginning after receipt of a Notice of
Change of Control (or, in the event a Notice of Change of Control is not
delivered at least 10 days prior to a Change of Control, at any time on or after
the date which is 10 days prior to a Change of Control) and ending on the date
of such Change of Control, the Holder may require the Company to redeem all or a
portion of the Conversion Amount of this Note then outstanding by delivering
written notice thereof via facsimile and overnight courier (a "Notice of
Redemption Upon Change of
15
<PAGE>
Control") to the Company, which Notice of Redemption Upon Change of Control
shall indicate (i) the Conversion Amount the Holder is submitting for
redemption, and (ii) the applicable Change of Control Redemption Price, as
calculated pursuant to this Section 4(b). Upon the Company's receipt of a
Notice(s) of Redemption Upon Change of Control from any Holder of Notes, the
Company shall promptly, but in no event later than one (1) Business Day
following such receipt, notify the Holder of this Note by facsimile of the
Company's receipt of such Notice(s) of Redemption Upon Change of Control. The
Company shall deliver the applicable Change of Control Redemption Price
simultaneous with the consummation of the Change of Control; provided that, if
required by Section 2(e)(viii), this Note shall have been so delivered to the
Company. Payments provided for in this Section 4(b) shall have priority to
payments to other stockholders in connection with a Change of Control. For
purposes of this Section 4(b), "Change of Control" means (i) the consolidation,
merger or other business combination of the Company with or into another Person
(other than (A) a consolidation, merger or other business combination in which
holders of the Company's voting power immediately prior to the transaction
continue after the transaction to hold, directly or indirectly, the voting power
of the surviving entity or entities necessary to elect a majority of the members
of the board of directors (or their equivalent if other than a corporation) of
such entity or entities, or (B) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company),
(ii) the sale or transfer of all or substantially all of the Company's assets,
or (iii) a purchase, tender or exchange offer made to and accepted by the
holders of more than the 50% of the outstanding shares of Common Stock.
(c) Purchase Rights. If at any time the Company grants, issues
---------------
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then, at the option of the
Company, either (i) the conversion restrictions set forth in Section 7 below
shall not apply or (ii) the Holder will be entitled to acquire either (A)
immediately or (B) upon conversion of the Note, at the option of the Company,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete conversion of this Note (without taking
into account any limitations or restrictions on the convertibility of this Note)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
5. Redemption at the Company's Election. At any time or times during the
------------------------------------
period beginning on the Issuance Date and ending on and including the date which
is 457 days after the Initial Issuance Date, the Company shall have the right,
in its sole discretion, to require that some or all of the outstanding
Conversion Amount of the outstanding Notes issued on such Issuance Date be
redeemed ("Redemption at Company's Election") for consideration equal to the (i)
in the event of a Redemption at Company's election prior to the date which is
180 days after the Issuance Date, the Conversion Amount of such Notes to be
redeemed on the Company Election Redemption Date (as defined below) or (ii) in
the event of a Redemption at Company's Election on or after the date which is
180 days after the applicable Issuance Date, 107% of the Conversion Amount of
such Notes to be redeemed on the Company Election
16
<PAGE>
Redemption Date (the "Company's Election Redemption Price"); provided that the
Conditions to Redemption at the Company's Election (as set forth below) are
satisfied. The Company shall exercise its right to Redemption at Company's
Election by providing each Holder of Notes issued on such Issuance Date written
notice ("Notice of Redemption at Company's Election") at least 15 Business Days
but not more than 20 Business Days prior to the date of consummation of such
redemption ("Company's Election Redemption Date"). If the Company elects to
require redemption of some, but not all, of the Conversion Amount of the Notes
issued on the Issuance Date then outstanding, the Company shall require
redemption of the pro rata amount from each Holder of such Notes based on the
principal amount of Notes purchased by such Holder on the Issuance Date relative
to the aggregate principal amount of all Notes purchased on such Issuance Date
(such amount with respect to the Holder being referred to herein as its "Pro
Rata Redemption Amount"). The Notice of Redemption at Company's Election shall
indicate (x) the Conversion Amount of the Notes the Company has elected to
redeem from all Holder of Notes, (y) the Company's Election Redemption Date, and
(z) each holder's pro rata share of Conversion Amounts of the Notes selected for
redemption as determined in accordance with the immediately preceding sentence.
If the Company has exercised its right of Redemption at Company's Election and
the conditions of this Section 5, including the Conditions to Redemption at
Company's Election, have been satisfied, then each Holder's Pro Rata Redemption
Amount shall be redeemed as of the Company's Election Redemption Date by payment
by the Company to each Holder of the Notes of the Company's Election Redemption
Price. If required by Section 2(e)(viii), all holders of the Notes shall
thereupon and within two Business Days after the Company's Election Redemption
Date or such earlier date as the Company and each Holder of Notes mutually
agree, surrender all Notes being redeemed on such date to the Company. If the
Company fails to pay the full Company's Election Redemption Price with respect
to this Note then the Redemption at Company's Election shall to that extent be
null and void with respect to this Note and the Holder shall be entitled to all
the rights of a Holder of outstanding Notes. "Conditions to Redemption at the
Company's Election" means the following conditions: (i) during the period
beginning on the Issuance Date and ending on and including the Company's
Election Redemption Date, the Company shall have delivered Conversion Shares
upon conversion of the Notes to the holders of the Notes on a timely basis as
set forth in Section 2(e)(ii) of this Note; (ii) on each day during the period
beginning 30 days prior to the date of Notice of Redemption at Company's
Election and ending on and including the Company's Election Redemption Date the
Registration Statement shall be effective and available for the sale of at least
all of the Registrable Securities (as defined in the Registration Rights
Agreement); (iii) on each day during the period beginning 30 days prior to the
date of Notice of Redemption at Company's Election and ending on and including
the Company's Election Redemption Date, the Common Stock is designated for
quotation on the Nasdaq National Market or listed on The New York Stock
Exchange, Inc. and is not suspended from trading (excluding suspensions of not
more than one day resulting from business announcements by the Company); (iv)
during the period beginning on and including the date which is 30 days prior to
the date of Notice of Redemption at the Company's Election and ending on and
including the Company's Election Redemption Date, there shall not have occurred
a Triggering Event (which in the case of a Triggering Event pursuant to
Section 3(b)(vii) hereof, has not been cured or waived, provided the Company
delivered a Notice of Triggering Event in a timely manner pursuant to Section
3(c) to each holder of Notes with respect to any Triggering Event prior to the
date which is 30 days
17
<PAGE>
prior to the date of the Notice of Redemption at Company's Election); (v) the
Company shall not be entitled to deliver a Notice of Redemption at Company's
Election and no Company's Election Redemption Date may occur during a Company's
Mandatory Conversion Period (as defined in Section 7); and (vi) the Company
otherwise has satisfied its obligations in all material respects and is not in
default in any material respect under this Note, the Securities Purchase
Agreement, the Warrants and the Registration Rights Agreement. Notwithstanding
the above, but subject to Section 2(d) and Section 7, the Holder may convert any
Conversion Amount (including Conversion Amounts selected for redemption) into
Common Stock pursuant to Section 2(a) on or prior to the date immediately
preceding the Company's Election Redemption Date. If the Company fails to timely
pay any Company's Election Redemption Price in accordance with this Section 5,
then the Company shall not be permitted to submit another Notice of Redemption
at Company's Election without the prior written consent of the holders of the
Notes representing at least two-thirds (2/3) of the Conversion Amounts of the
Notes then outstanding.
6. Conversion at the Company's Election. On any date during the period
------------------------------------
beginning on the date which is 10 days after the Registration Statement has been
declared effective by the SEC and ending on the date which is 457 days after the
Initial Issuance Date, the Company shall have the right, in its sole discretion,
to require that all or portion of the outstanding Conversion Amount of this Note
be converted ("Company's Conversion Election") at the applicable Conversion
Rate; provided that the Conditions to Conversion at the Company's Election (as
set forth below) are satisfied. The Company shall exercise its right to
Company's Conversion Election by providing each Holder of the Notes written
notice ("Company's Conversion Election Notice") on such date by facsimile and
overnight courier. The date on which each of the holders of the Notes issued on
the Issuance Date receives the Company's Conversion Election Notice is referred
to in this Note as the "Company's Conversion Election Notice Date"). If the
Company elects to require conversion of some, but not all, of the Conversion
Amounts of the Notes issued on the Issuance Date then outstanding, the Company
shall require conversion of the pro rata amount from each Holder of such Notes
based on the principal amount of Notes purchased by such Holder on the Issuance
Date relative to the aggregate principal amount of all Notes purchased on such
Issuance Date (such amount with respect to the Holder being referred to herein
as its "Pro Rata Conversion Amount"). The Company's Conversion Election Notice
shall indicate (x) the Conversion Amount of Notes held by each Holder of Notes
the Company has selected for conversion, (y) the date selected by the Company
for conversion ("Company's Election Conversion Date"), which date shall be not
less than 20 or more than 60 Business Days after the Company's Conversion
Election Notice Date, and (z) each holder's pro rata share of Conversion Amounts
of the Notes selected for conversion as determined in accordance with the
immediately preceding sentence. Subject to the satisfaction of all the
conditions of this Section 6, on the Company's Election Conversion Date the
Holder of this Note will be deemed to have submitted a Conversion Notice in
accordance with Section 2(e)(i) for a Conversion Amount equal to the result of
(a) the Holder's Pro Rata Conversion Amount, minus (b) the Conversion Amount of
this Note converted by the Holder during the Company's Mandatory Conversion
Period (as defined below); provided, however, in no event shall the Holder be
required to convert a Conversion Amount during any Company's Mandatory
Conversion Period into a number of shares of Common Stock in excess of the pro
rata amount (determined in the same
18
<PAGE>
manner as the Pro Rata Conversion Amount above) of 15% of the trading volume of
the Common Stock on the Principal Market (as reported by Bloomberg) during the
Company's Mandatory Conversion Period. The Company may terminate a Conversion at
Company's Election prior to the Company's Election Conversion Date with respect
to Conversion Amounts not submitted for conversion prior to the effective date
of such termination by delivering written notice ("Company's Mandatory
Conversion Period Termination Notice") to each Holder of Notes issued on the
Issuance Date at least five Business Days prior to the effective date of such
termination, provided that the Company has not previously delivered two
Company's Mandatory Conversion Period Termination Notices. "Conditions to
Conversion at the Company's Election" means the following conditions: (i) on
each day (other than days during an Allowable Grace Period (as defined in the
Registration Rights Agreement) during the period beginning the date the SEC
declares the Registration Statement registering the Registrable Securities
effective and ending on and including the date which is 31 days prior to the
Company's Conversion Election Notice Date, the Registration Statement shall be
effective and available for the sale of no less than all of the Registrable
Securities; (ii) on each day (including days during a Grace Period (as defined
in the Registration Rights Agreement) during the period beginning on and
including the date which is 30 days prior to the Company's Conversion Election
Notice Date and ending on and including the Company's Election Conversion Date,
the Registration Statement shall be effective and available for the sale of no
less than all of the Registrable Securities; (iii) on each day during the period
beginning on and including the date which is 30 days prior to the Company's
Conversion Election Notice Date and ending on and including the Company's
Election Conversion Date, the Common Stock is designated for quotation on the
Nasdaq National Market or listed on The New York Stock Exchange, Inc. and shall
not have been suspended from trading on such exchanges (other than suspensions
of not more than one (1) day due to business announcements by the Company) nor
shall delisting or suspension by such exchanges have been threatened either (A)
in writing by such exchanges or (B) by falling below the minimum listing
maintenance requirements of such exchanges; (iv) during the period beginning on
the Issuance Date and ending on and including the Company's Election Conversion
Date, there shall not have occurred an event constituting a Triggering Event
(which, in the case of a Triggering Event pursuant to Section 3(d)(vii) hereof,
has not been cured or waived); (v) the aggregate Conversion Amounts of the Notes
issued on the Issuance Date selected for conversion by the Company as reflected
in the Company's Conversion Election Notice is at least $1,000,000; (vi) during
the period beginning on the Issuance Date and ending on and including the
Company's Election Conversion Date, the Company shall have delivered shares of
Common Stock upon conversion of the this Note and upon exercise of the Warrants
to the Holder on a timely basis as set forth in Section 2(e)(ii) of this Note
and Sections 2(a) and 2(b) of the Warrants, respectively; (vii) the Company
shall not be entitled to deliver a Company's Conversion Election Notice during
any Company's Mandatory Conversion Period; and (viii) the Company otherwise has
satisfied its obligations in all material respects and is not in default in any
material respect under this Note, the Securities Purchase Agreement, the
Warrants and the Registration Rights Agreement. "Company's Mandatory Conversion
Period" means, with respect to any Company's Conversion Election, the period
beginning on and including the Company's Conversion Election Notice Date and
ending on and including the earlier of (i) the Company's Election Conversion
Date and (ii) the effective date of a Company's Mandatory Conversion Period
19
<PAGE>
Termination Notice, which effective date shall not be fewer than five (5)
Business Days after each of the Holder of the Notes receipt of such Notes.
7. Restrictions on Conversions. The right of a Holder to convert this
---------------------------
Note pursuant to Section 2(a) shall be limited as set forth below. Subject to
the exceptions described below, without the prior written consent of the
Company, the Holder shall not be entitled to convert any Conversion Amount of
this Note during the period beginning on the Issuance Date of this Note and
ending on and including the date which is 456 days after the Initial Issuance
Date. Notwithstanding the foregoing, the conversion restrictions set forth in
this Section 7 shall not apply: (a) during a Company's Mandatory Conversion
Period, but only with respect to the Conversion Amount set forth in a Company's
Election Conversion Notice for the Holder with respect to such Company Mandatory
Conversion Period; (b) on and after any date on which the Common Stock is not
listed or quoted on the Nasdaq National Market or The New York Stock Exchange,
Inc. or has been suspended from trading on any such exchange (excluding
suspensions of not more than one day resulting from business announcements by
the Company), or any such delisting or suspension is threatened or pending
either (I) in writing by such exchanges or (II) by falling below the minimum
listing maintenance requirements of such exchanges; (c) on or after any date on
which there shall have occurred an event constituting a Change of Control or a
Triggering Event or an event that with the passage of time and without being
cured would constitute a Triggering Event; (d) on or after any date on which
there shall have been an announcement of a pending Change of Control; (e) on or
after any date on which the Company issues or sells or is deemed to have issued
or sold any Convertible Securities that are convertible into or exercisable or
exchangeable for shares of Common Stock at a conversion or exercise price which
varies or may vary with the market price of the Common Stock, including by way
of periodic resets to a fixed price; (f) on or after any date on which the
Company fails to pay the Company's Election Redemption Price for any portion of
this Note in a timely manner in accordance with a Redemption at Company's
Election pursuant to Section 5; (g) on or after the date after the Issuance Date
on which the Closing Sale Price of the Common Stock is less than $10.00 (subject
to adjustment for stock splits, stock dividends, stock combinations or other
similar events) on any ten (10) trading days during the 15 consecutive trading
days immediately preceding such date of determination; (h) with respect to any
conversion of this Note at a price greater than or equal to the Fixed Conversion
Price then in effect; or (i) on or after the date the Company issues or sells
any shares of Common Stock or any Convertible Securities or Options (other than
upon conversion of the Notes or the Warrants or in connection with any Approved
Stock Plan or a firm commitment underwritten public offering), with respect to a
principal amount of Notes representing an aggregate Conversion Amount equal to
the lesser of (I) such holder's pro rata portion (determined in the same manner
as Pro Rata Conversion Amount in Section 5) of the consideration received by the
Company in connection with such issuance or sale and (II) the aggregate
Conversion Amount represented by such holder's Preferred Shares.
8. Reservation of Shares. The Company shall, so long as any principal
---------------------
amount of the Note is outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Notes, such number of shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all of the principal
amount of the Notes then outstanding; provided that the number of shares of
20
<PAGE>
Common Stock so reserved shall at no time be less than 200% of the number of
shares of Common Stock for which the principal amount of the Notes are at any
time convertible. The initial number of shares of Common Stock reserved for
conversions of the Notes and each increase in the number of shares so reserved
shall be allocated pro rata among the Holders of the Notes based on the
principal amount of the Notes held by each Holder at the time of issuance of the
Notes or increase in the number of reserved shares, as the case may be. In the
event a Holder shall sell or otherwise transfer any of such Holder's Notes, each
transferee shall be allocated a pro rata portion of the number of reserved
shares of Common Stock reserved for such transferor. Any shares of Common Stock
reserved and allocated to any Person which ceases to hold any Notes shall be
allocated to the remaining Holders, pro rata based on the principal amount of
the Notes then held by such Holders.
9. Voting Rights; Rank. Holders shall have no voting rights, except as
-------------------
required by law, including but not limited to the General Corporation Law of the
State of Delaware, and as expressly provided in this Note. Payments of
principal and interest and other payments due under this Note, except as
otherwise provided herein, shall rank pari passu with and shall not be
subordinated to any other unsecured debt obligations of the Company.
10. Restriction on Redemption and Cash Dividends. Until all of the
--------------------------------------------
Conversion Amount of this Note has been converted, redeemed or otherwise
satisfied as provided herein, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, its capital
stock without the prior express written consent of the holders of Notes
representing at least fifty-one percent (51%) of the Conversion Amount of the
Notes then outstanding, except for payments on convertible securities of the
Company outstanding on the Issuance Date pursuant to the terms of such
convertible securities as in effect on the Issuance Date.
11. Restriction on Hedging Activity. Subject to the exceptions described
-------------------------------
below, during the period beginning on the Initial Closing Date (as defined in
the Securities Purchase Agreement) and ending on the date which is 457 days
after the Initial Issuance Date, neither such Buyer nor any of its affiliates
shall engage, directly or indirectly, in any transaction constituting a "short
sale" (as defined in rule 3b-3 of the Securities Exchange Act of 1934, as
amended, of the Common Stock or similar hedge of the Common Stock (collectively,
"Short Sales"); provided, however, that the Holder and its affiliates are
entitled to engage in transactions which constitute Short Sales to the extent
that following such transaction the aggregate short position of the Holder and
its affiliates does not exceed the sum of (a) the number shares of Common Stock
equal to the sum of which the Holder and its affiliates have the right to
acquire upon exercise of the Warrants held by the Holder and its affiliates
(without regard to any limitations on exercises of the Warrants), plus (b)
during the period beginning the first day of a Company Mandatory Conversion
Period and ending on and including the date which is last day of such Company
Mandatory Conversion Period, that number of shares of Common Stock equal to the
quotient of (i) the Conversion Amount set forth in a Company's Notice of
Mandatory Conversion for such Holder and its affiliates with respect to such
Company Mandatory Conversion Period, divided by (ii) 93% of the average of the
Weighted Average Price of the Common Stock on each trading day during the period
beginning on the first day of such Company Mandatory Conversion Period and
ending on and including the
21
<PAGE>
earlier of (A) the last trading day of such Company Mandatory Conversion Period
and (B) the date as of which the determination is being made for purposes of
this Section 11. Notwithstanding the foregoing, the restriction on Short Sales
set forth in the first sentence of this Section 11 shall not apply (a) on and
after the first date on which there shall have occurred a Triggering Event or an
Event of Default or an event that with the passage of time would constitute a
Triggering Event or an Event of Default, assuming it is not cured, (b) on or
after any date on which the Company issues or sells or is deemed to have issued
or sold any Convertible Securities that are convertible into or exercisable or
exchangeable for shares of Common Stock at a conversion or exercise price which
varies or may vary with the market price of the Common Stock, including by way
of periodic resets to a fixed price (unless such Convertible Securities have
hedging restrictions more restrictive than the hedging restrictions contained in
this Section 11) or (c) with respect to a Short Sale so long as the Holder of
this Note delivers a Conversion Notice within two (2) Business Days of such
Short Sale entitling such Holder to receive a number of shares of Common Stock
at least equal to the number of shares of Common Stock sold or otherwise hedged
in such Short Sale.
12. Limitation on Number of Conversion Shares. The Company shall not be
-----------------------------------------
obligated to issue any shares of Common Stock upon conversion of this Note if
the issuance of such shares of Common Stock would exceed that number of shares
of Common Stock which the Company may issue upon Conversion of this Note (the
"Exchange Cap") without breaching the Company's obligations under the rules or
regulations of the Principal Market, or the market or exchange where the Common
Stock is then traded, except that such limitation shall not apply in the event
that the Company (a) obtains the approval of its stockholders as required by the
applicable rules of the Principal Market, or the market or exchange where the
Common Stock is then traded, (or any successor rule or regulation) for issuances
of Common Stock in excess of such amount, or (b) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the holders of a majority of the principal
amount of the Notes then outstanding. Until such approval or written opinion is
obtained, or such action is taken by the required number of holders of the
Notes, no purchaser of Notes pursuant to the Securities Purchase Agreement (the
"Purchasers") shall be issued, upon conversion of this Note, shares of Common
Stock in an amount greater than the product of (i) the Exchange Cap amount
multiplied by (ii) a fraction, the numerator of which is the principal amount of
the Notes issued to such Purchaser pursuant to the Securities Purchase Agreement
and the denominator of which is the aggregate principal amount of all Notes
issued to the Purchasers pursuant to the Securities Purchase Agreement (the "Cap
Allocation Amount"). In the event that any Purchaser shall sell or otherwise
transfer any of such Purchaser's Notes, the transferee shall be allocated a pro
rata portion of such Purchaser's Cap Allocation Amount. In the event that any
Holder of Notes, shall convert all of such holder's Notes into a number of
shares of Common Stock which, in the aggregate, is less than such holder's Cap
Allocation Amount, then the difference between such holder's Cap Allocation
Amount and the number of shares of Common Stock actually issued to such Holder
shall be allocated to the respective Cap Allocation Amounts of the remaining
Holders of Notes on a pro rata basis in proportion to Conversion Amount of Notes
then held by each such Holder.
22
<PAGE>
13. Reissuance of Notes. Subject to Section 2(e)(viii) in the event of a
-------------------
conversion or redemption pursuant to this Note of less than all of the
Conversion Amount represented by this Note, the Company shall promptly cause to
be issued and delivered to the Holder, upon tender by the Holder of the Note
converted or redeemed, a new note of like tenor representing the remaining
principal amount of this Note which has not been so converted or redeemed.
14. Defaults and Remedies.
---------------------
(a) Events of Default. An "Event of Default" is: (i) default for
-----------------
thirty (30) days in payment of interest or Default Interest on this Note on
or after the Maturity Date; (ii) default in payment of the principal amount
of this Note when and as due; (iii) failure by the Company for thirty (30)
days after notice to it to comply with any other material provision of this
Note; (iv) any default under or acceleration prior to maturity of any
mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any indebtedness for money borrowed
of at least $500,000 by the Company or for money borrowed the repayment of
at least $500,000 of which is guaranteed by the Company, whether such
indebtedness or guarantee now exists or shall be created hereafter, (v) if
the Company pursuant to or within the meaning of any Bankruptcy Law; (A)
commences a voluntary case; (B) consents to the entry of an order for
relief against it in an involuntary case; (C) consents to the appointment
of a Custodian of it or for all or substantially all of its property; (D)
makes a general assignment for the benefit of its creditors; or (E) admits
in writing that it is generally unable to pay its debts as the same become
due; or (vi) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (1) is for relief against the Company in an
involuntary case; (2) appoints a Custodian of the Company or for all or
substantially all of its property; or (3) orders the liquidation of the
Company or any subsidiary, and the order or decree remains unstayed and in
effect for ninety (90) days. The Term "Bankruptcy Law" means Title 11,
U.S. Code, or any similar Federal or State Law for the relief of debtors.
The term "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
(b) Remedies. If an Event of Default occurs and is continuing, the
--------
Holder of this Note may declare all of this Note, including any interest
and Default Interest and other amounts due, to be due and payable
immediately, except that in the case of an Event of Default arising from
events described in clauses (iv) and (v) of Section 13(a), this Note shall
become due and payable without further action or notice. Holder may not
enforce the provisions of this Section 14 except as provided in this
Section 14. In addition to any remedy such Holder of the Notes may have
under this Note and the Securities Purchase Agreement, such unpaid amount
shall bear interest at the rate of 1.5% per month (prorated for partial
months) until paid in full
15. Vote to Change the Terms of Notes. This Note and any provision
----------------------------------
hereof may only be amended by an instrument in writing signed by the Company and
holders of Notes representing at least two-thirds (2/3) of the aggregate
Conversion Amount of the Notes then outstanding. The term "Note" and all
reference thereto, as used throughout this instrument, shall mean this
instrument (and the other Notes issued pursuant to the Securities Purchase
23
<PAGE>
Agreement) as originally executed, or if later amended or supplemented, then as
so amended or supplemented.
16. Lost or Stolen Notes. Promptly upon receipt by the Company of
--------------------
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Note, and, in the case of loss, theft or destruction, of an
indemnification undertaking by the Holder to the Company in a form reasonably
acceptable to the Company and, in the case of mutilation, upon surrender and
cancellation of the Notes, the Company shall execute and deliver new notes of
like tenor and date; provided, however, the Company shall not be obligated to
re-issue notes if the Holder contemporaneously requests the Company to convert
such remaining principal amount into Common Stock.
17. Payment of Collection, Enforcement and Other Costs. If: (i) this Note
--------------------------------------------------
is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding; or (ii) an attorney is
retained to represent the Holder of this Note in any bankruptcy, reorganization,
receivership of the Company or other proceedings affecting Company creditors'
rights and involving a claim under this Note.
18. Cancellation. After all principal and accrued interest at any time
------------
owed on this Note has been paid in full, this Note shall automatically be deemed
canceled, shall be surrendered to the Company for cancellation and shall not be
reissued.
19. Note Exchangeable for Different Denominations. This Note is
---------------------------------------------
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in principal amounts of at least $100,000)
containing the same terms and conditions and representing in the aggregate the
principal amount of this Note, and each such new Note will represent such
portion of such principal amount as is designated by the Holder at the time of
such surrender. The date the Company initially issues this Note will be deemed
to be the "Issuance Date" hereof regardless of the number of times a new Note
shall be issued.
20. Waiver of Notice. To the extent permitted by law, the Company hereby
----------------
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
and the Securities Purchase Agreement.
21. Governing Law. This Note shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the laws of
the State of New York, without giving effect to provisions thereof regarding
conflict of laws.
22. Remedies, Characterizations, Other Obligations, Breaches and
------------------------------------------------------------
Injunctive Relief. The remedies provided in this Note shall be cumulative and
- -----------------
in addition to all other remedies available under this Note, at law or in equity
(including a decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing herein shall limit a holder's
right to pursue actual damages for any failure by the Company to comply with the
24
<PAGE>
terms of this Note. The Company covenants to each Holder of Notes that there
shall be no characterization concerning this instrument other than as expressly
provided herein. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the Notes
and that the remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened breach, the
holders of the Notes shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.
23. Specific Shall Not Limit General; Construction. No specific provision
----------------------------------------------
contained in this Note shall limit or modify any more general provision
contained herein. This Note shall be deemed to be jointly drafted by the
Company and all holders and shall not be construed against any person as the
drafter hereof.
24. Failure or Indulgence Not Waiver. No failure or delay on the part of
--------------------------------
this Note in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
25. Notices. Whenever notice is required to be given under this Note,
-------
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement.
* * * * *
25
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed by
___________________, its [President and Chief Executive Officer], as of the ____
day of ____________, ______.
ROWECOM INC.
By:_____________________________________
Louis Hernandez, Jr.
Executive Vice President and
Chief Financial Officer
26
<PAGE>
EXHIBIT I
ROWECOM INC.
CONVERSION NOTICE
Reference is made to the Note issued by RoweCom Inc. (the "Company"). In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note, indicated
below into shares of Common Stock, par value $0.01 per share (the "Common
Stock"), of the Company as of the date specified below.
Date of Conversion: _________
Aggregate Conversion Amount to be converted: ________
Note no(s). of Note to be converted: _________
Please confirm the following information:
Conversion Price: _________
Number of shares of Common Stock to be issued: _________
Is the alternative Variable Conversion Price being relied on pursuant to
Section 2(g)(ii) of the Note? (check one) YES ____ No ____
Please issue the Common Stock into which the Note is being converted and, if
applicable, any check drawn on an account of the Company in the following name
and to the following address:
Issue to: _________
_________
_________
Facsimile Number: _________
Authorization: _________
By: ____________
Title: _________
Dated: _________
Account Number:
(if electronic book entry transfer): _________
Transaction Code Number
(if electronic book entry transfer): _________
<PAGE>
ACKNOWLEDGMENT
--------------
The Company hereby acknowledges this Conversion Notice and hereby directs
[TRANSFER AGENT] to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated ___________ ___, 1999
from the Company and acknowledged and agreed to by [TRANSFER AGENT].
ROWECOM INC.
By: ___________________________________
Name: Louis Hernandez, Jr.
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 99.3
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT. ANY SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO
COMPLY WITH THE APPLICABLE STATE SECURITIES LAWS.
ROWECOM INC.
Warrant To Purchase Common Stock
Warrant No.:_____________ Number of Shares: _________
Date of Issuance: _____________ __, _____
RoweCom Inc., a Delaware corporation (the "Company"), hereby certifies that,
for Ten United States Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
____________________, the registered holder hereof or its permitted assigns, is
entitled, subject to the terms set forth below, to purchase from the Company
upon surrender of this Warrant, at any time or times on or after the date
hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as defined
herein)__________ (___) fully paid nonassessable shares of Common Stock (as
defined herein) of the Company (the "Warrant Shares") at the purchase price per
share provided in Section 1(b) below; provided, however, that in no event shall
the holder be entitled to exercise this Warrant for a number of Warrant Shares
in excess of that number of Warrant Shares which, upon giving effect to such
exercise, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such exercise. For purposes of
the foregoing proviso, the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with respect to
which the determination of such provision is being made,
1
<PAGE>
but shall exclude shares of Common Stock which would be issuable upon (i)
exercise of the remaining, unexercised Warrants beneficially owned by the holder
and its affiliates and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company beneficially owned by
the holder and its affiliates (including, without limitation, any convertible
notes or preferred stock) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock a holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-Q or Form 10-K, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
Upon the written request of any holder, the Company shall promptly, but in no
event later than two (2) Business Days following the receipt of such notice,
confirm in writing to any such holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to conversions of the Notes (as defined below)
and exercise of Warrants (as defined below) by such holder and its affiliates
since the date as of which such number of outstanding shares of Common Stock was
reported.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
-----------------------------
Warrants (the "Note Warrant") issued pursuant to Section 1 of that certain
Securities Purchase Agreement dated as of October 12, 1999, among the Company
and the Buyers referred to therein (the "Securities Purchase Agreement").
(b) Definitions. The following words and terms as used in this
-----------
Warrant shall have the following meanings:
(i) "Approved Stock Plan" shall mean any employee benefit plan
which has been approved by the Board of Directors of the Company, pursuant to
which the Company's securities may be issued to any employee, officer, director
or consultant for services provided to the Company.
(ii) "Business Day" means any day other than Saturday, Sunday
or other day on which commercial banks in the City of New York are authorized or
required by law to remain closed.
(iii) "Closing Sale Price" means, for any security as of any
date, the last closing trade price for such security on the Principal Market (as
defined below) as reported by Bloomberg Financial Markets ("Bloomberg"), or, if
the Principal Market is not the principal securities exchange or trading market
for such security, the last closing trade price of such security on the
principal securities exchange or trading market where such security is
<PAGE>
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
last closing trade price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
last closing trade price is reported for such security by Bloomberg, the last
closing ask price of such security as reported by Bloomberg, or, if no last
closing ask price is reported for such security by Bloomberg, the average of the
lowest ask price and the lowest bid price of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Sale Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Sale Price of such security on such date shall
be the fair market value as mutually determined by the Company and the holders
of Notes. If the Company and the holders of Notes are unable to agree upon the
fair market value of the Common Stock, then such dispute shall be resolved
pursuant to Section 2(a) of this Warrant. (All such determinations to be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period).
(iv) "Common Stock" means (i) the Company's common stock, par
value $0.01 per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
(v) "Common Stock Deemed Outstanding " means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 8(b)(i) and 8(b)(ii) hereof regardless of whether the Options (as
defined below) or Convertible Securities (as defined below) are actually
exercisable or convertible at such time, but excluding any shares of Common
Stock owned or held by or for the account of the Company or issuable upon
exercise of the Warrants.
(vi) "Convertible Securities" means any stock or securities
(other than Options) directly or indirectly convertible into or exchangeable for
Common Stock.
(vii) "Expiration Date" means the date four years from the date
of this Warrant or, if such date falls on a Saturday, Sunday or other day on
which banks are required or authorized to be closed in the City of New York or
the State of New York or on which trading does not take place on the principal
exchange or automated quotation system on which the Common Stock is traded (a
"Holiday"), the next date that is not a Holiday.
(viii) "Notes" means the convertible notes of the Company issued
pursuant to the Securities Purchase Agreement.
(ix) "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
<PAGE>
(x) "Other Securities" means (i) those warrants of the Company
issued prior to, and outstanding on, the date of issuance of this Warrant, (ii)
the Notes and (iii) the shares of Common Stock issued upon conversion of the
Notes.
(xi) "Person" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(xii) "Principal Market" means the Nasdaq National Market.
(xiii) "Securities Act" means the Securities Act of 1933, as
amended.
(xiv) "Warrant" means this Warrant and all Warrants issued in
exchange, transfer or replacement thereof.
(xv) "Warrant Exercise Price" shall be equal to, (i) with
respect to any Warrant Share issuable upon the exercise of Warrants issued on
the Initial Closing Date (as defined in the Securities Purchase Agreement),
111.5% of the arithmetic average of the Closing Sale Price of the Common Stock
for the 25 consecutive trading days immediately preceding October 12, 1999 and
(ii) with respect to any Warrant Share issuable upon the exercise of Warrants
issued on the Additional Closing Date (as defined in the Securities Purchase
Agreement), 110% of the arithmetic average of the Closing Sale Price of the
Common Stock for the 10 consecutive trading days immediately preceding the
Additional Closing Date, subject to adjustment as hereinafter provided.
(c) Other Definitional Provisions.
-----------------------------
(i) Except as otherwise specified herein, all references
herein (A) to the Company shall be deemed to include the Company's successors
and (B) to any applicable law defined or referred to herein, shall be deemed
references to such applicable law as the same may have been or may be amended or
supplemented from time to time.
(ii) When used in this Warrant, the words "herein," "hereof,"
and "hereunder," and words of similar import, shall refer to this Warrant as a
whole and not to any provision of this Warrant, and the words "Section,"
"Schedule," and "Exhibit" shall refer to Sections of, and Schedules and Exhibits
to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender
includes the masculine or feminine, and the singular number includes the plural,
and vice versa.
Section 2. Exercise of Warrant.
-------------------
<PAGE>
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time on any Business Day on or after the opening of
business on the date hereof and prior to 11:59 P.M. Eastern Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "Exercise Notice"), of
---------
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an
amount equal to the applicable Warrant Exercise Price multiplied by the number
of Warrant Shares as to which this Warrant is being exercised (plus any
applicable issue or transfer taxes) (the "Aggregate Exercise Price") in cash or
wire transfer of immediately available funds or (B) by notifying the Company
that this Warrant is being exercised pursuant to a Cashless Exercise (as defined
in, and subject to the terms and conditions of, Section 2(e)) and (iii) the
surrender to a common carrier for overnight delivery to the Company as soon as
practicable following such date, this Warrant (or an indemnification undertaking
with respect to this Warrant in the case of its loss, theft or destruction);
provided, that if such Warrant Shares are to be issued in any name other than
that of the registered holder of this Warrant, such issuance shall be deemed a
transfer and the provisions of Section 7 shall be applicable. In the event of
any exercise of the rights represented by this Warrant in compliance with this
Section 2(a), the Company shall on the second Business Day following the date of
receipt of the Exercise Notice, the Aggregate Exercise Price (or notice of a
Cashless Exercise) and this Warrant (or an indemnification undertaking with
respect to this Warrant in the case of its loss, theft or destruction) (the
"Exercise Delivery Documents"), credit such aggregate number of shares of Common
Stock to which the holder shall be entitled to the holder's or its designee's
balance account with The Depository Trust Company; provided, however, if the
holder who submitted the Exercise Notice requested physical delivery of any or
all of the Warrant Shares, then the Company shall, on or before the second
(2/nd/) Business Day following receipt of the Exercise Delivery Documents issue
and surrender to a common carrier for overnight delivery to the address
specified in the Exercise Notice, a certificate, registered in the name of the
holder, for the number of shares of Common Stock to which the holder shall be
entitled pursuant to such request. Upon delivery of the Exercise Notice and
Aggregate Exercise Price referred to in clause (ii)(A) above or notification to
the Company of a Cashless Exercise referred to in Section 2(e), the holder of
this Warrant shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date of delivery of this Warrant as required
by clause (iii) above or the certificates evidencing such Warrant Shares. In the
case of a dispute as to the determination of the Warrant Exercise Price, the
Closing Sale Price of a security or the arithmetic calculation of the Warrant
Shares, the Company shall promptly issue to the holder the number of shares of
Common Stock that is not disputed and shall submit the disputed determinations
or arithmetic calculations to the holder via facsimile within one Business Day
of receipt of the holder's subscription notice. If the holder and the Company
are unable to agree upon the determination of the Warrant Exercise Price or the
Closing Sale Price or arithmetic calculation of the Warrant Shares within one
day of such disputed determination or arithmetic calculation being submitted to
the holder, then the Company shall immediately submit via
<PAGE>
facsimile (i) the disputed determination of the Warrant Exercise Price or
Closing Sale Price to an independent, reputable investment banking firm or (ii)
the disputed arithmetic calculation of the Warrant Shares to its independent,
outside accountant. The Company shall use its best efforts to cause the
investment banking firm or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of the
results no later than three (3) Business Days from the time it receives the
disputed determinations or calculations. Such investment banking firm's or
accountant's determination or calculation, as the case may be, shall be deemed
conclusive absent manifest error.
(b) Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Company shall, as soon as practicable
and in no event later than five Business Days after any exercise and at its own
expense, issue a new Warrant identical in all respects to this Warrant exercised
except it shall represent rights to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant exercised,
less the number of Warrant Shares with respect to which such Warrant is
exercised.
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.
(d) If the Company shall fail for any reason or for no reason to
issue to the holder within five (5) Business Days of receipt of the Exercise
Delivery Documents, a certificate for the number of shares of Common Stock to
which the holder is entitled or to credit the holder's balance account with The
Depository Trust Company for such number of shares of Common Stock to which the
holder is entitled upon the holder's exercise of this Warrant or a new Warrant
for the number of shares of Common Stock to which such holder is entitled
pursuant to Section 2(b) hereof, the Company shall, in addition to any other
remedies under this Warrant or the Securities Purchase Agreement or otherwise
available to such holder, including any indemnification under Section 8 of the
Securities Purchase Agreement, pay, as additional damages in cash to such holder
on each day the issuance of such Common Stock certificate or new Warrant, as the
case may be, is not timely effected, an amount equal to 0.5% of the product of
(A) the sum of the number of shares of Common Stock not issued to the holder on
a timely basis and to which the holder is entitled and/or, the number of shares
represented by the portion of this Warrant which is not being converted, as the
case may be, and (B) the average of the Closing Sale Price of the Common Stock
for the three consecutive trading days immediately preceding the last possible
date which the Company could have issued such Common Stock or Warrant, as the
case may be, to the holder without violating this Section 2.
(f) If, despite the Company's obligations under the Registration
Rights Agreement, the Warrant Shares to be issued are not registered and
available for resale pursuant to a registration statement in accordance with the
Registration Rights Agreement, then notwithstanding anything contained herein,
the holder of this Warrant may, at its election
<PAGE>
exercised in its sole discretion, exercise this Warrant in whole or in part and,
in lieu of making the cash payment otherwise contemplated to be made to the
Company upon such exercise in payment of the Aggregate Exercise Price, elect
instead to receive upon such exercise the "Net Number" of shares of Common Stock
determined according to the following formula (a "Cashless Exercise"):
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A = the total number shares with respect to which
this Warrant is then being exercised.
B = the Closing Sale Price of the Common Stock
on the date immediately preceding the date of the
subscription notice.
C = the Warrant Exercise Price then in effect for
the applicable Warrant Shares at the time of such
exercise.
Section 3. Covenants as to Common Stock. The Company hereby covenants and
----------------------------
agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
(b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the shares of
Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so
<PAGE>
list on each national securities exchange or automated quotation system, as the
case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. No impairment of the preferences and rights of the Notes
contained in the Company's Notes or any waiver thereof which has an adverse
effect on the rights granted hereunder shall be given effect until the Company
has taken appropriate action (satisfactory to the holders of Note Warrants
representing a majority of the shares of Common Stock issuable upon the exercise
of such Note Warrants then outstanding) to avoid such adverse effect with
respect to this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Warrant Exercise Price
then in effect, and (ii) will take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets.
Section 4. Taxes. The Company shall pay any and all taxes which may be
-----
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant; provided, however, that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issue or delivery of Common Stock or other securities or property in a
name other than that of the registered holders of this Warrant to be converted
and such holder shall pay such amount, if any, to cover any applicable transfer
or similar tax.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
---------------------------------------
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this
<PAGE>
Warrant. In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on such holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company. Notwithstanding this Section 5, the Company will provide the holder of
this Warrant with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by the
-------------------------
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution of this Warrant
or the Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such holder is an "accredited investor" as such term is defined in Rule
501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act (an "Accredited Investor"). Upon exercise of this
Warrant, other than pursuant to a Cashless Exercise the holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale and that such holder is an
Accredited Investor. If such holder cannot make such representations because
they would be factually incorrect, it shall be a condition to such holder's
exercise of this Warrant that the Company receive such other assurances as the
Company considers reasonably necessary to assure the Company that the issuance
of its securities upon exercise of this Warrant shall not violate any United
States or state securities laws.
Section 7. Ownership and Transfer.
----------------------
(a) The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee. The Company may treat the
person in whose name any Warrant is registered on the register as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary, but
in all events recognizing any transfers made in accordance with the terms of
this Warrant.
<PAGE>
(b) Subject to Section 2(f) of the Securities Purchase Agreement,
this Warrant and the rights granted hereunder shall be assignable by the holder
hereof without the consent of the Company.
(c) The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
dated October 12, 1999 by and between the Company and the Buyer listed on the
signature page thereto (the "Registration Rights Agreement") and the initial
holder of this Warrant (and certain assignees thereof) is entitled to the
registration rights in respect of the Warrant Shares as set forth in the
Registration Rights Agreement.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The
---------------------------------------------------------
Warrant Exercise Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares upon
--------------------------------------------------------------
Issuance of Common Stock. If and whenever on or after the date of issuance of
- ------------------------
this Warrant, the Company issues or sells, or is deemed to have issued or sold,
any shares of Common Stock (other than shares of Common Stock deemed to have
been issued by the Company in connection with an Approved Stock Plan or upon
exercise or conversion of the Other Securities) for a consideration per share
less than a price (the "Applicable Price") equal to the Warrant Exercise Price
in effect immediately prior to such issuance or sale, then immediately after
such issue or sale the Warrant Exercise Price then in effect shall be reduced to
an amount equal to (A) in the event such issue or sale is not pursuant to a firm
commitment underwritten public offering, the product of (i) the Applicable Price
and (ii) the quotient determined by dividing (x) the sum of (I) the product of
the Applicable Price and the number of shares of Common Stock Deemed Outstanding
immediately prior to such issuance or sale and (II) the consideration, if any,
received by the Company upon such issuance or sale by (y) the product of (I) the
Applicable Price and (II) the number of shares of Common Stock Deemed
Outstanding immediately after such issuance or sale or (B) in the event such
issue or sale is pursuant to a firm commitment underwritten public offering, to
the price per share of such offering to the Company as reflected in the final
prospectus for such offering. Upon each such adjustment of the Warrant Exercise
Price hereunder, the number of shares of Common Stock acquirable upon exercise
of this Warrant shall be adjusted to the number of shares determined by
multiplying the Warrant Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock acquirable upon exercise of
this Warrant immediately prior to such adjustment and dividing the product
thereof by the Warrant Exercise Price resulting from such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For purposes
--------------------------------------------------
of determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:
<PAGE>
(i) Issuance of Options. If the Company in any manner grants
-------------------
any Options and the lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Option or upon conversion or exchange
of any Convertible Securities issuable upon exercise of any such Option is less
than the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 8(b)(i), the "lowest price per share for which one share of Common Stock
is issuable upon exercise of such Options or upon conversion or exchange of such
Convertible Securities" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the granting or sale of the Option, upon exercise
of the Option and upon conversion or exchange of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock or of
such Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities. Notwithstanding the foregoing, no adjustment shall be made pursuant
to this Section 8(b)(i) to the extent that such adjustment is based solely on
the fact that the Convertible Securities issuable upon exercise of such Option
are convertible into or exchangeable for Common Stock at a price which varies
with the market price of the Common Stock.
(ii) Issuance of Convertible Securities. If the Company in any
----------------------------------
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon such conversion or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 8(b)(ii), the "lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange" shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to one share of Common
Stock upon the issuance or sale of the Convertible Security and upon conversion
or exchange of such Convertible Security. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Warrant Exercise Price had been or are to be made
pursuant to other provisions of this Section 8(b), no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 8(b)(ii) to the extent that such adjustment is based solely on the fact
that such Convertible Securities are convertible into or exchangeable for Common
Stock at a price which varies with the market price of the Common Stock.
(iii) Change in Option Price or Rate of Conversion. If the
--------------------------------------------
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
<PAGE>
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
acquirable hereunder shall be correspondingly readjusted. For purposes of this
Section 8(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment pursuant to this Section 8(b) shall be made if such
adjustment would result in an increase of the Warrant Exercise Price then in
effect.
<PAGE>
(c) Effect on Warrant Exercise Price of Certain Events. For purposes
--------------------------------------------------
of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b),
the following shall be applicable:
(i) Calculation of Consideration Received. In case any Option
-------------------------------------
is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01 per Option. If
any Common Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received therefor will
be deemed to be the net amount received by the Company therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of such consideration received by the Company will
be the fair value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Company will be the average of the Closing Sale Price of such securities for
the ten (10) consecutive trading days immediately preceding the date of receipt.
If any Common Stock, Options or Convertible Securities are issued to the owners
of the non-surviving entity in connection with any merger in which the Company
is the surviving entity, the amount of consideration therefor will be deemed to
be the fair value of such portion of the net assets and business of the non-
surviving entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or securities will be determined jointly by the Company and the holders of
the Note Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Note Warrants then outstanding. If such parties
are unable to reach agreement within ten (10) days after the occurrence of an
event requiring valuation (the "Valuation Event"), the fair value of such
consideration will be determined within five Business Days after the tenth
(10th) day following the Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the holders of Note Warrants representing a
majority of the shares of Common Stock obtainable upon exercise of the Notes
then outstanding. The determination of such appraiser shall be final and binding
upon all parties and the fees and expenses of such appraiser shall be borne
jointly by the Company and the holders of the Notes.
(ii) Integrated Transactions. In case any Option is issued in
-----------------------
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be deemed to
have been issued for a consideration of $.01 per Option.
(iii) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time does not include shares owned or held by or for
the account of the Company, and the disposition of any shares so owned or held
will be considered an issue or sale of Common Stock.
<PAGE>
(iv) Record Date. If the Company takes a record of the holders
-----------
of Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(d) Adjustment of Warrant Exercise Price upon Subdivision or
--------------------------------------------------------
Combination of Common Stock. If the Company at any time after the date of
- ---------------------------
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, any Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, any Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of shares
of Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased. Any adjustment under this Section 8(d) shall become effective at the
close of business on the date the subdivision or combination becomes effective.
(e) Distribution of Assets. If the Company shall declare or make any
----------------------
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction), excluding the subdivisions and
combinations referred to in Section 8(d) (a "Distribution"), at any time after
the issuance of this Warrant, then, in each such case:
(i) any Warrant Exercise Price in effect immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution shall be reduced, effective
as of the close of business on such record date, to a price determined by
multiplying such Warrant Exercise Price by a fraction of which (A) the numerator
shall be the Closing Sale Price of the Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (B) the denominator shall be the Closing Sale Price
of the Common Stock on the trading day immediately preceding such record date;
and
(ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of
<PAGE>
Common Stock obtainable immediately prior to the close of business on the record
date fixed for the determination of holders of Common Stock entitled to receive
the Distribution multiplied by the reciprocal of the fraction set forth in the
immediately preceding clause (i), or (B) in the event that the Distribution is
of common stock of a company whose common stock is traded on a national
securities exchange or a national automated quotation system, then the holder of
this Warrant shall receive an additional warrant to purchase Common Stock, the
terms of which shall be identical to those of this Warrant, except that such
warrant shall be exercisable into the amount of the assets that would have been
payable to the holder of this Warrant pursuant to the Distribution had the
holder exercised this Warrant immediately prior to such record date and with an
exercise price equal to the amount by which the exercise price of this Warrant
was decreased with respect to the Distribution pursuant to the terms of the
immediately preceding clause (i).
(f) Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Note Warrants;
provided that no such adjustment will increase the Warrant Exercise Price or
decrease the number of shares of Common Stock obtainable as otherwise determined
pursuant to this Section 8.
(g) Notices.
-------
(i) Promptly upon any adjustment of a Warrant Exercise Price,
and in no event later than one Business Day after such adjustment, the Company
will give written notice thereof to the holder of this Warrant, setting forth in
reasonable detail, and certifying, the calculation of such adjustment.
(ii) The Company will give written notice to the holder of this
Warrant at least ten (10) days prior to the date on which the Company closes its
books or takes a record (A) with respect to any dividend or distribution upon
the Common Stock, (B) with respect to any pro rata subscription offer to holders
of Common Stock or (C) for determining rights to vote with respect to any
Organic Change (as defined below), dissolution or liquidation, provided that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to such holder.
(iii) The Company will also give written notice to the holder of
this Warrant at least ten (10) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
<PAGE>
Section 9. Purchase Rights; Reorganization, Reclassification,
--------------------------------------------------
Consolidation, Merger or Sale. (a) In addition to any adjustments pursuant to
- -----------------------------
Section 8 above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then the holder of this Warrant either (i) immediately or
(ii) upon exercise of this Warrant, at the Company's option, will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction in each case which is effected in such a
way that holders of Common Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "Acquiring Entity") written agreement (in form and substance
reasonably satisfactory to the holders of Note Warrants representing a majority
of the shares of Common Stock obtainable upon exercise of the Note Warrants then
outstanding) to deliver to each holder of Note Warrants in exchange for such
Warrants, a security of the Acquiring Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant and reasonably
satisfactory to the holders of the Note Warrants (including, an adjusted warrant
exercise price equal to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and exercisable for a corresponding number
of shares of Common Stock acquirable and receivable upon exercise of the Note
Warrants, if the value so reflected is less than any Warrant Exercise Price in
effect immediately prior to such consolidation, merger or sale). Prior to the
consummation of any other Organic Change, the Company shall make appropriate
provision (in form and substance reasonably satisfactory to the holders of Note
Warrants representing a majority of the shares of Common Stock obtainable upon
exercise of the Note Warrants then outstanding) to insure that each of the
holders of the Note Warrants will thereafter have the right to acquire and
receive in lieu of or in addition to (as the case may be) the shares of Common
Stock immediately theretofore acquirable and receivable upon the exercise of
such holder's Note Warrants, such shares of stock, securities or assets that
would have been issued or payable in such Organic Change with respect to or in
exchange for the number of shares of Common Stock which would have been
acquirable and receivable upon the exercise of such holder's Warrant as of the
date of such Organic Change (without taking into account any limitations or
restrictions on the exerciseability of this Warrant).
<PAGE>
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
--------------------------------------------
is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt
of an indemnification undertaking (or, in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other
------
communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been delivered: (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
RoweCom Inc.
725 Concord Avenue
Cambridge, Massachusetts 02138
Telephone: 617-497-5800
Facsimile: 617-497-6825
Attention: Louis Hernandez
Executive Vice President
and Chief Financial Officer
With copy to:
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Facsimile: 617-951-8736
Attention: Brian Keller, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight
<PAGE>
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
Section 12. Amendments. This Warrant and any term hereof may be changed,
----------
waived, discharged, or terminated only by an instrument in writing signed by the
party or holder hereof against which enforcement of such change, waiver,
discharge or termination is sought.
Section 13. Date. The date of this Warrant is October __, 1999. This
----
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7 shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.
Section 14. Amendment and Waiver. Except as otherwise provided herein,
--------------------
the provisions of the Note Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of Note Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Note Warrants then outstanding; provided that no
such action may increase the Warrant Exercise Price of the Note Warrants or
decrease the number of shares or class of stock obtainable upon exercise of any
Note Warrants without the written consent of the holder of such Note Warrant.
Section 15. Descriptive Headings; Governing Law. The descriptive headings
-----------------------------------
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of Delaware shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal laws of the State of New York, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
New York, or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.
[Signature Page Follows]
<PAGE>
ROWECOM INC.
By: ______________________________________
Name: Louis Hernandez, Jr.
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT A TO WARRANT
--------------------
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
ROWECOM INC.
The undersigned holder hereby exercises the right to purchase _____________
of the shares of Common Stock ("Warrant Shares") of RoweCom Inc., a Delaware
corporation (the "Company"), evidenced by the attached Warrant (the "Warrant").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of the
Warrant Exercise Price shall be made as:
____________ a "Cash Exercise" with respect to _________________
-------------
Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to ______________
-----------------
Warrant Shares (to the extent permitted by the terms of the Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
_________________________________
Name of Registered Holder
By: ____________________________
Name:
Title:
<PAGE>
EXHIBIT B TO WARRANT
- --------------------
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of RoweCom Inc., a Delaware
corporation, represented by warrant certificate no. _____, standing in the name
of the undersigned on the books of said corporation. The undersigned does
hereby irrevocably constitute and appoint ______________, attorney to transfer
the warrants of said corporation, with full power of substitution in the
premises.
Dated: _________, ____
____________________________________
By: _____________________________
Its: _____________________________
<PAGE>
EXHIBIT 99.4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of October
13, 1999, by and among RoweCom Inc., a Delaware corporation with headquarters
located at 725 Concord Avenue, Cambridge, Massachusetts 02138 (the "Company"),
and the undersigned Buyers (individually a "Buyer" and collectively the
"Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers (i) convertible
notes (the "Initial Notes"), which will be convertible into shares (as
converted, the "Initial Conversion Shares") of the Company's common stock, par
value $0.01 per share (the "Common Stock"), in accordance with the terms of the
Initial Notes and (ii) warrants to purchase shares of Common Stock (the
"Initial Warrants" and, as exercised, the "Initial Warrant Shares").
B. In connection with the Securities Purchase Agreement, the Company
may have the right, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to require the Buyers to purchase (i) convertible
notes (the "Additional Notes" and, collectively with the Initial Notes, the
"Notes"), which will be convertible into Common Stock (as converted, the
"Additional Conversion Shares" and, collectively with the Initial Conversion
Shares, the "Conversion Shares") in accordance with the terms of the Additional
Notes and (ii) warrants to purchase shares of Common Stock (the "Additional
Warrants" and, collectively with the Initial Warrants, the "Warrants"; and as
exercised the "Additional Warrant Shares" and, collectively with the Initial
Warrant Shares, the "Warrant Shares").
C. To induce the Buyers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:
1. DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means a Buyer and any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement in accordance
with the terms hereof and who agrees to become bound by the provisions of this
Agreement in accordance with Section 9.
<PAGE>
b. "Person" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d. "Initial Registrable Securities" means (i) the Initial Conversion
Shares issued or issuable upon conversion of the Initial Notes, (ii) the Initial
Warrant Shares issued or issuable upon exercise of the Initial Warrants and
(iii) any shares of capital stock issued or issuable with respect to the Initial
Conversion Shares, the Initial Notes, the Initial Warrant Shares or the Initial
Warrants as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise, without regard to any limitations on
conversions of the Initial Notes or exercises of Initial Warrants.
e. "Additional Registrable Securities" means (i) the Additional
Conversion Shares issued or issuable upon conversion of the Additional Notes,
(ii) the Additional Warrant Shares issued or issuable upon exercise of the
Additional Warrants and (iii) any shares of capital stock issued or issuable
with respect to the Additional Conversion Shares, the Additional Notes, the
Additional Warrant Shares or the Additional Warrants as a result of any stock
split, stock dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitations on conversions of Additional Notes or
exercises of Additional Warrants.
f. "Registrable Securities" means the Initial Registrable Securities
and the Additional Registrable Securities.
g. "Initial Registration Statement" means a registration statement or
registration statements of the Company filed under the 1933 Act covering the
Initial Registrable Securities.
h. "Additional Registration Statement" means a registration statement
or registration statements of the Company filed under the 1933 Act covering the
Additional Registrable Securities.
i. "Registration Statement" means the Initial Registration Statement
and the Additional Registration Statement, as applicable.
j. "Filing Deadline" means the Initial Filing Deadline or the
Additional Filing Deadline, as applicable.
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<PAGE>
k. "Effectiveness Deadline" means the Initial Effectiveness
Deadline or the Additional Effectiveness Deadline, as applicable.
2. REGISTRATION.
------------
a. Mandatory Registration.
----------------------
(i) Initial Mandatory Registration. The Company shall prepare,
------------------------------
and, as soon as practicable, but in no event later than March 16, 2000 (the
"Initial Filing Deadline"), file with the SEC an Initial Registration Statement
or Initial Registration Statements (as necessary) on Form S-3 covering the
resale of all of the Initial Registrable Securities relating to the Initial
Notes and Initial Warrants which are to be issued on the Initial Closing Date
(as defined in the Securities Purchase Agreement). In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is
available for such a registration, subject to the provisions of Section 2(e).
Any first Registration Statement prepared pursuant hereto shall register for
resale at least that number of shares of Common Stock equal to the sum of (y)
the product of (i) 2.0 and (ii) the number of Initial Conversion Shares issuable
upon conversion of the Initial Notes (without regard to any limitations on
conversions) as of the date immediately preceding the date the Initial
Registration Statement is initially filed with the SEC, subject to adjustment as
provided in Section 3(b), plus (z) the number of Initial Warrant Shares issuable
upon exercise of the Initial Warrant (without regard to any limitations on
exercise) as of the date immediately preceding the date the Initial Registration
Statement is initially filed with the SEC, subject to adjustment as provided in
Section 3(b). The Company shall use its best efforts to cause such Registration
Statement to be declared effective by the SEC as soon as possible, but in no
event later than June 30, 2000 (the "Initial Effectiveness Deadline").
(ii) Additional Mandatory Registration. The Company shall
---------------------------------
prepare, and, as soon as practicable, but in no event later than 10 days after
the Additional Note Notice Date (as defined in the Securities Purchase
Agreement) (the "Additional Filing Deadline") file with the SEC an Additional
Registration Statement or Additional Registration Statements (as necessary) on
Form S-3 covering the resale of all of the Additional Registrable Securities
relating to the Additional Notes and Additional Warrants which are to be issued
on the Additional Closing Date (as defined in the Securities Purchase
Agreement). In the event that Form S-3 is unavailable for such a registration,
the Company shall use such other form as is available for such a registration,
subject to the provisions of Section 2(e). Any first Registration Statement
prepared pursuant hereto shall register for resale at least that number of
shares of Common Stock equal to the sum of (y) the product of (i) 2.0 and (ii)
the number of Additional Conversion Shares issuable upon conversion of the
Additional Notes to be issued on the Additional Closing Date (as if such
Additional Notes were then outstanding and without regard to any limitations on
conversions) as of the date immediately preceding the date the Additional
Registration Statement is initially filed with the SEC, subject to adjustment as
provided in Section 3(b), plus (z) the number of Additional Warrant Shares
issuable upon exercise of the Additional Warrants to be issued on the Additional
Closing Date (as if such Additional Warrants were then outstanding and without
regard to any limitations on exercise)
3
<PAGE>
as of the date immediately preceding the date the Additional Registration
Statement is initially filed with the SEC, subject to adjustment as provided in
Section 3(b). The Company shall use its best efforts to cause such Registration
Statement to be declared effective by the SEC as soon as possible, but in no
event later than 80 days after the Additional Note Notice Date (the "Additional
Effectiveness Deadline").
b. Piggy-Back Registrations. If at any time prior to the expiration
------------------------
of the Registration Period (as hereinafter defined), the number of shares of
Common Stock available for sale under a Registration Statement is insufficient
(as that term is used in Section 2(g)) to cover all of the Registrable
Securities and the Company proposes to file with the SEC a Registration
Statement relating to an offering for its own account or the account of others
under the 1933 Act of any of its securities (other than on Form S-4 or Form S-8
(or their equivalents at such time) relating to securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans) the Company shall promptly send to each Investor who is entitled to
registration rights under this Section 2(b) written notice of the Company's
intention to file a Registration Statement and of such Investor's rights under
this Section 2(b) and, if within twenty (20) days after receipt of such notice,
such Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, subject to the priorities set forth below in
this Section 2(b). No right to registration of Registrable Securities under
this Section 2(b) shall be construed to limit any registration required under
Section 2(a). The obligations of the Company under this Section 2(b) may be
waived by Investors holding a majority of the Registrable Securities. If an
offering in connection with which an Investor is entitled to registration under
this Section 2(b) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering. If a
registration pursuant to this Section 2(b) is to be an underwritten public
offering and the managing underwriter(s) advise the Company in writing, that in
their reasonable good faith opinion, marketing or other factors dictate that a
limitation on the number of shares of Common Stock which may be included in the
Registration Statement is necessary to facilitate and not adversely affect the
proposed offering, then the Company shall include in such registration: (1)
first, all securities the Company proposes to sell for its own account and/or
which the Company is required to include in such Registration Statement pursuant
to the Second Amended and Restated Registration Rights Agreement dated as of
December 11, 1998 among the Company and the other parties named therein, (2)
second, up to the full number of securities proposed to be registered for the
account of the holders of securities entitled to inclusion of their securities
in the Registration Statement by reason of demand registration rights, and (3)
third, the securities requested to be registered by the Investors and other
holders of securities entitled to participate in the registration, as of the
date hereof, drawn from them pro rata based on the number each has requested to
be included in such registration.
4
<PAGE>
c. Allocation of Registrable Securities. The initial number of
------------------------------------
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Person's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities covered by such Registration Statement
shall be allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors which are covered by such
Registration Statement.
d. Legal Counsel. Subject to Section 5 hereof, the Buyers holding a
-------------
majority of the Registrable Securities shall have the right to select one legal
counsel to review any offering pursuant to this Section 2 ("Legal Counsel"),
which shall be Katten Muchin & Zavis or such other counsel as thereafter
designated by the holders of a majority of Registrable Securities. The Company
shall reasonably cooperate with Legal Counsel in performing the Company's
obligations under this Agreement.
e. Ineligibility for Form S-3. In the event that Form S-3 is not
--------------------------
available for any registration of Registrable Securities hereunder, the Company
shall (i) register the sale of the Registrable Securities on another appropriate
form reasonably acceptable to the holders of a majority of the Registrable
Securities and (ii) undertake to register the Registrable Securities on Form S-3
as soon as such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.
f. Effect of Failure to Obtain and Maintain Effectiveness of
---------------------------------------------------------
Registration Statement. If (i) a Registration Statement covering all the
- ----------------------
applicable Registrable Securities and required to be filed by the Company
pursuant to this Agreement is not (A) filed with the SEC on or before the
applicable Filing Deadline, (B) declared effective by the SEC on or before the
applicable Effectiveness Deadline or (C) on any day after a Registration
Statement has been declared effective by the SEC, other than days during an
Allowable Grace Period (as defined in Section 3(t)), sales of all the
Registrable Securities required to be included on a Registration Statement
cannot be made pursuant to the respective Registration Statement (including,
without limitation, because of a failure to keep the Registration Statement
effective, to disclose such information as is necessary for sales to be made
pursuant to the Registration Statement, to register sufficient shares of Common
Stock), then, as partial relief for the damages to any holder by reason of any
such delay in or reduction of its ability to sell the underlying shares of
Common Stock (which remedy shall not be exclusive of any other remedies
available at law or in equity), the Company shall pay to each holder of the
Notes an amount in cash equal to the product of (i) the aggregate principal
amount of Notes held by such holder of Notes multiplied
5
<PAGE>
by (ii) the sum of (A) 0.015, if the Registration Statement is not filed with
the SEC by the Filing Deadline, plus (B) 0.015, if the Registration Statement is
not effective by the Effectiveness Deadline, plus (C) the product of (I) .0005
multiplied by (II) the sum of (x) the number of days after the Filing Deadline
that a Registration Statement is not filed with the SEC, plus (y) the number of
days after the Effectiveness Deadline that a Registration Statement is not
declared effective by the SEC, plus (z) the number of days after a Registration
Statement has been declared effective by the SEC, that such Registration
Statement is not available (other than days during an Allowable Grace Period)
for sales of at least all the Registrable Securities. The payments to which a
holder shall be entitled pursuant to this Section 2(f) are referred to herein as
"Registration Delay Payments." Registration Delay Payments shall be paid on the
earlier of (I) the last day of the calendar month during which such Registration
Delay Payments are incurred and (II) the third business day after the event or
failure giving rise to the Registration Delayed Payments is cured. In the event
the Company fails to make Registration Delay Payments in a timely manner, such
Registration Delay Payments shall bear interest at the rate of 1.5% per month
(prorated for partial months) until paid in full.
g. Sufficient Number of Shares Registered. In the event the number of
--------------------------------------
shares available under a Registration Statement filed pursuant to Section 2(a)
is insufficient to cover all of the Registrable Securities which such
Registration Statement is required to cover or an Investor's allocated portion
of the Registrable Securities pursuant to Section 2(c), the Company shall amend
the Registration Statement, or file a new Registration Statement (on the short
form available therefor, if applicable), or both, so as to cover at least 150%
of the Registrable Securities (based on the market price of the Common Stock on
the trading day immediately preceding the date of filing of such amendment or
new Registration Statement), in each case, as soon as practicable, but in any
event not later than fifteen (15) days after the necessity therefor arises. The
Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed "insufficient to cover
all of the Registrable Securities" if the number of Registrable Securities
issued or issuable upon conversion of the Notes and exercise of the Warrants
covered by such Registration Statement is greater than the quotient determined
by dividing (i) the number of shares of Common Stock available for resale under
such Registration Statement by (ii) 1.5. For purposes of the calculation set
forth in the foregoing sentence, any restrictions on the convertibility of the
Notes or exercise of the Warrants shall be disregarded and such calculation
shall assume that the Notes are then convertible into, and the Warrants are then
exercisable for, shares of Common Stock at the then prevailing Conversion Rate
(as defined in the Notes) or Warrant Exercise Price (as defined in the
Warrants), respectively.
3. RELATED OBLIGATIONS.
-------------------
6
<PAGE>
At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a) or 2(g), the Company will use
its best efforts to effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (but in no
event later than the Filing Deadline) and use its best efforts to cause such
Registration Statement relating to the Registrable Securities to become
effective as soon as practicable after such filing (but in no event later than
the applicable Effectiveness Deadline). The Company shall keep each
Registration Statement effective pursuant to Rule 415 at all times until the
earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities covered by such Registration Statement (assuming a
Cashless Exercise (as defined in the Warrants) of all Warrants, but only if (A)
such Cashless Exercise is permitted under the Warrants or the Company
irrevocably agrees in writing to permit such a Cashless Exercise and (B) that
"tacking" is available with respect to the Investors' holding periods under Rule
144(d)(iii)) without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto) or (ii) the date on which the Investors shall
have sold all the Registrable Securities covered by such Registration Statement
(the "Registration Period"), which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading. The term
"best efforts" as used in the first sentence of this Section 3(a) shall mean,
among other things, that the Company shall submit to the SEC, within two
business days after the Company learns that no review of a particular
Registration Statement will be made by the staff of the SEC or that the staff
has no further comments on the Registration Statement, as the case may be, a
request for acceleration of effectiveness of such Registration Statement to a
time and date not later than 48 hours after the submission of such request.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement. In the case of
amendments and supplements to a Registration Statement which are required to be
filed pursuant to this Agreement (including pursuant to this Section 3(b)) by
reason of the Company filing a report on Form 10-K, Form 10-Q or Form 8-K or any
analogous report under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the Company shall have incorporated such report by reference into
the Registration Statement, if applicable, or shall file such amendments or
supplements with the SEC on the same day on
7
<PAGE>
which the 1934 Act report is filed which created the requirement for the Company
to amend or supplement the Registration Statement.
c. The Company shall (a) permit Legal Counsel to review and comment
upon those sections of (i) the Initial Registration Statement and the Additional
Registration Statement which are applicable to the Buyers at least five (5)
business days prior to its filing with the SEC and (ii) all other Registration
Statements and all amendments and supplements to all Registration Statements
which are applicable to the Buyers (except for Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any similar
or successor reports) within a reasonable number of days prior to the their
filing with the SEC and (b) not file any document in a form to which Legal
Counsel reasonably objects within five (5) business days after receipt thereof.
The Company shall not submit a request for acceleration of the effectiveness of
a Registration Statement or any amendment or supplement thereto without the
prior approval of Legal Counsel, which consent shall not be unreasonably
withheld or delayed. The Company shall furnish to Legal Counsel, without charge,
(i) any correspondence from the SEC or the staff of the SEC to the Company or
its representatives relating to any Registration Statement, (ii) promptly after
the same is prepared and filed with the SEC, one copy of any Registration
Statement and any amendment(s) thereto, including financial statements and
schedules and all exhibits and (iii) upon the effectiveness of any Registration
Statement, one copy of the prospectus included in such Registration Statement
and all amendments and supplements thereto. The Company shall reasonably
cooperate with Legal Counsel in performing the Company's obligations pursuant to
this Section 3.
d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration Statement and any amendment(s) thereto, including financial
statements and schedules, and all exhibits and each preliminary prospectus, (ii)
upon the effectiveness of any Registration Statement, ten (10) copies of the
prospectus included in such Registration Statement and all amendments and
supplements thereto (or such other number of copies as such Investor may
reasonably request) and (iii) such other documents, including copies of any
preliminary or final prospectus, as such Investor may reasonably request from
time to time in order to facilitate the disposition of the Registrable
Securities owned by such Investor.
e. The Company shall use its best efforts to (i) register and qualify
the Registrable Securities covered by a Registration Statement under all other
securities or "blue sky" laws of such jurisdictions in the United States, (ii)
prepare and file in those jurisdictions, such amendments (including post-
effective amendments) and supplements to such registrations and qualifications
as may be necessary to maintain the effectiveness thereof during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (w) make any change in the Company's
Certificate of Incorporation or by-laws that the Company's board of directors
determines in
8
<PAGE>
good faith to be contrary to the best interests of the Company and its
shareholders, (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
f. As promptly as practicable after becoming aware of such event or
development, the Company shall notify Legal Counsel and each Investor in writing
of the happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). The Company shall also promptly notify
Legal Counsel and each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and each
Investor by facsimile on the same day of such effectiveness), (ii) of any
request by the SEC for amendments or supplements to a Registration Statement or
related prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify Legal Counsel and each Investor who holds Registrable
Securities being sold of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
h. At the reasonable request of any Investor and at such Investor's
expense, the Company shall furnish to such Investor, on the date of the
effectiveness of the Registration Statement and thereafter from time to time on
such dates as an Investor may reasonably request (i) a letter, dated such date,
from the Company's independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, and (ii) an opinion, dated as
of such date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, addressed to the Investors.
9
<PAGE>
i. The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents
retained by the Investors (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall agree, and each Investor hereby
agrees, to hold in strict confidence and shall not make any disclosure (except
to an Investor) or use of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement of which the Inspector
has knowledge. The Company shall not be required to disclose any confidential
information in such Records to any Inspector until and unless such Inspector
shall have entered into confidentiality agreements with the Company with respect
thereto, substantially in the form of this Section 3(i). Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential.
j. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement, or (v) such Investor consents to the form and content of any such
disclosure. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
k. The Company shall use its best efforts either to (i) cause all the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Registrable Securities covered by
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<PAGE>
the Registration Statement on The Nasdaq SmallCap Market, the Nasdaq National
Market The American Stock Exchange, Inc., or The New York Stock Exchange, Inc.
The Company shall pay all fees and expenses in connection with satisfying its
obligation under this Section 3(k).
l. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Investors may reasonably
request and registered in such names as the Investors may request.
m. The Company shall provide a transfer agent and registrar of all
such Registrable Securities not later than the effective date of such
Registration Statement.
n. If requested by an Investor, the Company shall (i) as soon as
practicable incorporate in a prospectus supplement or post-effective amendment
such information as an Investor requests to be included therein relating to the
Investor or the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable
Securities being offered or sold, the purchase price being paid therefor and any
other terms of the offering of the Registrable Securities to be sold in such
offering; (ii) as soon as practicable make all required filings of such
prospectus supplement or post-effective amendment after being notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration Statement
if reasonably requested by an Investor of such Registrable Securities.
o. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
p. The Company shall make generally available to its security holders
as soon as practical, but not later than 90 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the 1933 Act) covering a twelve-month period beginning not later
than the first day of the Company's fiscal quarter next following the effective
date of the Registration Statement.
q. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.
r. Within two (2) business days after a Registration Statement which
covers applicable Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to deliver,
to the transfer agent for such Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
---------
11
<PAGE>
s. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
t. Notwithstanding anything to the contrary in Section 3(f), at any
time after the applicable Registration Statement has been declared effective by
the SEC, the Company may delay the disclosure of material non-public information
concerning the Company the disclosure of which at the time is not, in the good
faith opinion of the Board of Directors of the Company and after consultation
with its counsel, in the best interest of the Company and is not otherwise
required (a "Grace Period"); provided, that the Company shall promptly (i)
notify the Investors in writing of the existence of material non-public
information giving rise to a Grace Period (provided that in each notice the
Company will not disclose the content of such material non-public information to
the Investors) and the date on which the Grace Period will begin, and (ii)
notify the Investors in writing of the date on which the Grace Period ends; and,
provided further, that no Grace Period shall exceed 20 consecutive days and
during any consecutive 365 day period, such Grace Periods shall not exceed an
aggregate of 40 days (an "Allowable Grace Period"); provided, however, that such
20 and 40 day periods shall be extended to 30 and 60 days, respectively, in the
event that such Grace Period is pursuant to an acquisition by the Company which
is required to be reported under Item 2 of Form 8-K and for which pro forma
financial information is required to be reported pursuant to Article II of
Regulation S-X promulgated under the 1933 Act. For purposes of determining the
length of a Grace Period above, the Grace Period shall begin on and include the
date the holders receive the notice referred to in clause (i) and shall end on
and include the later of the date the holders receive the notice referred to in
clause (ii) and the date referred to in such notice. The provisions of Sections
2(f) and 3(g) hereof shall not be applicable during the period of any Allowable
Grace Period. Upon expiration of the Grace Period, the Company shall again be
bound by the first sentence of Section 3(f) with respect to the information
giving rise thereto unless such material non-public information is no longer
applicable. Each Investor agrees that notice of a Grace Period shall trigger
such Investor's obligations under Section 4(c).
4. OBLIGATIONS OF THE INVESTORS.
----------------------------
a. At least seven (7) days prior to the first anticipated filing date
of a Registration Statement, the Company shall notify each Investor in writing
of the information the Company requires from each such Investor if such Investor
elects to have any of such Investor's Registrable Securities included in such
Registration Statement. It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request.
12
<PAGE>
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
c. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(h) and for which the Investor has not
yet settled.
5. EXPENSES OF REGISTRATION.
------------------------
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees
shall be paid by the Company. In addition, the Company shall reimburse the
Investors for the reasonable fees and disbursements of Legal Counsel in
connection with registrations, filings or qualifications pursuant to Sections 2
and 3 of this Agreement, provided that the Company shall only reimburse that
amount, if any, equal to up to $10,000.
6. INDEMNIFICATION.
---------------
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, partners, employees, agents, representatives of, and each Person, if
any, who controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act") (each, an
"Indemnified Person"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, reasonable attorneys' fees, amounts
paid in settlement or expenses, joint or several, (collectively, "Claims")
incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the foregoing by or
before any court or governmental, administrative or other
13
<PAGE>
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("Indemnified Damages"),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("Blue Sky Filing"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, "Violations"). Subject to Section
6(c), the Company shall reimburse the Investors and each such controlling
person, promptly as such expenses are incurred and are due and payable, for any
legal fees or disbursements or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified
Person arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by an
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(d); (ii) shall not be available to the extent such Claim is based on a failure
of the Investor to deliver or to cause to be delivered the most recent
prospectus made available by the Company, if such prospectus was timely made
available by the Company pursuant to Section 3(d); and (iii) shall not apply to
amounts paid in settlement of any Claim, if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees to severally and not jointly
indemnify, hold harmless and defend, to the same extent and in the same manner
as is set forth in Section 6(a), the Company, each of its directors, each of its
officers who signs the Registration Statement and each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act (each an
"Indemnified Party"), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar
as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case
14
<PAGE>
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any prospectus shall not inure to the benefit of any Indemnified
Party if the untrue statement or omission of material fact contained in the
prospectus was corrected on a timely basis in the prospectus, as then amended or
supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and
any other party represented by such counsel in such proceeding. In the case of
an Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding a majority in interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall cooperate
fully with the indemnifying party in connection with any negotiation or defense
of any such action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified Person which relates to such action or claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person fully apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of
any action, claim or proceeding effected without its prior written
15
<PAGE>
consent, provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without
the prior written consent of the Indemnified Party or Indemnified Person,
consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
d. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
e. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
------------
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any other Person who was not guilty of fraudulent
misrepresentation; and (ii) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities pursuant to such Registration
Statement.
8. REPORTS UNDER THE 1934 ACT.
--------------------------
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
16
<PAGE>
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the 1933 Act and
the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the investors to
sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
---------------------------------
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
in accordance with Section 2(f) of the Securities Purchase Agreement if: (i) the
Investor agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned;
(iii) immediately following such transfer or assignment the further disposition
of such securities by the transferee or assignee is restricted under the 1933
Act and applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement. No transferee of registration rights under this Agreement shall be
entitled to include any Registrable Securities on a Registration Statement
unless it previously has provided the Company with written notice referred to in
clause (ii) of the preceding sentence.
10. AMENDMENT OF REGISTRATION RIGHTS.
--------------------------------
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold at least two-thirds (2/3) of the Registrable
Securities which are then outstanding. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor and the
Company. No such amendment shall be effective to the extent that it applies to
less than all of the holders of the Registrable Securities. No consideration
shall be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the parties to this Agreement.
17
<PAGE>
11. MISCELLANEOUS.
-------------
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
RoweCom Inc.
725 Concord Avenue
Cambridge, Massachusetts 02138
Telephone: 617-497-5800
Facsimile: 617-497-6825
Attention: Louis Hernandez
Executive Vice President and
Chief Financial Officer
With a copy to:
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Telephone: 617-951-8000
Facsimile: 617-951-8736
Attention: Brian Keeler, Esq.
If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: 312-902-5200
Facsimile: 312-902-1061
Attention: Robert J. Brantman, Esq.
18
<PAGE>
If to a Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers or to such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a courier or overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. The corporate laws of the State of Delaware shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
19
<PAGE>
e. This Agreement, the Securities Purchase Agreement, the Warrants
and the Notes constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, the Securities Purchase Agreement, the
Warrants and the Notes supersede all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding a majority of the Registrable Securities,
determined as if all of the Notes and the Warrants then outstanding have been
converted into or exercised for Registrable Securities without regard to any
limitation on conversions of the Notes or exercises of the Warrants.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
* * * * * *
20
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY: BUYER:
ROWECOM INC. HFTP INVESTMENT L.L.C.
By: Promethean Asset Management, L.L.C.
Its: Investment Manager
By: /s/ Louis Hernandez, Jr. By: /s/ James F. O'Brien, Jr.
-------------------------------- -----------------------------------
Name: Louis Hernandez, Jr. Name: James F. O'Brien, Jr.
Title: Executive Vice President and Its: Managing Member
Chief Financial Officer
LEONARDO, L.P.
By: Angelo, Gordon & Co., L.P.
By: /s/ Michael L. Gordon
-------------------------------
Name: Michael L. Gordon
Title: Chief Operating Officer
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Investor Address Investor's Representatives' Address
Investor Name and Facsimile Number and Facsimile Number
- ----------------------------------- ------------------------------------------ ------------------------------------------
<S> <C> <C>
HFTP Investment L.L.C. c/o Promethean Asset Management, L.L.C. Promethean Asset Management, L.L.C.
750 Lexington Avenue 750 Lexington Avenue
22/nd/ Floor 22/nd/ Floor
New York, New York 10022 New York, New York 10022
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
John Floegel John Floegel
Telephone: 212-702-5200 Telephone: 212-702-5200
Facsimile: 212-758-9334 Facsimile: 212-758-9334
Residence: New York
Katten Muchin & Zavis
525 West Monroe
Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Telephone: 312-902-5200
Facsimile: 312-902-1061
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P. c/o Angelo, Gordon & Co., L.P.
245 Park Avenue - 26/th/ Floor 245 Park Avenue - 26/th/ Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Telephone: 212-692-2035 Telephone: 212-692-2035
Facsimile: 212-867-6449 Facsimile: 212-867-6449
Residence: Cayman Islands
</TABLE>
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
Attn:______________
Re: RoweCom Inc.
------------
Ladies and Gentlemen:
We are counsel to RoweCom Inc., a Delaware corporation (the "Company"), and
have represented the Company in connection with that certain Securities Purchase
Agreement (the "Purchase Agreement") entered into by and among the Company and
the Buyer named therein (collectively, the "Holders") pursuant to which the
Company issued to the Holders of convertible notes (the "Notes") convertible
into shares of the Company's common stock, $0.01 par value per share (the
"Common Stock") and the related Warrants (the "the Warrants") to acquire shares
of Common Stock. Pursuant to the Purchase Agreement, the Company also has
entered into a Registration Rights Agreement with the Holders (the "Registration
Rights Agreement") pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Notes and exercise of the Warrants, under the Securities Act of 1933, as amended
(the "1933 Act"). In connection with the Company's obligations under the
Registration Rights Agreement, on ____________ ____, the Company filed a
Registration Statement on Form S-3 (File No. 333-_____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:_________________________
cc: [LIST NAMES OF HOLDERS]
<PAGE>
EXHIBIT 99.5
FOR IMMEDIATE RELEASE
RoweCom Contact Investor Contact Media Contact
Ilyssa Frey Michael Lendener Judy Santiago
RoweCom Inc. Makovsky & Co. Makovsky & Co.
(617) 497-5800 (212) 508-9690 (212) 508-9654
[email protected] [email protected] [email protected]
ROWECOM COMPLETES $20 MILLION PRIVATE PLACEMENT
CAMBRIDGE, Mass.--October 14, 1999--RoweCom Inc. (Nasdaq: ROWE), whose flagship
Knowledge Store (kStore) and Knowledge Library (kLibrary) are the leading
business-to-business e-commerce solutions for managing the acquisition of
knowledge resources, today announced that it has completed a $20 million private
placement. The funds will be used for general corporate purposes including
potential acquisitions. J.C. Bradford & Co. served as financial advisor to the
company for this financing.
Under the terms of the placement, institutional investors will purchase $20
million in RoweCom convertible debt with warrants. The debt carries an interest
rate of 6% per annum, is both convertible and redeemable at RoweCom's option,
and has a term of fifteen months. RoweCom has the option to convert all or a
portion of this debt into common shares or in the alternative, redeem the debt
at 100% of par during the first six months and 107% of par thereafter. The
warrants have a term of four years and 224,000 RoweCom common shares,
exercisable at approximately 111% of the most recent 25-day average share price.
Subject to certain conditions, the investors have also agreed to provide an
additional $15 million at the same terms and at RoweCom's option.
"These funds, obtained upon terms favorable to RoweCom and its shareholders,
will increase our cash balances to approximately $67 million after taking effect
for the three acquisitions we have announced since our March IPO. We are
committed to maintaining a strong cash balance and capital structure that will
ensure our ability to continue executing our growth strategy as we evaluate
additional financing alternatives," said Richard Rowe, president and CEO of
RoweCom.
About RoweCom Inc.
A first mover in business-to-business e-commerce, RoweCom Inc. develops and
operates Web-based services that enable businesses to manage the acquisition of
knowledge resources such as magazines, newspapers, journals and books. RoweCom's
flagship services, Knowledge Store (kStore) and Knowledge Library (kLibrary),
provide new levels of control, convenience, and cost-savings, allowing companies
to order, pay for and manage 240,000 subscription titles and 3,500 market
research reports online as well as millions of discounted books via RoweCom
partner barnesandnoble.com. With clients ranging from Fortune 1000 companies to
academic libraries, RoweCom serves organizations with intensive knowledge
requirements and high-volume purchases. The
<PAGE>
publicly-held company (Nasdaq: ROWE) is headquartered in Cambridge, Mass. and
has several offices across North America, Europe and Australia.
RoweCom focuses on knowledge intensive industries such as professional services,
financial services, health services and high technology. RoweCom's over
20,000 clients include industry leaders such as PricewaterhouseCoopers, Arthur
Andersen, Ernst & Young, KPMG LLP Prudential Securities, John Hancock, Charles
Schwab (NYSE: SCH), Dun & Bradstreet (NYSE: DNB), BASF (GF: BAS), Hewlett
Packard (NYSE: HWP), Owens Corning (NYSE: OWC), First Union (NYSE: FTU), Aurora
Healthcare and Johns Hopkins University. RoweCom also has an impressive partner
list that includes barnesandnoble.com (Nasdaq: BNBN), NewsEdge (Nasdaq: NEWZ),
Ariba (Nasdaq: ARBA), Commerce One (Nasdaq: CMRC) and Sun-Netscape Alliance.
Except for the historical information contained herein, the matters discussed in
this news release may contain forward-looking statements made under the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. All
forward-looking statements involve risks and uncertainties. RoweCom's actual
results may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the company's SEC filings.
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