Exhibit 4.2
Exhibit A
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION 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.
THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THE NOTE IN THE EVENT OF A
PARTIAL REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION OR
CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT AND ACCRUED
INTEREST SET FORTH BELOW.
6% CONVERTIBLE NOTE DUE DECEMBER 31, 2004
OF
GENOME THERAPEUTICS CORP.
Note No.: ___ Original Principal Amount: $[______]
Issuance Date: March __, 2002 New York, New York
FOR VALUE RECEIVED, GENOME THERAPEUTICS CORP., a corporation duly
organized and existing under the laws of the Commonwealth of Massachusetts (the
"Company"), hereby promises to pay to the order of
[_______________________________] or its registered assigns or
successors-in-interest ("Holder") the principal sum of [$_________], together
with all accrued but unpaid interest thereon, if any, on December 31, 2004 (the
"Maturity Date"), to the extent such principal amount and interest has not been
repaid or converted into the Company's Common Stock, $.10 par value per share
(the "Common Stock"), in accordance with the terms hereof. Interest on the
unpaid principal balance hereof shall accrue at the rate of 6% per annum from
the date of original issuance hereof (the "Issuance Date") until the same
becomes due and payable on the Maturity Date, or such earlier date upon
acceleration or by conversion or redemption in accordance with the terms hereof
or of the other Agreements. Interest on this Note shall accrue daily commencing
on the Issuance Date, shall be compounded semiannually (to the extent not paid
in accordance with Section 1) and shall be computed on the basis of a 365-day
year and actual days elapsed and shall be payable in accordance with Section 1
hereof. Notwithstanding anything contained herein, this Note shall bear interest
on the outstanding Principal Amount from and after the occurrence and during the
continuance of an Event of Default pursuant to Section 5(a), at the rate (the
"Default Rate") equal to the lower of eighteen percent (18%) per annum or the
highest rate permitted by law. Unless otherwise agreed or required by applicable
law, payments will be applied first to any unpaid collection costs, then to
unpaid interest and fees and any remaining amount to principal.
All payments of principal and interest on this Note (to the extent such
principal is not converted into Common Stock or such interest is not paid in
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
or by Company check. This Note may not be prepaid in whole or in part except as
otherwise provided herein or in the Agreements. 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. This Note and the other convertible notes issued by the
Company on the Issuance Date pursuant to the Purchase Agreement are collectively
referred to as the "Notes".
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Purchase Agreement dated on or about the Issuance Date
pursuant to which this Note was originally issued (the "Purchase Agreement").
For purposes hereof the following terms shall have the meanings ascribed to them
below:
"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.
"Change in Control Transaction" will be deemed to exist if (i) there
occurs any consolidation, merger or other business combination of the Company
with or into any other corporation or other entity or person (whether or not the
Company is the surviving corporation), or any other corporate reorganization or
transaction or series of related transactions in which in any of such events the
voting stockholders of the Company prior to such event cease to own 50% or more
of the voting power, or corresponding voting equity interests, of the surviving
corporation after such event (including without limitation any "going private"
transaction under Rule 13e-3 promulgated pursuant to the Exchange Act or tender
offer by the Company under Rule 13e-4 promulgated pursuant to the Exchange Act
for 20% or more of the Company's Common Stock), (ii) any person (as defined in
Section 13(d) of the Exchange Act), together with its affiliates and associates
(as such terms are defined in Rule 405 under the Act), beneficially owns or is
deemed to beneficially own (as described in Rule 13d-3 under the Exchange Act
without regard to the 60-day exercise period) in excess of 50% of the Company's
voting power, (iii) there is a replacement of more than one-half of the members
of the Company's Board of Directors which is not approved by those individuals
who are members of the Company's Board of Directors on the date thereof, (iv) in
one or a series of related transactions, there is a sale or transfer of all or
substantially all of the assets of the Company, determined on a consolidated
basis, or (v) the Company enters into an agreement providing for an event set
forth in (i), (ii), (iii) or (iv) above.
"Conversion Ratio" means, at any time, a fraction, of which the
numerator is the entire outstanding Principal Amount of this Note (or such
portion thereof that is being redeemed or repurchased), and of which the
denominator is the lower of the Conversion Price or Market Price.
"Conversion Price" shall equal $8.00 per share (subject to adjustment
as set forth herein).
"Convertible Securities" means any convertible securities, warrants,
options or other rights to subscribe for or to purchase or exchange for, shares
of Common Stock.
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"Effective Date" means the date on which a Registration Statement
covering all the Underlying Shares and other Registrable Securities (as defined
in the Registration Rights Agreement) is declared effective by the SEC.
"Effective Registration" shall have the meaning set forth in
Section 1(c).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Transaction" shall mean any transaction in which the Company
issues any of its securities: (i) pursuant to any Convertible Securities
currently outstanding on the date hereof in accordance with the terms of such
Convertible Securities in effect on the date hereof; (ii) pursuant to its
currently outstanding obligations, upon the occurrence of certain events, to
issue Convertible Securities pursuant to (a) the Company's Letter Agreement with
Ladenburg Thalmann dated August 6, 2001, as in effect on the date hereof, which
has been furnished in its entirety to the Purchasers or (b) the License and
Supply Agreement between Biosearch Italia, S.P.A. and the Company dated as of
October 2001, as in effect on the date hereof, pursuant to which the Company may
issue shares of Common Stock to Biosearch Italia, S.P.A. upon conversion of
promissory notes with a fixed conversion price greater than the Conversion Price
hereunder ("Biosearch Notes"), which Biosearch Notes shall not exceed $7 million
in principal amount and the form of which Biosearch Notes have been furnished in
their entirety to the Purchasers; (iii) by reason of a dividend, stock split or
other distribution on shares of Common Stock that is covered by Subsection
3(c)(i) or (ii) below; (iv) to any officer, director or employee of the Company
pursuant to a bona fide option or equity incentive plan or arrangement duly
adopted by the Board of Directors of the Company; (v) to any consultant of the
Company as reasonable compensation for services rendered up to an aggregate
amount of $1 million in any calendar year; (vi) in connection with any
acquisition of assets or licensing of intellectual property or joint ventures
with third parties not affiliated with the Company, each on reasonable terms
necessary or desirable for the operation of the Company's business, which is not
primarily a capital raising transaction and so long as no greater than 10% of
the outstanding Common Stock is issued in the aggregate in any given 365 day
period, commencing as of the issuance date of this Note (and the first and
second anniversaries thereof), under all such transactions during such 365 day
period and so long as no greater than 20% of the outstanding Common Stock is
issued in the aggregate under all such transactions over the term of the Notes
(in each case assuming full conversion and exercise of all Convertible
Securities); (vii) pursuant to any registered firm commitment underwritten
public offering of Common Stock which is not an equity-line transaction or
"shelf" offering (excluding any take down from a shelf registration statement
that is conducted in accordance with the provisions of this clause (vii)) and
generates net proceeds to the Company in excess of $30 million, where such
underwriter is a nationally recognized underwriter; (viii) pursuant to any
registered public offering of Common Stock through a nationally recognized
investment banking firm serving as agent and selling to unaffiliated parties
through the Principal Market (other than an equity-line transaction) which is
accomplished by means of a take down from a shelf registration statement; and
(ix) to any publicly recognized mutual fund registered under the Investment
Company Act of 1940, as amended, advised by a large brand-name single investment
adviser registered under the Investment Advisers Act of 1940, as amended, with
at least $5 billion in assets under direct management and to such other large
financial institutions mutually agreed upon in writing in advance by the Company
and the Holder, in each case so long as only Common Stock is issued
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in such transaction which Common Stock is sold at a Per Share Selling Price
greater than 90% of the then current market price of the Common Stock and
provided that such transaction is not a Variable Rate Transaction or MFN
Transaction.
"Market Price" shall mean the average of the closing bid prices on the
Principal Market (based on the official close of trading for the Principal
Market) for the five (5) consecutive Trading Days immediately preceding the date
on which such Market Price is being determined (such closing bid prices shall be
appropriately and equitably adjusted for any stock splits, stock dividends,
recapitalizations and the like).
"MFN Transaction" shall mean a transaction in which the Company issues
or sells any securities in a capital raising transaction or series of related
transactions (the "MFN Offering") which grants to the investor (the "MFN
Investor") the right to receive additional securities based upon future capital
raising transactions of the Company on terms more favorable than those granted
to the MFN Investor in the MFN Offering, excluding the issuance of any
securities by the Company that would constitute an MFN Transaction solely
because such securities contain weighted-average anti-dilution provisions
similar to those contained in the Notes.
"Per Share Selling Price" shall include the amount actually paid by
third parties for each share of Common Stock in a sale or issuance by the
Company. In the event a fee is paid by the Company in connection with such
transaction directly or indirectly to such third party or its affiliates, any
such fee shall be deducted from the selling price pro rata to all shares sold in
the transaction to arrive at the Per Share Selling Price. A sale of shares of
Common Stock shall include the sale or issuance of rights, options, warrants or
convertible, exchangeable or exercisable securities under which the Company is
or may become obligated to issue shares of Common Stock, and in such
circumstances the Per Share Selling Price of the Common Stock covered thereby
shall also include the exercise, exchange or conversion price thereof (in
addition to the consideration received by the Company upon such sale or issuance
less the fee amount as provided above). In case of any such security issued in a
Variable Rate Transaction or an MFN Transaction, the Per Share Selling Price
shall be deemed to be the lowest conversion or exercise price at which such
securities are converted or exercised or might have been converted or exercised
in the case of a Variable Rate Transaction, or the lowest adjustment price in
the case of an MFN Transaction, over the life of such securities. If shares are
issued for a consideration other than cash, the Per Share Selling Price shall be
the fair value of such consideration as determined in good faith by independent
certified public accountants mutually acceptable to the Company and the Holder.
In the event the Company directly or indirectly effectively reduces the
conversion, exercise or exchange price for any Convertible Securities which are
currently outstanding, then the Per Share Selling Price shall equal such
effectively reduced conversion, exercise or exchange price.
"Principal Amount" shall refer to the sum of (i) the original principal
amount of this Note, (ii) all accrued but unpaid interest hereunder, and (iii)
any default payments owing under the Agreements but not previously paid or added
to the Principal Amount.
"Principal Market" shall mean the Nasdaq National Market or such other
principal market or exchange on which the Common Stock is then listed for
trading.
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"Registration Statement" shall have the meaning set forth in the
Registration Rights Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Trading Day" shall mean a day on which there is trading on the
Principal Market.
"Underlying Shares" means the shares of Common Stock into which the
Notes are convertible (including payment or repayment of interest or principal
in Common Stock as set forth herein) in accordance with the terms hereof and the
Purchase Agreement.
"Variable Rate Transaction" shall mean a transaction in which the
Company issues or sells (a) any debt or equity securities that are convertible
into, exchangeable or exercisable for, or include the right to receive
additional shares of Common Stock either (x) at a conversion, exercise or
exchange rate or other price that is based upon and/or varies with the trading
prices of or quotations for the Common Stock at any time after the initial
issuance of such debt or equity securities, or (y) with a fixed conversion,
exercise or exchange price that is subject to being reset at some future date
after the initial issuance of such debt or equity security or upon the
occurrence of specified or contingent events directly or indirectly related to
the business of the Company or the market for the Common Stock (but excluding
standard stock split anti-dilution provisions and weighted-average anti-dilution
provisions similar to those contained in the Notes and excluding any issuances
of securities upon the achievement of certain milestones by the Company or by
any strategic partner or consultant of the Company, or upon the Company or any
strategic partner or consultant of the Company exceeding certain performance
targets, in transactions of the type described in within clauses (v) or (vi)
(without reference to the dollar and percentage limitations set forth in such
clauses) of the definition of Excluded Transaction), or (b) any securities of
the Company pursuant to an "equity line" structure which provides for the sale,
from time to time, of securities of the Company which are registered for resale
pursuant to the Securities Act.
"VWAP" shall mean the daily dollar volume-weighted average sale price
for the Common Stock on the Principal Market on any particular Trading Day
during the period beginning at 9:30 a.m., New York City Time (or such other time
as the Principal Market publicly announces is the official open of trading), and
ending at 4:00 p.m., New York City Time (or such other time as the Principal
Market publicly announces is the official close of trading), as reported by
Bloomberg through its "Volume at Price" functions or, if the foregoing does 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
during the period beginning at 9:30 a.m., New York City Time (or such other time
as the Principal Market publicly announces is the official open of trading), and
ending at 4:00 p.m., New York City Time (or such other time as the Principal
Market publicly announces is the official close of trading), as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau, Inc.
If the VWAP cannot be calculated for such security on such date on any of the
foregoing bases, the VWAP of such security on such date shall be the fair market
value as mutually determined by the Company and the holders of at least a
majority of the principal amount of the Notes then
5
outstanding. All such determinations to be appropriately and equitably adjusted
for any stock dividend, stock split, stock combination or other similar
transaction during such period.
The following terms and conditions shall apply to this Note:
Section 1. Payments of Principal and Interest.
(a) Interest. The Company shall pay the interest hereunder
semiannually in arrears on each June 30 and December 31 (each, an "Interest
Payment Date") either in cash or in shares of Common Stock at the Company's
option commencing on June 30, 2002.
(b) Cash or Common Stock. Subject to the terms hereof, the Company
shall have the right to satisfy payment of interest in full on each Interest
Payment Date either in cash or in shares of Common Stock (but not both) at the
Company's option. The Company shall deliver to all the holders of Notes a
written irrevocable notice in the form of Exhibit B attached hereto electing to
pay such interest due hereunder in full on such Interest Payment Date in either
cash or Common Stock ("Interest Payment Election Notice"). Such Interest Payment
Election Notice shall be delivered at least six (6) Trading Days prior to the
applicable Interest Payment Date but no more than twenty (20) Trading Days prior
to such Interest Payment Date (the date of such notice being hereinafter
referred to as the "Notice Date"). If such Interest Payment Election Notice is
not delivered within the prescribed period set forth in the preceding sentence,
then the interest payment shall be made in either cash or shares of Common Stock
on the same terms hereunder at the Holder's sole option. If the Company elects
or is required to pay any interest amount due hereunder in cash on an Interest
Payment Date, then on such Interest Payment Date the Company shall pay to the
Holder an amount equal to such interest amount due hereunder in satisfaction of
such obligation. If the Company elects or is required to repay any interest
amount due hereunder in shares of Common Stock, the number of such shares to be
issued for such Interest Payment Date shall be the number determined by dividing
such interest amount due hereunder by 95% of the Market Price as of such
Interest Payment Date. Such shares shall be issued and delivered within three
(3) Trading Days following such Interest Payment Date and shall be duly
authorized, validly issued, fully paid, non-assessable and free and clear of all
encumbrances and restrictions other than the requirements of applicable
securities laws. Certificates representing such shares, free of restrictive
legends and trading restrictions except for prospectus delivery requirements
under applicable securities laws in connection with the resale of such shares,
shall be delivered to the Holder within such 3-Trading Day period, or in lieu of
delivering physical certificates representing such shares, provided the
Company's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the
Holder, the Company shall use best efforts to cause its transfer agent to
electronically transmit such shares to the Holder (or its designee), by
crediting the account of the Holder's (or such designee's) prime broker with DTC
through its Deposit Withdrawal Agent Commission system (provided that the same
time periods herein as for stock certificates shall apply). If any Holder does
not receive the requisite number of shares of Common Stock in the form required
above within such three Trading Day period, the Holder shall have the option of
either (a) requiring the Company to issue and deliver all or a portion of such
shares or (b) canceling such election (whether by the Company or Holder) to pay
the interest due hereunder in Common Stock (in whole or in part), in which case
the Company shall immediately pay in cash the full interest amount due hereunder
or such portion as the Holder
6
specifies is to be paid in cash instead of Common Stock. Notwithstanding
anything to the contrary contained herein, the Company may not pay interest in
shares of Common Stock (and, subject to Section 1(d) below, must pay cash in
respect thereof) on the Notes on any Interest Payment Date (1) if there is no
Effective Registration on such Interest Payment Date, or (2) to the extent the
limit set forth in Section 1(d) below shall be exceeded. Except as otherwise
provided in this Section 1, all holders of Notes must be treated equally with
respect to such payment of interest in shares of Common Stock.
(c) No Effective Registration. Notwithstanding anything to the
contrary herein, the Company shall be prohibited from exercising its right to
repay the interest due hereunder in shares of Common Stock (and must deliver
cash in respect thereof) on the applicable Interest Payment Date if at any time
from the Notice Date until the time at which the Holders receive such shares
there fails to exist Effective Registration (defined below) or an Event of
Default hereunder exists or occurs, unless otherwise waived in writing by the
Holder in whole or in part at the Holder's option. "Effective Registration"
shall mean: (i) the Company has complied with its material obligations under all
the Agreements in all material respects and has not made any material
misrepresentations under any of the Agreements or under any other agreements
between the Company and the Purchasers, except for those breaches or defaults
which are capable of being cured and have been so cured within a reasonable time
following notice of such breach or default (not to exceed twenty Business Days);
(ii) the resale of all Registrable Securities (as defined in the Registration
Rights Agreement) is covered by an effective registration statement in
accordance with the terms of the Registration Rights Agreement and such
registration statement is not subject to any suspension or stop orders; (iii)
the resale of such Registrable Securities may be effected pursuant to a current
and deliverable prospectus that is not then subject to any blackout or similar
circumstance; (iv) such Registrable Securities are listed, or approved for
listing prior to issuance, on an Approved Market and are not subject to any
trading suspension (nor shall trading generally have been suspended on such
exchange or market), and the Company shall not have been notified of any pending
or threatened proceeding or other action to delist or suspend the Common Stock
on the Approved Market on which the Common Stock is then traded or listed; (v)
the requisite number of shares of Common Stock shall have been duly authorized
and reserved for issuance as required by the terms of the Agreements; (vi) none
of the Company or any direct or indirect subsidiary of the Company is subject to
any Bankruptcy Event; and (vii) no Holder is identified as an underwriter in the
Registration Statement. For purposes hereof, "Bankruptcy Event" means any of the
following events: (a) the Company or any subsidiary commences a case or other
proceeding under any bankruptcy, reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction relating to the Company or any subsidiary thereof; (b) there
is commenced against the Company or any subsidiary any such case or proceeding
that is not dismissed within 60 days after commencement; (c) the Company or any
subsidiary is adjudicated insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered; (d) the Company or any
subsidiary suffers any appointment of any custodian or the like for it or any
substantial part of its property that is not discharged or stayed within 60
days; (e) the Company or any subsidiary makes a general assignment for the
benefit of creditors; (f) the Company or any subsidiary fails to pay, or states
that it is unable to pay or is unable to pay, its debts generally as they become
due; (g) the Company or any subsidiary calls a meeting of its creditors with a
view to arranging a composition, adjustment or restructuring of its debts; or
(h) the Company or any subsidiary, by any act or failure to act, expressly
indicates its consent to, approval of or
7
acquiescence in any of the foregoing or takes any corporate or other action for
the purpose of effecting any of the foregoing.
(d) Ownership/Issuance Limitations. Notwithstanding anything to
the contrary herein, the Company shall be prohibited from exercising its right
to repay the interest due hereunder in shares of Common Stock (and must deliver
cash in respect thereof) on the applicable Interest Payment Date to the extent
that such payment in shares of Common Stock would result in the Holder hereof
exceeding the limitations contained in Section 3(j) below, provided, however,
that to the extent that such stock payment cannot be made solely because it
would otherwise violate Section 3(j)(A) below, then (i) the Company on the
Interest Payment Date shall repay such portion of the interest due hereunder in
shares of Common Stock as may be effected without exceeding such limitation, and
(ii) the Interest Payment Date for the balance of the interest due hereunder
which cannot be paid due to Section 3(j)(A) below shall be extended until such
time as such stock payment can be made without violating such Section 3(j)(A).
If any portion of any interest payment remains unpaid as of the Maturity Date
hereof, such amount shall be repaid in cash on the Maturity Date (unless
accelerated hereunder pursuant to Section 5 below).
Section 2. No Senior Debt. Subject to the last sentence of this Section
2, so long as any Principal Amount of Notes is outstanding, the Company and its
subsidiaries shall not, without the affirmative vote of holders of a majority of
the principal amount of Notes then outstanding and the consent of each Purchaser
holding Notes, incur or permit to exist any indebtedness which is senior to the
Notes other than up to an aggregate of $10 million in principal amount of
outstanding debt at any point in time incurred to purchase or lease fixed or
capital assets. The provisions of this Section 2 shall cease to have any further
force or effect upon the consummation of a Change in Control Transaction.
Section 3. Conversion.
(a) Conversion Right. Subject to the terms hereof and restrictions
and limitations contained herein, the Holder shall have the right, at such
Holder's option, at any time and from time to time to convert the outstanding
Principal Amount under this Note in whole or in part by delivering to the
Company a fully executed notice of conversion in the form of conversion notice
attached hereto as Exhibit A (the "Conversion Notice"), which may be transmitted
by facsimile to only the Company followed by an email to the Company's three (3)
designees as indicated in Section 9.4 of the Purchase Agreement confirming that
such Conversion Notice was delivered to the Company. Notwithstanding anything to
the contrary herein, this Note and the outstanding Principal Amount hereunder
shall not be convertible into Common Stock to the extent that such conversion
would result in the Holder hereof exceeding the limitations contained in, or
otherwise violating the provisions of, Section 3(j) below. For clarification
purposes, any conversions of the outstanding Principal Amount under this Note in
part pursuant to this Section 3(a) shall not affect the Company's obligation to
repay the interest due hereunder as provided in Section 1 above.
8
(b) Common Stock Issuance Upon Conversion.
(i) Conversion Date Procedures. Upon conversion of this Note
pursuant to Section 3(a) above, the outstanding Principal Amount hereunder shall
be converted into such number of fully paid, validly issued and non-assessable
shares of Common Stock, free of any liens, claims and encumbrances, as is
determined by dividing the Principal Amount being converted hereunder by the
Conversion Price. The date of any Conversion Notice hereunder and any Interest
Payment Date shall be referred to herein as the "Conversion Date". If a
conversion under this Note cannot be effected in full for any reason, or if the
Holder is converting less than all of the outstanding Principal Amount hereunder
pursuant to a Conversion Notice, the Company shall promptly deliver to the
Holder (but no later than five Trading Days after the Conversion Date) a Note
for such outstanding Principal Amount as has not been converted if this Note has
been surrendered to the Company for partial conversion. The Holder shall not be
required to physically surrender this Note to the Company upon any conversion
hereunder unless the full outstanding Principal Amount represented by this Note
is being converted or repaid. The Holder and the Company shall maintain records
showing the outstanding Principal Amount so converted and repaid and the dates
of such conversions or repayments 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 or repayment.
(ii) Stock Certificates or DWAC. The Company will deliver to
the Holder not later than three (3) Trading Days after the Conversion Date, a
certificate or certificates representing the number of shares of Common Stock
being acquired upon the conversion of this Note. After a Registration Statement
has been declared effective covering the Underlying Shares or Rule 144(k) under
the Securities Act is available for selling such Underlying Shares, the
certificates representing such Underlying Shares shall be free of restrictive
legends and trading restrictions, or in lieu of delivering physical certificates
representing such Underlying Shares, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of the Holder, the Company shall use
best efforts to cause its transfer agent to electronically transmit such shares
issuable upon conversion to the Holder (or its designee), by crediting the
account of the Holder's (or such designee's) prime broker with DTC through its
Deposit Withdrawal Agent Commission system (provided that the same time periods
herein as for stock certificates shall apply). If in the case of any conversion
hereunder, such certificate or certificates are not delivered, or such DTC
deposit is not effected, as directed by the Holder by the third Trading Day
after the 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 this Note tendered for conversion.
(c) Conversion Price Adjustments.
(i) Stock Dividends, Splits and Combinations. If the Company
or any of its subsidiaries, at any time while the Notes are outstanding (A)
shall pay a stock dividend or otherwise make a distribution or distributions on
any equity securities (including instruments or securities convertible into or
exchangeable for such equity securities) in shares of Common Stock, (B)
subdivide outstanding Common Stock into a larger number of shares, or (C)
combine
9
outstanding Common Stock into a smaller number of shares, then each Affected
Conversion Price (as defined below) shall be multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
before such event and the denominator of which shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made pursuant to this
Section 3(c)(i) 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 or combination.
As used herein, the Affected Conversion Prices (each an
"Affected Conversion Price") shall refer to: (i) the Conversion Price; (ii) each
reported daily closing bid price of the Common Stock on the Principal Market
occurring on any Trading Day included in the period used for determining the
Market Price, which Trading Day occurred before the record date in the case of
events referred to in clause (A) of this subparagraph 3(c)(i) and before the
effective date in the case of the events referred to in clauses (B) and (C) of
this subparagraph 3(c)(i).
(ii) Distributions. If the Company or any of its
subsidiaries, at any time while the Notes are outstanding, shall distribute to
all holders of Common Stock evidences of its indebtedness or assets or cash or
rights or warrants to subscribe for or purchase any security of the Company or
any of its subsidiaries (excluding those referred to in Section 3(c)(i) above),
then concurrently with such distributions to holders of Common Stock, the
Company shall distribute to holders of the Notes the amount of such
indebtedness, assets, cash or rights or warrants which the holders of Notes
would have received had all their Notes been converted into Common Stock at the
then applicable Conversion Price immediately prior to the record date for such
distribution.
(iii) Common Stock Issuances. In the event that the Company
or any of its subsidiaries (A) issues or sells any Common Stock or Convertible
Securities or (B) directly or indirectly effectively reduces the conversion,
exercise or exchange price for any Convertible Securities which are currently
outstanding, at or to an effective Per Share Selling Price which is less than
the greater of (I) the closing sale price per share of the Common Stock on the
Principal Market on the Trading Day next preceding such issue or sale or, in the
case of issuances to holders of its Common Stock, the date fixed for the
determination of stockholders entitled to receive such warrants, rights, or
options ("Fair Market Price"), or (II) the Conversion Price, then in each such
case the Conversion Price in effect immediately prior to such issue or sale or
record date, as applicable, shall be automatically reduced effective
concurrently with such issue or sale to an amount determined by multiplying the
Conversion Price then in effect by a fraction, (x) the numerator of which shall
be the sum of (1) the number of shares of Common Stock outstanding immediately
prior to such issue or sale, plus (2) the number of shares of Common Stock which
the aggregate consideration received by the Company from Persons other than the
Holders of Notes for such additional shares would purchase at such Fair Market
Price or Conversion Price, as the case may be, and (y) the denominator of which
shall be the number of shares of Common Stock of the Company outstanding
immediately after such issue or sale (excluding any shares outstanding or deemed
outstanding which were issued or deemed issued to the Holders of Notes as part
of such issue or sale). The foregoing provision shall not apply to any issuances
or sales of Common Stock or Convertible Securities in any transaction described
10
in clauses (i) through (viii) of the definition of Excluded Transaction or
in any transaction described in clause (ix) of the definition of Excluded
Transaction where the Per Share Selling Price is greater than the then
applicable Conversion Price. Upon consummation of a Change in Control
Transaction, the provisions of clause (I) in the first sentence of this Section
3(c)(iii) shall cease to have any further force or effect.
For the purposes of the foregoing adjustments, in the case of the
issuance of any Convertible Securities, the maximum number of shares of Common
Stock issuable upon exercise, exchange or conversion of such Convertible
Securities shall be deemed to be outstanding, provided that no further
adjustment shall be made upon the actual issuance of Common Stock upon exercise,
exchange or conversion of such Convertible Securities.
For purposes of this Section 3(c)(iii), if an event occurs that
triggers more than one of the above adjustment provisions, then only one
adjustment shall be made and the calculation method which yields the greatest
downward adjustment in the Conversion Price shall be used.
(iv) Rounding of Adjustments. All calculations under this
Section 3 or Section 1 shall be made to the nearest cent or the nearest 1/100th
of a share, as the case may be.
(v) Notice of Adjustments. Whenever any Affected Conversion
Price is adjusted pursuant to Section 3(c)(i), (ii) or (iii) above, the Company
shall promptly deliver to each holder of the Notes, a notice setting forth the
Affected Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment, provided that any failure to
so provide such notice shall not affect the automatic adjustment hereunder.
(vi) Change in Control Transactions. In case of any Change in
Control Transaction, the Holder shall have the right thereafter to, at its
option, (A) thereafter to convert this Note, in whole or in part, at the lower
of the Conversion Price and the then applicable Market Price into the shares of
stock and other securities, cash and/or property receivable upon or deemed to be
held by holders of Common Stock following such Change in Control Transaction,
and the Holder 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 this Note could have been converted immediately prior to such Change
in Control Transaction would have been entitled if such conversion were
permitted, subject to such further applicable adjustments set forth in this
Section 3 or (B) at the closing of such Change in Control Transaction or within
sixty (60) days thereof, require the Company or its successor to redeem this
Note, in whole or in part, at a redemption price equal to the greater of (i) the
Applicable Percentage (as defined below) of the outstanding Principal Amount
being redeemed and (ii) the product of (x) the closing sale price per share of
Common Stock on the Principal Market on the Trading Day next preceding the
Holder's election to have its Notes redeemed and (y) the Conversion Ratio. The
terms of any such Change in Control Transaction shall include such terms so as
to continue to give to the Holders the right to receive the amount of
securities, cash and/or property upon any conversion or redemption following
such Change in Control Transaction to which a holder of the number of shares of
Common Stock deliverable upon such conversion would have been entitled in such
Change in Control Transaction, and interest payable hereunder shall be in cash
or such new securities and/or property, at the Holder's option; provided, that
upon consummation of such Change in Control Transaction the Conversion Price
11
shall be equitably adjusted to reflect the consideration received by
holders of the Company's Common Stock in such Change in Control Transaction.
This provision shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges. The "Applicable
Percentage" shall equal 120% up to and including the first anniversary of the
Issuance Date, 113% following the first anniversary of the Issuance Date up to
and including the second anniversary of the Issuance Date, and 106% following
the second anniversary of the Issuance Date.
(vii) Notice of Certain Events. If::
(A) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(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; or
(D) the approval of any stockholders of the Company shall
be required in connection with any reclassification of the Common Stock
of the Company, 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 of exchange whereby the Common
Stock is converted into other securities, cash or property; or
(E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of
the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Note, and shall cause to be mailed to the
Holder at its last address as it shall appear upon the books of the Company, on
or prior to the date notice to the Company's stockholders generally is given, 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 Common Stock of record to
be entitled to such dividend, distributions, redemption, rights or warrants are
to be determined and (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 Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange.
(d) Reservation and Issuance of Underlying Securities. The Company
covenants that it will at all times reserve and keep available out of its
authorized and unissued Common Stock solely for the purpose of issuance upon
conversion of this Note (including payments and repayments of interest and
principal in Common Stock), free from preemptive rights or any other actual
contingent purchase rights of persons other than the holders of the Notes, not
less than
12
such number of shares of 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 under this
Section 3 but without regard to any ownership limitations contained herein) upon
the conversion of this Note hereunder in Common Stock (including payments and
repayments of interest and principal in Common Stock). The Company covenants
that all shares of Common Stock that shall be so issuable shall, upon issue, be
duly authorized, validly issued, fully paid and nonassessable.
(e) No Fractions. Upon a conversion hereunder the Company shall
not be required to issue stock certificates representing fractions of shares of
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the closing price of a share of Common
Stock 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.
(f) Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the conversion of this Note (including repayment in
stock) shall be made without charge to the holder hereof for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the Holder or in such name or
names as may be directed by the Holder; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the Holder, this Note when surrendered for conversion shall be
accompanied by an assignment form; and provided further, that the Company shall
not be required to pay any tax or taxes which may be payable in respect of any
such transfer.
(g) Cancellation. After all of the Principal Amount (including
accrued but unpaid interest and default payments at any time owed on this Note)
have been paid in full or converted into Common Stock, this Note shall
automatically be deemed canceled and the Holder shall promptly surrender the
Note to the Company at the Company's principal executive offices.
(h) Notices Procedures. Any and all notices or other
communications or deliveries to be provided by the Holder hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by confirmed facsimile, or by a nationally recognized overnight
courier service to the Company at the facsimile telephone number or address of
the principal place of business of the Company as set forth in the Purchase
Agreement. 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, or by a nationally recognized overnight courier service addressed
to the Holder at the facsimile telephone number or address of the 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 delivered (i)
upon receipt, when delivered personally, (ii) when sent by facsimile, upon
receipt if received on a Business Day prior to 5:00 p.m. (Eastern Time), or on
the first Business Day following such receipt if received on a Business Day
after 5:00 p.m. (Eastern Time) or (iii) upon receipt, when deposited with a
nationally recognized overnight courier service.
13
(i) Mandatory Conversion.
(x) Subject to subsection (i)(y) and (i)(z)below, if the
closing bid price of the Company's Common Stock (as reported by the Principal
Market) is greater than $18.00 per share (as such price may be appropriately and
equitably adjusted for stock splits, reverse stock splits, consolidations and
stock dividends) for a period ("Pricing Period") of 25 consecutive Trading Days
(such 25-Trading Day period hereinafter referred to as the "Pricing Event"),
then the Company shall have the right to compel the Holder to convert all or
part of the outstanding Principal Amount under this Note in accordance with the
terms hereof on or prior to the date (the "Mandatory Conversion Date") which is
ten (10) Trading Days following the Holder's receipt of a Mandatory Conversion
Notice (as defined below), provided that (A) the Company may exercise this right
only by delivering to the Holder, within ten (10) Trading Days following the day
on which such Pricing Event first occurs, a written notice (the "Mandatory
Conversion Notice") electing to compel such conversion pursuant to this Section,
(B) there shall be Effective Registration at all times during the Pricing
Period, (C) the conditions described in clause (i)(y) below shall also be
satisfied and the provisions of clause (i)(z) below shall not be violated, and
(D) the Company's right to send a Mandatory Conversion Notice must be exercised
with respect to all the holders of Notes in a proportionate manner. The
foregoing shall not affect the Holder's right to convert any portion of this
Note pursuant to Section 3(a) above at any time and from time to time before or
after the Pricing Event. Such forced conversion shall be subject to and governed
by all the provisions relating to voluntary conversion of the Notes contained
herein.
(y) Notwithstanding the preceding subsection (i)(x), no
holder of Notes shall be obligated to convert any Principal Amount on a
Mandatory Conversion Date unless there is Effective Registration at all times
from the occurrence of the Pricing Event up to and including the Mandatory
Conversion Date.
(z) In the event that the number of Underlying Shares that
would be issued to the Holder would result in such holder exceeding any
limitation set forth in Section 3(j) below, then such Holder's Note shall be
converted on or prior to the specified Mandatory Conversion Date only to the
extent that the number of shares issued would not cause the Holder to exceed
such amount. In such event, the Mandatory Conversion Date shall be extended
until such time as such conversion can be made without violating Section 3(j),
provided that to the extent any such conversion cannot be made because it would
violate Section 3(j)(B) below, then the Company shall redeem the remaining
outstanding Principal Amount of this Note which cannot be converted due to such
Section 3(j)(B) limitation at a redemption price equal to 100% of such amount.
(j) Conversion Limitations.
(A) 9.9% Limitation. Notwithstanding anything to the
contrary contained herein, the number of shares of Common Stock that may be
acquired by the Holder upon conversion pursuant to the terms hereof shall not
exceed a number that, when added to the total number of shares of Common Stock
deemed beneficially owned by such Holder (other than by virtue of the ownership
of securities or rights to acquire
14
securities (including the Notes) that have limitations on the Holder's right to
convert, exercise or purchase similar to the limitation set forth herein),
together with all shares of Common Stock deemed beneficially owned at such time
(other than by virtue of the ownership of securities or rights to acquire
securities that have limitations on the right to convert, exercise or purchase
similar to the limitation set forth herein) by the holder's "affiliates" at such
time (as defined in Rule 144 of the Act) ("Aggregation Parties") that would be
aggregated for purposes of determining whether a group under Section 13(d) of
the Securities Exchange Act of 1934 as amended, exists, would exceed 9.9% of the
total issued and outstanding shares of the Common Stock ("Restricted Ownership
Percentage"). Each holder shall have the right (subject to waiver) at any time
and from time to time, to increase its Restricted Ownership Percentage
immediately in the event of the announcement as pending or planned, of a Change
in Control Transaction.
(B) Overall Limit on Common Stock Issuable.
Notwithstanding anything contained herein to the contrary, the number of shares
of Common Stock issuable by the Company and acquirable by the Holders of Notes,
together with the number of shares issued under the Warrants, shall not exceed
19.9% of the number of shares of Common Stock outstanding on the Closing Date,
subject to appropriate adjustment for stock splits, stock dividends, or other
similar recapitalizations affecting the Common Stock (the "Maximum Common Stock
Issuance"), unless the issuance of shares hereunder in excess of the Maximum
Common Stock Issuance shall first be approved by the Company's shareholders in
accordance with applicable law and the By-laws and Articles of Incorporation of
the Company. Each Holder of Notes shall be entitled to receive the number of
Underlying Shares, together with its Warrant Shares under the Warrant held by
it, equal to such Holder's pro rata share of the Maximum Common Stock Issuance
(based upon its aggregate Purchase Price under the Purchase Agreement). Once a
Holder has received its total pro rata share upon conversion of its Notes and
exercise of its Warrants, and if the Company shall not have complied with its
obligations to obtain the stockholder approval described below by the date set
forth below, it shall have the right to compel the Company to redeem its
remaining Notes and Warrants at a price equal to the Mandatory Redemption Price
(as defined in below). If a Holder has converted and exercised all of its Notes
and Warrants, but has not depleted the total number of pro rata shares allocated
to it hereunder, its remaining pro rata shares shall be reallocated amongst the
other Holders still holding Notes and Warrants on a pro rata basis. If at any
point in time and from time to time (each a "Trigger Date") the number of
Underlying Shares issued pursuant to conversion of the Notes and exercise of the
Warrants, together with the number of Underlying Shares that would then be
issuable by the Company in the event of conversion of all the Notes and exercise
of all the Warrants then outstanding, would exceed the Maximum Common Stock
Issuance but for this Section 3(j)(B), then the Company shall, at the Company's
election, either (A) promptly call a shareholders meeting to obtain shareholder
approval for the issuance of Underlying Shares hereunder in excess of the
Maximum Common Stock Issuance, which such shareholder approval shall be obtained
within 90 days of the Trigger Date, or (B) purchase from the holders of Notes
and Warrants on a pro rata basis such Principal Amount of Notes and number of
Warrants which cannot be converted or exercised due to such Maximum Common Stock
Issuance limitation ("Shortfall") at a redemption price equal to the greater of
(1) 100% of the outstanding Principal Amount of the Notes held by
15
the Holder (plus all accrued and unpaid interest, if any) and (2) the fair
market value of the Notes on an as-converted basis based on the Market Price on
the Trading Day immediately preceding the Trigger Date (the "Mandatory
Redemption Price"), which such redemption price shall be paid within ten (10)
Trading Days after a Trigger Date if his clause (B) is elected. The Company
shall make such election within five (5) days following the Trigger Date by
giving written notice to all holders of Notes and Warrants. If the Company fails
to timely make such election, or elects clause (A) but then fails to obtain such
shareholder approval within 60 days following the Trigger Date, then the Company
shall purchase the Shortfall at the Mandatory Repurchase Price within three (3)
Trading Days following any such failure.
(k) Variable Rate and MFN Transactions. At least ten (10) Trading
Days prior to the sale or issuance of any securities, or the agreement to sell
and issue any securities (if earlier), in a Variable Rate Transaction or MFN
Transaction, the Company shall furnish written notice thereof to the Holder via
facsimile and overnight courier. The Holder shall have the right to compel the
Company to redeem any or all of its Notes for the Redemption Consideration (as
defined below) of the Notes being redeemed at the same time as the consummation
of such Variable Rate Transaction or MFN Transaction ("Redemption Date"). The
"Redemption Consideration" shall consist of (1) cash equal to 115% of the
outstanding Principal Amount of the Notes being redeemed, and (2) warrants ("New
Warrants") to purchase such number of shares of Common Stock as is equal to 63%
of the number of shares of Common Stock into which the Notes being redeemed are
convertible immediately prior to such redemption. The New Warrants shall have a
four-year term commencing on the Redemption Date, shall have an exercise price
equal to the arithmetic average of the VWAP for each Trading Day during the
period commencing on the 10th Trading Day prior to the Redemption Date and
ending on the 10th Trading Day following the Redemption Date, and shall
otherwise be issued in the form and substance of the Warrants, with such changes
as the Company and the Purchasers still holding Notes and the Holders of a
majority of the principal amount of the Notes outstanding may agree upon.
Section 4. Mandatory Prepayment. In the event that at any time on or
after December 31, 2003, the Company maintains a Net Cash Balance (as defined
below) of less than $35,000,000, the Holder shall have the right to require that
all or any part of the Principal Amount (including all accrued and unpaid
interest, if any) be paid within ten (10) Business Days of such demand. "Net
Cash Balance" at any time shall equal the total of all cash and cash equivalents
less all obligations for borrowed money bearing interest (including without
limitation obligations with effective "zero coupon" interest or with imputed
interest and obligations on dividend yielding preferred stock which is not
permitted to be classified as permanent equity pursuant to generally accepted
accounting principles or SEC rules). After January 1, 2004, the Holder shall
have the right to request a current balance sheet of the Company prepared in
accordance with generally accepted accounting principles, which shall be
delivered within five (5) business days following such request.
Section 5. Defaults and Remedies.
(a) Events of Default. An "Event of Default" is: (i) a default in
payment of the Principal Amount or accrued but unpaid interest thereon of any of
the Notes on or after the date
16
such payment is due, which default continues for five Business Days after
written notice of such non-payment has been received by the Company; (ii) a
default in the timely issuance of Underlying Shares upon and in accordance with
terms hereof, which default continues for five Business Days after the Company
has received written notice informing the Company that it has failed to issue
shares or deliver stock certificates within the fifth day following the
Conversion Date; (iii) failure by the Company for thirty (30) days after written
notice has been received by the Company to comply with any material provision of
any of the Notes, the Purchase Agreement, the Registration Rights Agreement or
the Warrants (including without limitation the failure to issue the requisite
number of shares of Common Stock upon conversion hereof and the failure to
redeem Notes upon the Holder's request following a Change in Control Transaction
pursuant to Section 3(c)(vi); (iv) a breach by the Company of its
representations or warranties in the Purchase Agreement, Registration Rights
Agreement or Warrants where the facts, events or circumstances causing or
constituting such breach resulted in, or could reasonably be expected to result
in, a Material Adverse Affect; (v) any default after any cure period 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 by the Company for in excess of $3 million or
for money borrowed the repayment of which is guaranteed by the Company for in
excess of $3 million, whether such indebtedness or guarantee now exists or shall
be created hereafter; or (vi) if the Company is subject to any Bankruptcy Event.
(b) Remedies. If an Event of Default occurs and is continuing with
respect to any of the Notes, the Holder may declare all of the then outstanding
Principal Amount of this Note and all other Notes held by the Holder, including
any interest due thereon, to be due and payable immediately, except that in the
case of an Event of Default arising from events described in clauses (v) and
(vi) of Section 5(a), this Note shall become due and payable without further
action or notice. In the event of such acceleration, the amount due and owing to
the Holder shall be the greater of (1) 110% of the outstanding Principal Amount
of the Notes held by the Holder (plus all accrued and unpaid interest, if any,
provided that the percentage applicable to interest accrued at the Default Rate
shall equal 100%) and (2) the product of (A) the highest closing price for the
five (5) Trading days immediately preceding the Holder's acceleration and (B)
the Conversion Ratio. In either case the Company shall pay interest on such
amount in cash at the Default Rate to the Holder if such amount is not paid
within ten (10) Business Days of Holder's request. The remedies under this Note
shall be cumulative.
Section 6. General.
(a) Payment of Expenses. The Company agrees to pay all reasonable
charges and expenses, including attorneys' fees and expenses, which may be
incurred by the Holder in successfully enforcing this Note and/or collecting any
amount due under this Note.
(b) Savings Clause. In case any provision of this Note is held by
a court of competent jurisdiction to be excessive in scope or otherwise invalid
or unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Note will not in
any way be affected or impaired thereby. In no event shall the amount of
interest paid hereunder exceed the maximum rate of interest on the unpaid
principal balance
17
hereof allowable by applicable law. If any sum is collected in excess of the
applicable maximum rate, the excess collected shall be applied to reduce the
principal debt. If the interest actually collected hereunder is still in excess
of the applicable maximum rate, the interest rate shall be reduced so as not to
exceed the maximum allowable under law.
(c) Amendment. Neither this Note nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the Company and the Holder.
(d) Assignment, Etc. The Holder may assign or transfer this Note
to any transferee only with the prior written consent of the Company, which may
not be unreasonably withheld or delayed, provided that (i) the Holder may assign
or transfer this Note to any of such Holder's affiliates without the consent of
the Company and (ii) upon any Event of Default, the Holder may assign or
transfer this Note without the consent of the Company. No transfer of this Note
in a principal amount of less than the lesser of (x) $1 million and (y) the
entire remaining principal amount outstanding hereunder, shall be permitted
without the prior written consent of the Company. The Holder shall notify the
Company of any such assignment or transfer promptly. This Note shall be binding
upon the Company and its successors and shall inure to the benefit of the Holder
and its successors and permitted assigns.
(e) No Waiver. No failure on the part of the Holder to exercise,
and no delay in exercising any right, remedy or power hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
(f) Governing Law; Jurisdiction.
(i) Governing Law. THIS NOTE WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
ANY CONFLICTS OF LAWS PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE
APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.
(ii) Jurisdiction. THE COMPANY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE STATE OF NEW
YORK, COUNTY OF NEW YORK, OVER ANY SUIT, ACTION, OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS NOTE. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH SUIT, ACTION, OR PROCEEDING BROUGHT IN SUCH A COURT AND
ANY CLAIM THAT SUIT, ACTION, OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
The Company agrees that the service of process upon it
mailed by certified or registered mail (and service so made shall be deemed
complete three days after the
18
same has been posted as aforesaid) or by personal service shall be deemed in
every respect effective service of process upon it in any such suit or
proceeding. Nothing herein shall affect Holder's right to serve process in any
other manner permitted by law. The Company agrees that a final non-appealable
judgement in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
(iii) No Jury Trial. THE COMPANY HERETO KNOWINGLY AND
VOLUNTARILY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY WITH
RESPECT TO ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION
WITH, THIS NOTE.
(g) Replacement Notes. This Note may be exchanged by Holder at any
time and from time to time for a Note or Notes with different denominations
representing an equal aggregate outstanding Principal Amount, as reasonably
requested by Holder, upon surrendering the same. No service charge will be made
for such registration or exchange. In the event that Holder notifies the Company
that this Note has been lost, stolen or destroyed, a replacement Note identical
in all respects to the original Note (except for registration number and
Principal Amount, if different than that shown on the original Note), shall be
issued to the Holder, provided that the Holder executes and delivers to the
Company an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such loss, theft or
destruction of this Note.
[Signature Page Follows]
19
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed on the day and in the year first above written.
GENOME THERAPEUTICS CORP.
By:
-----------------------------
Name:
Title:
Attest:
Sign:
----------------------------
Print Name:
20
EXHIBIT A
FORM OF CONVERSION NOTICE
(To be executed by the Holder
in order to convert a Note)
[Delivered to the Company followed by a confirming email to the Company's three
designees.]
Re: Note (this "Note") issued by GENOME THERAPEUTICS CORP. to
[______________________] on or about __________ ___, 2002
in the original principal amount of [$_______].
The undersigned hereby elects to convert the aggregate outstanding Principal
Amount (as defined in the Note) indicated below of this Note into shares of
Common Stock, $.10 par value per share (the "Common Stock"), of GENOME
THERAPEUTICS CORP. (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 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. The undersigned represents as of the date hereof that, after giving effect
to the conversion of this Note pursuant to this Conversion Notice, the
undersigned will not exceed the "Restricted Ownership Percentage" contained in
Section 3(j)(A) of this Note.
Conversion information:
--------------------------------------------------
Date to Effect Conversion
--------------------------------------------------
Aggregate Principal Amount of Note Being Converted
--------------------------------------------------
Number of Shares of Common Stock to be Issued
--------------------------------------------------
Number of Additional Shares of Common Stock
becoming exercisable under the Warrant as a result
of this Conversion [.26 x Number of Shares of
Common Stock to be Issued upon Conversion]
--------------------------------------------------
Applicable Conversion Price
--------------------------------------------------
Signature
--------------------------------------------------
Name
--------------------------------------------------
Address
EXHIBIT B
FORM OF INTEREST PAYMENT ELECTION NOTICE
To: [Holder at Holder's Address]
Pursuant to Section 1(b) of Note No. ______ of GENOME THERAPEUTICS
CORP. issued to you (or your assignor or predecessor-in-interest) on ________
__, 2002, we hereby notify you that we are irrevocably electing to pay the
outstanding interest due on the Interest Payment Date (as defined in the Note)
which occurs on _____________, 200__ (check one):
---------- In full in cash on such Interest Payment Date.
---------- In full in shares of the Company's Common Stock within
three (3) Trading Days following such Interest Payment
Date.
GENOME THERAPEUTICS CORP.
By:
--------------------------------------
Name:
Title: