Exhibit 10.5
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
$4,000,000
ROWECOM INC.
7% CONVERTIBLE DEBENTURE
DUE SIX MONTHS FROM THE DATE OF ISSUANCE
THIS Debenture is one of a series of duly authorized and issued debentures
of RoweCom Inc., a Delaware corporation, having a principal place of business at
00 Xxxxxxxx Xxxxxx, Xxxxxxxxx, XX 00000 (the "COMPANY"), designated as its 7%
Convertible Debentures, due six months from the date of issuance, in the
aggregate principal amount of Four Million Dollars ($4,000,000) (the
"DEBENTURES").
FOR VALUE RECEIVED, the Company promises to pay to Montrose Investments
Ltd., or its registered assigns (the "HOLDER"), the principal sum of Four
Million Dollars ($4,000,000), on March 12, 2001 or such earlier date as the
Debentures are required to be repaid as provided hereunder (the "MATURITY Date")
and to pay simple interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 7% per annum,
payable on a quarterly basis on March 31, June 30, September 30 and December 31
of each year while such Debentures are outstanding commencing on September 30,
2000 and on each Conversion Date (as defined herein) (each an "INTEREST PAYMENT
DATE") for such principal amount, commencing on the earlier to occur of a
Conversion Date for such principal amount and September 30, 2000, in cash or
shares of Common Stock (as defined in Section 6). Subject to the terms and
conditions herein, the decision whether to pay interest hereunder in shares of
Common Stock or cash shall be at the discretion of the Company. Not less than
ten Trading Days (as defined in Section 6) prior to each Interest Payment Date,
the Company shall provide the Holder with written notice of its election to pay
interest hereunder either in cash or shares of Common Stock pursuant to the
terms of Section 4(a)(i) (the Company may indicate in such notice that the
election contained in such notice shall continue for later periods until
revised). Failure to timely provide such written notice shall be deemed an
election by the Company to pay the interest on such Interest Payment Date in
shares of Common Stock pursuant to the terms of Section 4(a)(i). If interest is
paid by the Company in shares of its Common Stock, then the number of shares of
Common Stock issuable on account of such interest shall equal the cash
amount of such interest on such Interest Payment Date divided by the Conversion
Price (as defined below). Interest shall be calculated on the basis of a 365-day
year and shall accrue daily commencing on the Original Issue Date (as defined in
Section 6) until payment in full of the principal sum, together with all accrued
and unpaid interest and other amounts which may become due hereunder, has been
made. Interest hereunder will be paid to the Person (as defined in Section 6) in
whose name this Debenture is registered on the records of the Company regarding
registration and transfers of Debentures (the "DEBENTURE REGISTER"). All overdue
accrued and unpaid interest to be paid in cash hereunder shall entail a late fee
at the rate of 18% per annum (or such lower maximum amount of interest permitted
to be charged under applicable law) ("LATE FEE") (to accrue daily, from the date
such interest is due hereunder through and including the date of payment),
payable in cash or if such Late Fee is paid by the Company in shares of its
Common Stock, in which case the number of shares of Common Stock issuable on
account of such Late Fee shall equal the cash amount of such Late Fee on such
Late Fee payment date divided by the Conversion Price.
This Debenture is subject to the following additional provisions:
SECTION This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.
SECTION This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 6) and may be transferred or exchanged only in compliance
with the Purchase Agreement. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the Person (as defined in Section 6) in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
SECTION EVENTS OF DEFAULT.
"EVENT OF DEFAULT", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
any default in the payment of the principal of, interest
on or liquidated damages in respect of, any Debentures, free of any
claim of subordination, as and when the same shall become due and
payable (whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise);
the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of any of the
2
Transaction Documents (as defined in Section 6), and such failure or
breach shall not have been remedied within five Business Days after the
date on which written notice of such failure or breach shall have been
given;
the Company or any of its Significant Subsidiaries (as defined in
Section 6) shall commence, or there shall be commenced against the
Company or any such Significant Subsidiary a case under any applicable
bankruptcy or insolvency laws as now or hereafter in effect or any
successor thereto, or the Company or any of its Significant
Subsidiaries commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether
now or hereafter in effect relating to the Company or any of its
Significant Subsidiaries or there is commenced against the Company or
any Significant Subsidiary thereof any such bankruptcy, insolvency or
other proceeding which remains undismissed for a period of 60 days; or
the Company or any Significant Subsidiary thereof is adjudicated
insolvent or bankrupt; or any order of relief or other order approving
any such case or proceeding is entered; or the Company or any
Significant Subsidiary thereof suffers any appointment of any custodian
or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or the
Company or any Significant Subsidiary thereof makes a general
assignment for the benefit of creditors; or the Company shall fail to
pay, or shall state that it is unable to pay, or shall be unable to
pay, its debts generally as they become due; or the Company or any
Significant Subsidiary thereof shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of
its debts; or the Company or any Significant Subsidiary thereof shall
by any act or failure to act expressly indicate its consent to,
approval of or acquiescence in any of the foregoing; or any corporate
or other action is taken by the Company or any Significant Subsidiary
thereof for the purpose of effecting any of the foregoing;
the Company shall default in any of its obligations under
any other Debenture or any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an amount
exceeding five hundred thousand dollars ($500,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
the Common Stock shall either be delisted from the Nasdaq
National Market ("NASDAQ") or suspended from trading on the NASDAQ
without resuming trading and/or being relisted or thereon or listed on
the New York Stock Exchange, American Stock Exchange or Nasdaq SmallCap
Market (each, a "SUBSEQUENT MARKET") or having such suspension lifted,
in either case, for more than the lesser of five consecutive
Trading Days or an aggregate of eight Trading Days (which need not be
consecutive Trading Days);
the Company shall be a party to any Change of Control Transaction
(as defined in Section 6), shall agree to sell or dispose all or in
excess of 33% of its assets in one or more transactions (whether or
not such sale would constitute a Change of Control Transaction), or
shall redeem or repurchase more than a de minimis number of shares of
Common Stock or other equity securities of the Company (other than
redemptions of Underlying Shares (as defined in Section 6)) and other
than the repurchase of shares from officers, employees, directors
and consultants of the Company upon termination of their relationship
with the Company;
an Underlying Shares Registration Statement (as defined in Section 6)
shall not have been declared effective by the Commission (as defined
in Section 6) on or prior to the 120th day after the Original Issue
Date;
if, during the Effectiveness Period (as defined in the
Registration Rights Agreement (as defined in Section 8)), the
effectiveness of the Underlying Shares Registration Statement lapses
for any reason or the Holder shall not be permitted to resell
Registrable Securities (as defined in the Registration Rights
Agreement) under the Underlying Shares Registration Statement, in
either case, for more than five consecutive Trading Days or an
aggregate of eight Trading Days (which need not be consecutive Trading
Days);
an Event (as defined in the Registration Rights Agreement) shall not
have been cured to the satisfaction of the Holder prior to the
expiration of thirty days from the Event Date (as defined in the
Registration Rights Agreement) relating thereto (other than an Event
resulting from a failure of an Underlying Shares Registration Statement
to be declared effective by the Commission on or prior to the 120th day
after the Original Issue Date, which shall be covered by Section
3(a)(vii));
the Company shall fail for any reason to deliver certificates to a
Holder prior to the third Trading Day after a Conversion Date
pursuant to and in accordance with Section 4(b) or the Company
shall provide notice to the Holder, including by way of public
announcement, at any time, of its intention not to comply with requests
for conversions of any Debentures in accordance with the terms hereof;
the Company shall fail for any reason to deliver the payment in cash
pursuant to a Buy-In (as defined herein) within five (5) days after
written notice thereof is delivered to the Company hereunder.
If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become
at the Holder's election, immediately due and payable in cash. The aggregate
amount payable upon an Event of Default shall be equal to the sum of (i) the
Mandatory Prepayment Amount (as defined in Section 6) plus (ii) the product of
(A) the number of Underlying Shares issued in respect of conversions hereunder
within thirty (30) days of the date of a declaration of an Event of Default and
then held by the Holder and (B) the Closing Price (as defined in Section 6) on
the date prepayment is due or the date the full prepayment price is paid,
whichever is greater. Interest shall accrue on the prepayment amount hereunder
from the seventh day after such amount is due (being the date of an Event of
Default) through the date of prepayment in full thereof at the rate of 18% per
annum (or such lesser maximum amount that is permitted to be paid by applicable
law), to accrue daily from the date such payment is due hereunder through and
including the date of payment. All Debentures and Underlying Shares for which
the full prepayment price hereunder shall have been paid in accordance herewith
shall promptly be surrendered to or as directed by the Company. The Holder need
not provide and the Company hereby waives any presentment, demand, protest or
other notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Xxxxxx at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.
SECTION CONVERSION.
CONVERSION AT OPTION OF HOLDER. (A) This Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in whole or
in part at any time and from time to time, after the Original Issue Date
(subject to the limitations on conversion set forth in Section 4(a)(iv) hereof)
and until this Debenture shall have been repaid in full. The Holder shall effect
conversions at its option by delivering to the Company of the form of conversion
notice attached hereto as EXHIBIT A (a "HOLDER CONVERSION NOTICE"), specifying
therein the principal amount of Debentures to be converted and the date on which
such conversion is to be effected, which date may not be prior to or more than
five Trading Days after the date such Holder Conversion Notice is deemed to have
been delivered hereunder (a "HOLDER CONVERSION DATE") and shall contain a
schedule in the form of SCHEDULE 1 to the Holder Conversion Notice (as amended
on each Holder Conversion Date, the "CONVERSION SCHEDULE") reflecting the
remaining principal amount of this Debenture and all accrued and unpaid interest
thereon subsequent to the conversion at issue. If no Holder Conversion Date is
specified in a Holder Conversion Notice, the Holder Conversion Date shall be the
date that such Holder Conversion Notice is deemed delivered hereunder. Subject
to Section 4(b), each Holder Conversion Notice, once given, shall be
irrevocable. To effect conversions hereunder (including conversion pursuant to a
Company Conversion Notice), the Holder shall not be required to physically
surrender this Debenture to the Company unless the aggregate principal amount of
this Debenture is so converted in which event such Holder shall promptly
thereafter deliver such Debenture to or as directed by the Company. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of
this Debenture plus all accrued and unpaid interest thereon in an amount equal
to the applicable conversion, which shall be evidenced by entries set forth in
the Conversion Schedule.
The Holder and the Company shall maintain records showing the principal amount
converted and the date of such conversions. In the event of any dispute or
discrepancy, the records of the Holder shall be controlling and determinative in
the absence of manifest error. The Holder and any assignee, by acceptance of
this Debenture, acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Debenture, the unpaid and
unconverted principal amount of this Debenture may be less than the amount
stated on the face hereof.
(ii) CONVERSION AT OPTION OF THE COMPANY. If at any time after
the Effective Date (as defined in the Purchase Agreement) the Per Share Market
Values for each of 20 consecutive Trading Days exceeds 150% of the Conversion
Price, all or any portion of the outstanding Debentures shall be convertible
into Common Stock subject to the limitations set forth in Section 4(a)(iv)) at
the Conversion Ratio at the option of the Company, PROVIDED, that the Company
shall not be permitted to deliver a Company Conversion Notice (as defined below)
at any time when (1) the Underlying Shares Registration Statement is not then
effective, (2) the Holders are unable to utilize the prospectus thereunder to
resell Underlying Shares or (3) the Common Stock is not listed or quoted on the
NASDAQ or a Subsequent Market. The Company shall effect such conversions by
delivering to the Holder a written notice in the form attached hereto as EXHIBIT
B (the "COMPANY CONVERSION NOTICE"). Each of a Company Conversion Notice and a
Holder Conversion Notice are sometimes referred to herein as a Conversion
Notice. Each Company Conversion Notice shall specify the principal amount of
Debentures to be converted. The "COMPANY CONVERSION DATE" shall be the date that
a Company Conversion Notice is deemed to have been delivered hereunder. Each of
a Company Conversion Date and a Holder Conversion Date are referred to herein as
a "CONVERSION DATE." Subject to the Holder's rights under Section 4(b), the
conversion subject to each Company Conversion Notice, once given, shall be
irrevocable. Conversions at the request of the Company shall be reflected in the
Conversion Schedule.
(iii) NUMBER OF UNDERLYING SHARES ISSUABLE UPON CONVERSION. (A)
The number of shares of Common Stock issuable upon a conversion hereunder shall
be determined by adding the sum of (i) the quotient obtained by dividing (x) the
outstanding principal amount of this Debenture to be converted by (y) the
Conversion Price, and (ii) the amount equal to (I) the product of (x) the
outstanding principal amount of this Debenture to be converted and (y) the
product of (1) the quotient obtained by dividing .07 by 365 and (2) the number
of days for which such principal amount was outstanding, divided by (II) the
Conversion Price, PROVIDED, that if such interest has been paid prior to such
Conversion Date or if the Company shall have timely elected to pay the interest
due on a Conversion Date in cash pursuant to the terms hereof, subsection (ii)
shall not be used in the calculation of the number of shares of Common Stock
issuable upon a conversion hereunder.
(B) Notwithstanding anything to the contrary contained herein, if
on any Conversion Date:
(1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as
treasury stock, is insufficient to pay interest hereunder in shares of
Common Stock;
(2) after the Interest Effectiveness Date (as defined in
Section 6) such shares of Common Stock (x) are not registered for resale
pursuant to an effective Underlying Shares Registration Statement and (y)
may not be sold without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act (as defined in Section 6);
(3) the Common Stock is not listed or quoted on the NASDAQ or
on a Subsequent Market;
(4) the Company has failed to timely satisfy its conversion
obligations hereunder; or
(5) the issuance of such shares of Common Stock would result
in a violation of Section 4(a)(ii),
then, at the option of the Holder, the Company, in lieu of
delivering shares of Common Stock pursuant to Section 4(a)(i)(A)(iii), shall
deliver, within three Trading Days of each applicable Conversion Date, an amount
in cash equal to the sum of (a) the outstanding principal amount of the
Debentures to be converted on such Conversion Date and (b) the product of (x)
the quotient obtained by dividing .07 by 365 and (y) the number of days for
which such principal amount was outstanding.
CERTAIN CONVERSION RESTRICTIONS.
A Holder may not convert Debentures or receive shares of Common
Stock as payment of interest hereunder to the extent such conversion or receipt
of such interest payment would result in the Holder, together with any affiliate
thereof, beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of
the then issued and outstanding shares of Common Stock, including shares
issuable upon conversion of, and payment of interest on, the Debentures held by
such Holder after application of this Section. Since the Holder will not be
obligated to report to the Company the number of shares of Common Stock it may
hold at the time of a conversion hereunder, unless the conversion at issue would
result in the issuance of shares of Common Stock in excess of 9.999% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the principal amount of
Debentures are convertible shall be the responsibility and obligation of the
Holder. If the Holder has delivered a Conversion Notice for a principal amount
of Debentures that, without regard to any other shares that the Holder or its
affiliates may beneficially own, would result in the issuance in excess of the
permitted amount hereunder, the Company shall notify the Holder of this fact and
shall honor the conversion for the maximum principal amount permitted to be
converted on such Conversion Date in accordance with the periods described in
Section 4(b) and, at the option of the Holder, either retain any principal
amount tendered for conversion in excess of the permitted amount hereunder for
future conversions or return such excess principal amount to the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.
If the Common Stock is then listed for trading on the
NASDAQ or the Nasdaq SmallCap Market and the Company has not obtained the
Shareholder Approval (as defined below), then the Company may not issue in
excess of 19.999% of the number of shares of Common Stock (less the number of
shares of Common Stock issued upon exercise of the Warrants at a price per share
below the market price of the Common Stock)outstanding on the Trading Day
immediately preceding the Original Closing Date upon conversions of the
Debentures at a price per share that is less than the Closing Price on the
Trading Day immediately preceding the Original Issue Date (such number of
shares, the "ISSUABLE MAXIMUM"). Each Holder shall be entitled to a portion of
the Issuable Maximum equal to the quotient obtained by dividing (x) the
aggregate principal amount of the Debentures issued and sold to such Holder on
the Original Issue Date by (y) the number of the Debenture issued and sold by
the Company on the Original Issue Date. If any Holder shall no longer hold the
Debenture, then such Xxxxxx's remaining portion of the Issuable Maximum shall be
allocated pro-rata among the remaining Holders. If on any Conversion Date (A)
the shares of Common Stock are listed for trading on the NASDAQ or Nasdaq
SmallCap Market, (B) the Conversion Price then in effect is such that the
aggregate number of shares of Common Stock that would
then be issuable upon conversion in full of all then outstanding Debentures,
together with any shares of Common Stock previously issued upon conversion of
the Debenture would exceed the Issuable Maximum, and (C) the Company shall not
have previously obtained the vote of shareholders (the "SHAREHOLDER Approval"),
if any, as may be required by the applicable rules and regulations of the NASDAQ
(or any successor entity) applicable to approve the issuance of shares of Common
Stock in excess of the Issuable Maximum pursuant to the terms hereof, then the
Company shall issue to the Holder requesting a conversion a number of shares of
Common Stock equal to such Holder's pro-rata portion (which shall be calculated
pursuant to the terms hereof) of the Issuable Maximum and, with respect to the
remainder of the aggregate principal amount of the Debentures then held by such
Holder for which a conversion in accordance with the Conversion Price would
result in an issuance of shares of Common Stock in excess of such Holder's
pro-rata portion (which shall be calculated pursuant to the terms hereof) of the
Issuable Maximum (the "EXCESS PRINCIPAL"), the converting Holder shall have the
option to require the Company to either: (1) use its best efforts to obtain the
Shareholder Approval applicable to such issuance as soon as is possible, but in
any event not later than the 60th day after such request, or (2) pay cash to the
converting Holder in an amount equal to the Excess Principal as liquidated
damages and not as penalty. If the converting Holder shall have elected the
first option pursuant to the immediately preceding sentence and the Company
shall have failed to obtain the Shareholder Approval on or prior to the 60th day
after such request, then within three Trading Days following the request
therefor by the converting Holder, the Company shall pay cash to the such in an
amount equal to the Excess Principal in full satisfaction of its remaining
conversion obligations. If the Company fails to pay the Excess Principal in full
pursuant to this Section within seven days after the date payable, the Company
will pay interest thereon at a rate of 18% per annum or such lesser maximum
amount that is permitted to be paid by applicable law, to the converting Holder,
accruing daily from the Conversion Date until such amount, plus all such
interest thereon, is paid in full. The Company and the Holder understand and
agree that shares of Common Stock issued to and then held by the Holder as a
result of conversions of Debentures shall not be entitled to cast votes on any
resolution to obtain Shareholder Approval pursuant hereto.
Not later than three Trading Days after any Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by the Purchase Agreement) representing the number of shares of Common
Stock being acquired upon the conversion of Debentures (ii) and a bank check in
the amount of accrued and unpaid interest (if the Company has timely elected or
is required to pay accrued interest in cash). The Company shall, upon request of
the Holder, if available, use its best efforts to deliver any certificate or
certificates required to be delivered by the Company under this Section
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions. If in the case of any
Conversion Notice such certificate or certificates are not delivered to or as
directed by the applicable Holder by the third Trading Day after a Conversion
Date, the Holder shall be entitled by written notice to the Company at any time
on or before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return the
certificates representing the principal amount of Debentures tendered for
conversion.
If the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 4(b)(i) by the third Trading Day after the
Conversion Date (except under circumstances described in Section 4(a)(iv)(B),
the Company shall pay to such Holder, in cash, as liquidated damages and not as
a penalty, $5,000 for each Trading Day after such third Trading Day until such
certificates are delivered. Nothing herein shall limit a Xxxxxx's right to
declare an Event of Default pursuant to Section 3 herein for the Company's
failure to deliver certificates representing shares of Common Stock upon
conversion within the period specified herein and such Holder shall have the
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.
The exercise of any such rights shall not prohibit the Holders from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
Further, if the Company shall not have delivered any cash due in respect of
conversions of Debentures or as payment of interest thereon by the third Trading
Day after the Conversion Date, the Holder may, by notice to the Company, require
the Company to issue shares of Common Stock pursuant to Section 4(c).
In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 4(b)(i) by the third Trading Day after the Conversion Date, and if
after such third Trading Day the Holder purchases (in an open market transaction
or otherwise) Common Stock to deliver in satisfaction of a sale by such Holder
of the Underlying Shares which the Holder anticipated receiving upon such
conversion (a "BUY-IN"), then the Company shall (A) pay in cash to the Holder
(in addition to any remedies available to or elected by the Holder) the amount
by which (x) the Holder's total purchase price (including brokerage commissions,
if any) for the Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that such Holder anticipated
receiving from the conversion at issue multiplied by (2) the market price of the
Common Stock at the time of the sale giving rise to such purchase obligation and
(B) at the option of the Holder, either reissue Debentures in principal amount
equal to the principal amount of the attempted conversion or deliver to the
Holder the number of shares of Common Stock that would have been issued had the
Company timely complied with its delivery requirements under Section 4(b)(i).
For example, if the Holder purchases Common Stock having a total purchase price
of $11,000 to cover a Buy-In with respect to an attempted conversion of
Debentures with respect to which the market price of the Underlying Shares on
the date of conversion was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In. Notwithstanding anything
contained herein to the contrary, if a Holder requires the Company to make
payment in respect of a Buy-In for the failure to timely deliver certificates
hereunder and the Company timely pays in full such payment, the Company shall
not be required to pay such Holder liquidated damages under Section 4(b)(ii) in
respect of the certificates resulting in such Buy-In.
The conversion price (the "CONVERSION PRICE") in effect on any
Conversion Date shall be $5.884 (subject to adjustment as provided herein).
If the Company, at any time while any Debentures are outstanding,
(a) shall pay a stock dividend or otherwise make a distribution or distributions
payable in and in respect of shares of its Common Stock, or in respect of any
other equity or equity equivalent securities and payable in shares of Common
Stock, (b) subdivide outstanding shares of Common Stock into a larger number of
shares, (c) combine (including by way of reverse stock split) outstanding shares
of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of the Common Stock any shares of capital stock of
the Company, then the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.
If the Company, at any time while any Debentures are outstanding,
shall issue rights, options or warrants to all holders of Common Stock (and not
to Holders) entitling them to subscribe for or purchase shares of Common Stock
at a price per share less than the Per Share Market Value at the record date
mentioned below, then the Conversion Price shall be multiplied by a fraction, of
which the denominator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock offered
for subscription or purchase, and of which the numerator shall be the number of
shares of the Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants plus the number of shares which
the aggregate offering price of the total number of shares so offered would
purchase at such Per Share Market Value. Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
rights, options or warrants. However, upon the expiration of any such right,
option or warrant to purchase shares of the Common Stock the issuance of which
resulted in an adjustment in the Conversion Price pursuant to this Section, if
any such right, option or warrant shall expire and shall not have been
exercised, the Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights, options or warrants been made on the
basis of offering for subscription or purchase only that number of shares of the
Common Stock actually purchased upon the exercise of such rights, options or
warrants actually exercised.
If the Company or any subsidiary thereof at any time while this Warrant is
outstanding, shall issue shares of Common Stock or rights, warrants, options or
other securities or debt that are convertible into or exchangeable for shares of
Common Stock ("COMMON STOCK EQUIVALENTS"), at or entitling any Person to acquire
shares of Common Stock at a price per share less than the Conversion Price (if
the holder of the Common Stock or Common Stock Equivalent so issued shall at any
time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights issued in connection with such issuance, be entitled
to receive shares of Common Stock at a price less than the Conversion Price,
such issuance shall be deemed to have occurred for less than the Conversion
Price), then, at the sole option of the Holder, the Conversion Price shall be
adjusted to mirror the conversion, exchange or purchase price for such Common
Stock or Common Stock Equivalents (including any reset provisions thereof) for
such exercises as shall be indicated by the Holder, PROVIDED, that for purposes
hereof, all shares of Common Stock that are issuable upon conversion, exercise
or exchange of Common Stock Equivalents shall be deemed outstanding immediately
after the issuance of such Common Stock Equivalents. Such adjustment shall be
made whenever such shares of Common Stock or Common Stock Equivalents are
issued. Notwithstanding the foregoing, if the aggregate number of all shares of
Common Stock and shares of Common Stock issuable in respect of issuances of
Common Stock Equivalents (not including any issuances referenced in the
penultimate sentence of this sub-section) is less than 100,000 shares, then the
Conversion Price shall not be adjusted as otherwise contemplated by this Section
4(c)(iv), but shall be reduced to the price (calculated to the nearest cent)
determined by multiplying the Conversion Price in effect immediately prior to
each such issuance of Common Stock or Common Stock Equivalents by a fraction,
the numerator of which shall be the sum of (i) the number of shares of Common
Stock outstanding immediately prior to such issuance, and (ii) the number of
shares of Common Stock which the aggregate consideration received (or to be
received, assuming exercise, conversion or resets in full of such Common Stock
Equivalents on the date of such adjustment) for the issuance of such additional
shares of Common Stock would purchase at the Conversion Price, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares. No
adjustment under this Section shall be made as a result of (i) issuances of
Common Stock or Common Stock Equivalents to the extent disclosed in Schedule
2.1(c) to the Purchase Agreement, (ii) issuances and exercises of options to
purchase shares of Common Stock issued for compensatory purposes pursuant to any
of the Company's stock option or stock purchase plans, or (iii) exercises under
the Warrants (as defined in the Purchase Agreement). The mere creation of rights
pursuant to a shareholder rights plan or any similar plan or arrangement which
will attach to each share of Common Stock (including shares of Common Stock
issuable to the Holder upon conversion of this Debenture) will not result in an
adjustment under this Section 4(c)(iv), unless the Holder is not entitled to
receive such rights or such rights detach from the shares of Common Stock to
which they originally attached, then the Holder shall be entitled to
anti-dilution adjustments under this provision.
If the Company, at any time while Debentures are outstanding,
shall distribute to all holders of Common Stock (and not to Holders) evidences
of its indebtedness or assets or rights or warrants to subscribe for or purchase
any security, then in each such case the Conversion Price at which Debentures
shall thereafter be convertible shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Per Share Market Value determined
as of the record date mentioned above, and of which the numerator shall be such
Per Share Market Value on such record date less the then fair market value at
such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holders shall have the right thereafter
to, at their option, (A) convert the then outstanding principal amount, together
with all accrued but unpaid interest and any other amounts then owing hereunder
in respect of this Debenture only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of the Common
Stock following such reclassification or share exchange, and the Holders of the
Debentures shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the Company
into which the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such reclassification
or share exchange would have been entitled or (B) require the Company to prepay
the aggregate of its outstanding principal amount of Debentures, plus all
interest and other amounts due and payable thereon, at a price determined in
accordance with Section 3(b). The entire prepayment price shall be paid in cash.
This provision shall similarly apply to successive reclassifications or share
exchanges.
All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. No
adjustments in the Conversion Price shall be required if such adjustment is less
than $0.01, PROVIDED, however, that any adjustments which by reason of this
Section are not required to be made shall be carried forward and taken into
account in any subsequent adjustment.
Whenever the Conversion Price is adjusted pursuant to any of
Section 4(c)(ii) - (v), the Company shall promptly mail to each Holder a notice
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
If (A) the Company shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary or
involuntary
dissolution, liquidation or winding up of the affairs of the Company; then, in
each case, the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of the Debentures, and shall cause to
be mailed to the Holders at their last addresses as they shall appear upon the
stock books of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange, PROVIDED, that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice. Holders are
entitled to convert Debentures during the 20-day period commencing the date of
such notice to the effective date of the event triggering such notice.
In case of any (1) merger or consolidation of the Company with or
into another Person, or (2) sale by the Company of more than one-half of the
assets of the Company (on an as valued basis) in one or a series of related
transactions, a Holder shall have the right, to (A) if permitted under Section
3(b) hereof, exercise its rights of prepayment under Section 3(b) with respect
to such event, (B) convert its aggregate principal amount of Debentures then
outstanding into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
merger, consolidation or sale, and such Holder shall be entitled upon such event
or series of related events to receive such amount of securities, cash and
property as the shares of Common Stock into which such aggregate principal
amount of Debentures could have been converted immediately prior to such merger,
consolidation or sales would have been entitled, or (C) in the case of a merger
or consolidation, (x) require the surviving entity to issue shares of
convertible preferred stock or convertible debentures with such aggregate stated
value or in such face amount, as the case may be, equal to the aggregate
principal amount of Debentures then held by such Holder, plus all accrued and
unpaid interest and other amounts owing thereon, which newly issued shares of
preferred stock or debentures shall have terms identical (including with respect
to conversion) to the terms of this Debenture (except, in the case of preferred
stock, as may be required to reflect the differences between equity and debt)
and the holder of such security shall be entitled to all of the rights and
privileges of a Holder of Debentures set forth herein and the agreements
pursuant to which the Debentures were issued (including, without limitation, as
such rights relate to the acquisition, transferability, registration and listing
of such shares of stock other securities issuable upon conversion thereof), and
(y) simultaneously with the issuance of such convertible preferred stock or
convertible debentures, shall have the right to convert such instrument only
into shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of Common Stock following such merger or
consolidation. In the case of clause (C), the conversion price applicable for
the newly issued shares of convertible preferred stock or
convertible debentures shall be based upon the amount of securities, cash and
property that each share of Common Stock would receive in such transaction and
the Conversion Price in effect immediately prior to the effectiveness or closing
date for such transaction. The terms of any such merger, sale or consolidation
shall include such terms so as to continue to give the Holders the right to
receive the securities, cash and property set forth in this Section upon any
conversion or redemption following such event. This provision shall similarly
apply to successive such events.
The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(b)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and, if the Underlying Shares Registration Statement has
been declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the Holder shall
be entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
The issuance of certificates for shares of the Common Stock on conversion of
the Debentures shall be made without charge to the Holders thereof for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a name other
than that of the Holder of such Debentures so converted and the Company shall
not be required to issue or deliver such certificates unless or until the person
or persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
Any and all notices or other communications or deliveries to be provided by
the Holders hereunder, including, without limitation, any Conversion Notice,
shall be in writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service or sent by certified or registered mail,
postage prepaid, addressed to the 00 Xxxxxxxx Xxxxxx, Xxxxxxxxx, XX 00000,
facsimile No.: (000) 000-0000 attention Chief Financial Officer, or such
other address or facsimile number as the Company may specify for such purposes
by notice to the Holders delivered in accordance with this Section, with a copy
(other than for Conversion Notices) to Xxxxxxx Xxxx LLP(facsimile number (617)
951-8736), attention: Xxxxx Xxxxxx, Esq. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail, postage
prepaid, addressed to each Holder at the facsimile telephone number or address
of such Holder appearing on the books of the Company, or if no such facsimile
telephone number or address appears, at the principal place of business of the
Holder. Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 6:30 p.m. (New York City
time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 6:30 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) four days
after deposit in the United States mail, (iv) the Business Day following the
date of mailing, if sent by nationally recognized overnight courier service, or
(v) upon actual receipt by the party to whom such notice is required to be
given.
SECTION DEFINITIONS. For the purposes hereof, the following terms
shall have the following meanings:
"BUSINESS DAY" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday in the United States or a day on which
banking institutions in the State of New York or the Commonwealth of
Massachusetts are authorized or required by law or other government action to
close.
"CHANGE OF CONTROL TRANSACTION" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (iii) the merger of the Company with or into
another entity that is not wholly-owned by the Company, consolidation or sale of
50% or more of the assets of the Company in one or a series of related
transactions, or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
"CLOSING PRICE" means on any particular date (a) the closing
sales price per share of Common Stock on such date on the Subsequent Market on
which the shares of Common
Stock are then listed or quoted, or if there is no such price on such date, then
the closing sales price on the Subsequent Market on the date nearest preceding
such date, or (b) if the shares of Common Stock are not then listed or quoted on
a Subsequent Market, the closing sales price for a share of Common Stock in the
NASDAQ, as reported by the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at the
close of business on such date, or (c) if the shares of Common Stock are not
then reported by the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices), then
the average of the "Pink Sheet" quotes for the relevant conversion period, as
determined in good faith by the Holder, or (d) if the shares of Common Stock are
not then publicly traded the fair market value of a share of Common Stock as
determined by an Appraiser selected in good faith by the Holders of a majority
in interest of the principal amount of Debentures then outstanding. 9.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, $.01 par value per share, of
the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"INTEREST EFFECTIVENESS DATE" means the earlier to occur of (x) the
Effectiveness Date and (y) the date that an Underlying Shares Registration
Statement is declared effective by the Commission.
"MANDATORY PREPAYMENT AMOUNT" for any Debentures shall equal the sum
of (i) the greater of (A) 110% of the principal amount of Debentures to be
prepaid, plus all accrued and unpaid interest thereon, and (B) the principal
amount of Debentures to be prepaid, plus all accrued and unpaid interest
thereon, divided by the Conversion Price multiplied by the Closing Price on (x)
the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the
date the Mandatory Prepayment Amount is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in respect of
such Debentures.
"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in Rule
1-02 of Regulation S-X.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of
the Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence such
Debenture.
"PER SHARE MARKET VALUE" means on any particular date (a) the
closing bid price per share of Common Stock on such date on the NASDAQ or on
such Subsequent Market on which the shares of Common Stock are then listed or
quoted, or if there is no such price on such date, then the closing bid price on
the NASDAQ or on such Subsequent Market on the date
nearest preceding such date, or (b) if the shares of Common Stock are not then
listed or quoted on the NASDAQ or a Subsequent Market, the closing bid price for
a share of Common Stock in the over-the-counter market, as reported by the
National Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (c) if the shares of Common Stock are not then reported by the
National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), then the average of the "Pink
Sheet" quotes for the relevant conversion period, as determined in good faith by
the Holder, or (d) if the shares of Common Stock are not then publicly traded
the fair market value of a share of Common Stock as determined by an Appraiser
selected in good faith by the Holders of a majority in interest of the principal
amount of Debentures then outstanding.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"PURCHASE AGREEMENT" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Original Issue Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TRADING DAY" means (a) a day on which the shares of Common Stock
are traded on the NASDAQ or on such Subsequent Market on which the shares of
Common Stock are then listed or quoted, or (b) if the shares of Common Stock are
not listed on the NASDAQ or a Subsequent Market, a day on which the shares of
Common Stock are traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or (c) if the shares of Common Stock are not quoted on the OTC
Bulletin Board, a day on which the shares of Common Stock are quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); PROVIDED, that in the event that the shares of Common Stock
are not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading
Day shall mean any day except a Business Day.
"TRANSACTION DOCUMENTS" shall have the meaning set forth in the
Purchase Agreement.
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of Debentures or as payment of interest in accordance with the terms
hereof.
"UNDERLYING SHARES REGISTRATION STATEMENT" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other
things the resale of the Underlying Shares and naming the Holder as a "selling
stockholder" thereunder.
SECTION Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks PARI PASSU with all other Debentures now or
hereafter issued under the terms set forth herein. As long as there are
Debentures outstanding, the Company shall not and shall cause it subsidiaries
not to, without the consent of the Holders, (i) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holders; (ii) repay, repurchase or offer to repay, repurchase or
otherwise acquire shares of its Common Stock or other equity securities other
than as to the Underlying Shares to the extent permitted or required under the
Transaction Documents; or (iii) enter into any agreement with respect to any of
the foregoing. The Company may not voluntarily prepay the outstanding principal
amount on the Debentures without consent of the Holder.
SECTION This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
SECTION If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed Debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
SECTION Except as disclosed in Schedule 2.1(c) to the Purchase
Agreement, no indebtedness of the Company is senior to this Debenture in right
of payment, whether with respect to interest, damages or upon liquidation or
dissolution or otherwise. The Company will not and will not permit any of its
subsidiaries to, directly or indirectly, enter into, create, incur, assume or
suffer to exist any indebtedness of any kind (other than any indebtedness of the
Company arising pursuant to a line of credit with a nationally recognized bank,
which debt is secured by the receivables of the Company), on or with respect to
any of its property or assets now owned or hereafter acquired or any interest
therein or any income or profits therefrom that is senior in any respect to the
Company's obligations under the Debentures.
SECTION This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company and the Holder hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in 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, or that such suit, action or
proceeding is improper. Each of the Company and the Holder hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by receiving a copy thereof sent to the Company
at the address in effect for notices to it under this instrument 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.
SECTION Any waiver by the Company or the Holder of a breach of
any provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Debenture on one or more occasions
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Debenture. Any waiver must be in writing.
SECTION If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on the Debentures as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
SECTION Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.
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SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has caused this Convertible
Debenture to be duly executed by a duly authorized officer as of the date first
above indicated.
ROWECOM INC.
By:
Name:
Title:
EXHIBIT A
NOTICE OF CONVERSION AT OPTION OF HOLDER
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
common stock, $.01 par value per share (the "Common Stock"), of RoweCom Inc.
(the "Company") according to the conditions hereof, as of the date written
below. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
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Date to Effect Conversion
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Principal Amount of Debentures to be Converted
---------------------------------------------------
Number of shares of Common Stock to be Issued
---------------------------------------------------
Conversion Price
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Signature
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Name
---------------------------------------------------
Address
ACCEPTED AND AGREED:
ROWECOM INC.
By:
--------------------------------
Name:
Title:
SCHEDULE 1
CONVERSION SCHEDULE
7% Convertible Debentures, due in the aggregate principal amount of $4,000,000
issued by RoweCom Inc.
Dated:
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AGGREGATE
PRINCIPAL AMOUNT
AMOUNT OF REMAINING
DATE OF CONVERSION CONVERSION SUBSEQUENT TO COMPANY ATTEST
CONVERSION
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EXHIBIT B
NOTICE OF CONVERSION AT OPTION OF THE COMPANY
(TO BE EXECUTED BY THE COMPANY IN ORDER TO CONVERT THE DEBENTURE)
THE UNDERSIGNED HEREBY ELECTS TO CONVERT THE ATTACHED DEBENTURE INTO SHARES OF
COMMON STOCK, $.01 PAR VALUE PER SHARE (THE "COMMON STOCK"), OF ROWECOM INC.
(THE "COMPANY") ACCORDING TO THE CONDITIONS HEREOF, AS OF THE DATE WRITTEN
BELOW. IF SHARES ARE TO BE ISSUED IN THE NAME OF A PERSON OTHER THAN THE
UNDERSIGNED, THE UNDERSIGNED WILL PAY ALL TRANSFER TAXES PAYABLE WITH RESPECT
THERETO AND IS DELIVERING HEREWITH SUCH CERTIFICATES AND OPINIONS AS REASONABLY
REQUESTED BY THE COMPANY IN ACCORDANCE THEREWITH. NO FEE WILL BE CHARGED TO THE
HOLDER FOR ANY CONVERSION, EXCEPT FOR SUCH TRANSFER TAXES, IF ANY.
CONVERSION CALCULATIONS:
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Date to Effect Conversion
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Principal Amount of Debentures to be Converted
---------------------------------------------------
Number of shares of Common Stock to be Issued
---------------------------------------------------
Conversion Price
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Signature
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Name
---------------------------------------------------
Address
ACCEPTED AND AGREED:
By:
--------------------------
Name:
Title:
SCHEDULE 2
CONVERSION SCHEDULE
7% Convertible Debentures, due in the aggregate principal amount of $4,000,000
issued by RoweCom Inc.
Dated:
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AGGREGATE
PRINCIPAL AMOUNT
AMOUNT OF REMAINING
DATE OF CONVERSION CONVERSION SUBSEQUENT TO COMPANY ATTEST
CONVERSION
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