-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MywZHtVnVtCut347YDAN2/+BvuoeILsFZuDjEHqY+7KP//023M2MANnEtmdLixof Uh7/5XB7c/iZ60O6OsN3gg== 0000927016-02-001328.txt : 20020415 0000927016-02-001328.hdr.sgml : 20020415 ACCESSION NUMBER: 0000927016-02-001328 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020305 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020306 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENOME THERAPEUTICS CORP CENTRAL INDEX KEY: 0000356830 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 042297484 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10824 FILM NUMBER: 02567769 BUSINESS ADDRESS: STREET 1: 1OO BEAVER ST CITY: WALTHAM STATE: MA ZIP: 02453 BUSINESS PHONE: 7813982300 MAIL ADDRESS: STREET 1: 100 BEAVER STREET CITY: WALTHAM STATE: MA ZIP: 02453 FORMER COMPANY: FORMER CONFORMED NAME: COLLABORATIVE RESEARCH INC DATE OF NAME CHANGE: 19920703 8-K 1 d8k.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported): March 5, 2002 -------------------- GENOME THERAPEUTICS CORP. (Exact name of registrant as specified in its charter) Massachusetts 0-10824 04-2297484 (State or other jurisdiction (Commission File (I.R.S. Employer of incorporation) Number) Identification Number) 100 Beaver Street Waltham, Massachusetts 02453 (Address, of principal executive offices, including zip code) (781) 398-2300 (Registrant's Telephone number including area code) -------------------- Page 1 of 4 pages. Item 5. OTHER EVENTS On March 5, 2002, Genome Therapeutics Corp. entered into a Purchase Agreement with two institutional investors (the "Purchasers") pursuant to which Genome Therapeutics has issued convertible notes to the Purchasers in the aggregate principal amount of $15 million in a private placement. The following summary highlights certain material terms of the private placement transaction between Genome Therapeutics and the Purchasers. Because this is a summary, it does not contain all of the information that is included in the transaction documents and, consequently, is qualified in its entirety by the Purchase Agreement, Form of Note, Form of Warrant and Form of Registration Rights Agreement, which are attached as Exhibits hereto. The notes may be converted into Genome Therapeutics common stock at the option of the holder, at a price of $8.00 (subject to certain adjustments described below). The maturity date for the notes is December 31, 2004. The notes bear interest at 6% per annum and the interest is payable, in cash or in stock, semi-annually on June 30 and December 31 of each year. The investors also received warrants to purchase up to 487,500 shares of Genome Therapeutics' common stock at an exercise price of $8.00 per share (subject to certain adjustments described below). The warrants only become exercisable to the extent the notes are converted or if certain other redemptions or repayments of the notes occur. The notes and warrants include provisions for adjustment of conversion or exercise price, as the case may be, and number of shares issuable upon a conversion or exercise in the event of stock splits, stock dividends, reverse stock splits, and issuances by the Company of shares of its capital stock at prices below the conversion price of the notes or the exercise price of the warrants, as the case may be, or the fair market value of the common stock if higher than such conversion price or exercise price, as the case may be. Genome Therapeutics can require the holders of the notes to convert the outstanding principal balance of the notes into common stock if the closing price of its common stock is above $18.00 for 25 consecutive trading days. The notes also contain provisions limiting Genome Therapeutics' ability to incur debt that is senior to the notes, with an exception for certain equipment financing. If at any time on or after December 31, 2003, the Company maintains a net cash balance (i.e., cash and cash equivalents less obligations for borrowed money bearing interest) of less than $35 million, then the holders of the notes can require that all or any part of the outstanding principal balance of the notes plus all accrued but unpaid interest be repaid. Upon a change of control of Genome Therapeutics, the notes permit the Purchasers, at their option (i) thereafter to convert the notes into the consideration (e.g., shares of stock, cash or other property) that the Purchasers would have received if they had converted their notes into Company common stock immediately prior to the change of control, at a price equal to the lower of the conversion price or the then applicable market price or (ii) within 60 days of the change of control, to require the surviving company to redeem their notes at the greater of a specified premium to the outstanding amount (e.g. 120% of principal in year 1, 113% or principal in year 2 and 106% of principal in year 3) or the fair market value of the number shares of common stock 2 into which the notes are convertible, determined on the basis of the lower of the conversion price or the fair market value of the common stock. Genome Therapeutics has also granted the Purchasers a right of participation to purchase up to 33.33% of the amount of securities sold to investors in non-registered or "shelf" capital raising transactions (subject to certain exceptions) so long as any of the notes remain outstanding. Genome Therapeutics is required under the Registration Rights Agreement among the parties to file a registration statement with the United States Securities and Exchange Commission to register for resale the shares of common stock underlying the notes and warrants. In the event the registration statement does not become effective within certain specified time periods, Genome Therapeutics will be required to pay to the Purchasers liquidated damages of 2% per month of the outstanding principal balance of the notes plus 2% of the aggregate market value of any shares issued upon conversion of the notes. A placement fee of $600,000 plus warrants to purchase 100,000 shares of Genome Therapeutics' common stock was paid to Genome Therapeutics' placement agent, Ladenburg Thalmann & Co. Also attached hereto is a copy of the Genome Therapeutics' press release announcing the closing of the private placement transaction with the Purchasers. Item 7. Financial Statements and Exhibits. (c) Exhibits 4.1 Purchase Agreement by and among Genome Therapeutics Corp. and certain Purchasers dated March 5, 2002. 4.2 Form of Note 4.3 Form of Warrant 4.4 Form of Registration Rights Agreement 99.1 Press Release dated March 6, 2002. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GENOME THERAPEUTICS CORP. By /s/ Stephen Cohen ------------------------ Name: Stephen Cohen Title: Chief Financial Officer Date: March 6, 2002 EXHIBIT INDEX 4.1 Purchase Agreement by and among Genome Therapeutics Corp. and certain Purchasers dated March 5, 2002. 4.2 Form of Note 4.3 Form of Warrant 4.4 Form of Registration Rights Agreement 99.1 Press Release dated March 6, 2002. EX-4.1 3 dex41.txt PURCHASE AGREEMENT Exhibit 4.1 PURCHASE AGREEMENT THIS PURCHASE AGREEMENT ("Agreement") is made as of the 5th day of March, 2002 by and among GENOME THERAPEUTICS CORP., a Massachusetts corporation (the "Company"), and the Purchasers set forth on the signature page affixed hereto (each, a "Purchaser" and collectively, the "Purchasers"). Recitals A. The Company and the Purchasers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D ("Regulation D"), as promulgated by the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended; B. The Purchasers wish, severally, and not jointly, to purchase, and the Company wishes to sell and issue to the Purchasers, upon the terms and subject to the conditions stated in this Agreement, (i) an aggregate of up to $15 million in principal amount of the Company's 6% Convertible Notes in the form attached hereto as Exhibit A (the "Notes"), which Notes shall be convertible into shares of common stock of the Company, $0.10 par value per share (the "Common Stock"), in accordance with the terms of the Notes and (ii) warrants ("Warrants") to purchase an aggregate of up to 487,500 shares of Common Stock, the exercise of which is contingent upon the conversion of the Notes, in the form attached hereto as Exhibit B, in each case as are set forth on the signature page attached hereto and executed by each such Purchaser for an aggregate purchase price of up to $15 million; and C. Contemporaneous with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, in the form attached hereto as Exhibit C (the "Registration Rights Agreement"), pursuant to which the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, and applicable state securities laws; In consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. In addition to those terms defined above and elsewhere in this Agreement, for the purposes of this Agreement, the following terms shall have the meanings here set forth: 1.1 "Affiliate" means, with respect to any Person, any other Person which directly or indirectly controls, is controlled by, or is under common control with, such Person. 1.2 "Agreements" means this Agreement, the Registration Rights Agreement, the Notes and the Warrants. 1.3 The "Company" shall refer to the Company (as defined in the first paragraph hereof) together with its subsidiaries wherever applicable (including without limitation with respect to all representations of the Company unless the context otherwise requires). 1.4 "Closing" means the consummation of the transactions contemplated by this Agreement, and "Closing Date" means the date of such Closing. 1.5 "Control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. 1.6 "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) of the Notes; (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; (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; (vii) pursuant to any registered firm commitment underwritten public offering of Common Stock by a nationally recognized underwriter which is a take down from a shelf registration statement; (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 in writing in advance by the Company -2- and the Holder, in each case so long as only Common Stock is issued 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. 1.7 "Market Price" shall have the meaning set forth in the Notes. 1.8 "Material Adverse Effect" means a material adverse effect on the (i) condition (financial or otherwise), business, assets, prospects or results of operations of the Company taken as a whole; (ii) ability of the Company to perform any of its obligations under the terms of the Agreements; or (iii) rights and remedies of a Purchaser under the terms of the Agreements. 1.9 "MFN Transaction" means a transaction in which the Company issues or sells any securities in a capital raising transaction or series of related transactions (the "New Offering") which grants to the investor (the "New 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 New Investor in the New 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. 1.10 "Notes" shall have meaning set forth in the recitals to this Agreement. 1.11 "Person" means an individual, corporation, partnership, limited liability company trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein. 1.12 "SEC" means the United States Securities and Exchange Commission. 1.13 "SEC Filings" means the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000 and all other reports filed by the Company pursuant to the 1934 Act since the filing of the Annual Report on Form 10-K for the fiscal year ended August 31, 2000. 1.14 "Securities" means the Notes, Underlying Shares, Warrants and Warrant Shares. 1.15 "Underlying Shares" means the shares of Common Stock issued or issuable upon conversion of, as payment for interest or repayment of principal under or otherwise pursuant to or in exchange for, the Notes. 1.16 "Variable Rate Transaction" means 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 -3- 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) 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 sale or resale pursuant to the 1933 Act. 1.17 "Warrants" shall have the meaning set forth in the recitals to this Agreement. 1.18 "Warrant Shares" means the shares of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants. 1.19 "1933 Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. 1.20 "1934 Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 2. Purchase and Sale of the Notes and Warrants. Subject to the terms and conditions of this Agreement, each of the Purchasers hereby severally, and not jointly, agrees to purchase, and the Company hereby agrees to sell and issue to each of the Purchasers, the principal amount of Notes and Warrants to purchase the number of shares of Common Stock set forth on such Purchaser's signature page attached hereto and as indicated herein. Each Purchaser's aggregate purchase price (the "Purchase Price") for the Notes and Warrants to be purchased hereunder is set forth on such Purchaser's signature page attached hereto. 3. Closing. The Company shall deliver to either Purchasers' or the New York office of the Company's counsel, in trust, Notes and Warrants, registered in the names of the Purchasers as indicated on the signature pages to this Agreement, representing all of the Notes and all of the Warrants, with instructions that such Notes and Warrants are to be held in escrow and immediately delivered to the Purchasers against payment of the Purchase Price to the Company by wire transfer of immediately available funds to the account specified by the Company in writing to the Purchasers, subject to the execution and/or delivery of such other documents contemplated hereby on or prior to the Closing. -4- Such escrow instructions shall be subject to the reasonable approval of Purchasers' counsel. 4. Representations and Warranties of the Company. The Company hereby represents and warrants, on the date hereof and on the Closing Date, to the Purchasers that: 4.1 Organization, Good Standing and Qualification. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted and own its properties. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property makes such qualification or licensing necessary unless the failure to so qualify would not be reasonably likely to result in a Material Adverse Effect. All of the Company's subsidiaries are listed by name and jurisdiction on Schedule 4.1 attached hereto. 4.2 Authorization. The Company has full corporate power and authority and has taken all requisite action on the part of the Company, its officers, directors and stockholders necessary for (i) the authorization, execution and delivery of the Agreements, (ii) authorization of the performance of all obligations of the Company hereunder and thereunder, and (iii) the authorization, issuance (or reservation for issuance) and delivery of the Securities. The Agreements constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors' rights generally. 4.3 Capitalization. Set forth on Schedule 4.3 hereto is (a) the authorized capital stock of the Company on the date hereof; (b) the number of shares of capital stock issued and outstanding on the date hereof; (c) the number of shares of capital stock issuable pursuant to the Company's stock plans; and (d) the number of shares of capital stock issuable and reserved for issuance pursuant to securities (other than the Notes and the Warrants) exercisable for, or convertible into or exchangeable for any shares of capital stock. All of the issued and outstanding shares of the Company's capital stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights. Except as set forth on Schedule 4.3, no Person is entitled to preemptive or similar statutory or contractual rights with respect to any securities of the Company. Except as set forth on Schedule 4.3, there are no outstanding warrants, options, convertible securities or other rights, agreements or arrangements of any character under which the Company is or may be obligated to issue any equity securities of any kind and except as contemplated by this Agreement or set forth on Schedule 4.3, the Company is not currently in negotiations for the issuance of any equity securities of any kind. Except as set forth on Schedule 4.3, the Company has no knowledge of any voting agreements, buy-sell agreements, option or right of first purchase agreements or other agreements of any kind among any of the securityholders of the Company relating to the securities of the Company held by them. Except as set forth on Schedule 4.3, the -5- Company has not granted any Person the right to require the Company to register any securities of the Company under the 1933 Act, whether on a demand basis or in connection with the registration of securities of the Company for its own account or for the account of any other Person. 4.4 Valid Issuance. As of the Closing, the Company has reserved a sufficient number of shares of Common Stock for the issuance upon conversion of, as payment for interest on or repayment of principal of, and otherwise pursuant to, the Notes, and upon exercise of the Warrants. The Notes and Warrants are duly authorized, and such Securities, along with the Underlying Shares and Warrant Shares issuable upon conversion of or payment of interest or repayment of principal on the Notes and upon exercise of the Warrants, respectively, when issued in accordance herewith and with the terms of the Notes and Warrants, will be duly authorized, validly issued, fully paid, non-assessable and free and clear of all encumbrances and restrictions, except for restrictions on transfer imposed by applicable securities laws. The number of shares to be reserved hereunder shall be determined without regard to any restrictions on beneficial ownership contained in the Agreements. 4.5 Consents. The execution, delivery and performance by the Company of the Agreements and the offer, issuance and sale of the Securities require no consent of, action by or in respect of, or filing with, any Person, governmental body, agency, or official other than filings that will have been made pursuant to applicable state securities laws and post-sale filings pursuant to applicable state and federal securities laws and the additional listing application requirements of the Nasdaq Stock Market, which the Company undertakes to file within the applicable time periods. 4.6 Delivery of SEC Filings; Business. The SEC Filings represent all filings required of the Company pursuant to the 1934 Act since August 31, 2000. The SEC Filings complied as to form in all material respects with the requirements of the 1934 Act and did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The Company is engaged only in the business described in the SEC Filings and the SEC Filings contain a complete and accurate description of the business of the Company in all material respects. The Company has not provided to any Purchaser (i) any information required to be filed under the 1934 Act that has not been so filed or (ii) any non-public information. 4.7 Use of Proceeds. The proceeds of the sale of the Notes and the Warrants hereunder shall be used by the Company for funding the Ramoplanin Phase III trial and other research and development programs. -6- 4.8 No Material Adverse Change. Since the filing of the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000, no event, transaction or condition has occurred that, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect. 4.9 Registration Statements; Material Contracts. (a) During the preceding two years, each registration statement and any amendment thereto filed by the Company pursuant to the 1933 Act, as of the date such statement or amendment became effective, complied as to form in all material respects with the 1933 Act and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading; and each prospectus filed pursuant to Rule 424(b) under the 1933 Act, as of its issue date and as of the closing of any sale of securities pursuant thereto did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (b) Except as set forth on Schedule 4.3 hereto, there are no agreements or instruments currently in force and effect that constitute a warrant, option, convertible security or other right, agreement or arrangement of any character under which the Company is or may be obligated to issue any material amounts of any equity security of any kind, or to transfer any material amounts of any equity security of any kind. 4.10 Form S-3 Eligibility. The Company is currently eligible to register the resale of its Common Stock on a registration statement on Form S-3 under the 1933 Act. 4.11 No Conflict, Breach, Violation or Default. (a) The execution, delivery and performance of the Agreements by the Company and the issuance and sale of the Securities will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under (i) the Company's Restated Articles of Organization (including any certificates of designation) or the Company's Bylaws, both as in effect on the date hereof (copies of which have been provided to the Purchasers before the date hereof) and the date of issuance of such securities, or (ii) except where it would not have a Material Adverse Effect, (A) any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any of its properties, or (B) any agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the properties of the Company is subject. (b) Except where it would not have a Material Adverse Effect, the Company (i) is not in violation of any statute, rule or regulation applicable to the Company or its assets, (ii) is not in violation of any judgment, order or decree applicable to the Company or its assets, and (iii) is not in breach or violation of any agreement, note -7- or instrument to which it or its assets are a party or are bound or subject. The Company has not received notice from any Person of any claim or investigation that, if adversely determined, would render the preceding sentence untrue or incomplete. 4.12 Tax Matters. The Company has timely prepared and filed all tax returns required to have been filed by the Company with all appropriate governmental agencies and timely paid all taxes owed by it. The charges, accruals and reserves on the books of the Company in respect of taxes for all fiscal periods are adequate in all material respects, and there are no material unpaid assessments against the Company nor, to the knowledge of the Company, any basis for the assessment of any additional taxes, penalties or interest for any fiscal period or audits by any federal, state or local taxing authority except such as which are not material and except as set forth on Schedule 4.12 hereto. All material taxes and other assessments and levies that the Company is required to withhold or to collect for payment have been duly withheld and collected and paid to the proper governmental entity or third party when due. There are no material tax liens or claims pending or, to the Company's knowledge, threatened against the Company or any of its respective assets or property. There are no outstanding tax sharing agreements or other such arrangements between the Company and any other corporation or entity. 4.13 Title to Properties. Except as disclosed in the SEC Filings, the Company has good and marketable title to all real properties and all other properties and assets owned by it, in each case free from liens, encumbrances and defects, except for such liens, encumbrances and defects which could not reasonably be expected to have a Material Adverse Effect; and except as disclosed in the SEC Filings, the Company holds any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or currently planned to be made thereof by them. 4.14 Certificates, Authorities and Permits. The Company possesses adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by it and has not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company, would individually or in the aggregate have a Material Adverse Effect. 4.15 No Labor Disputes. No material labor dispute with the employees of the Company exists or, to the knowledge of the Company, is imminent. 4.16 Intellectual Property. The Company owns or possesses adequate rights or licenses to the inventions, know-how, patents, patent rights, copyrights, trademarks, trade names, licenses, approvals, governmental authorizations, trade secrets confidential information and other intellectual property rights (collectively, "Intellectual Property Rights"), free and clear of all liens, security interests, charges, encumbrances, equities and other adverse claims, necessary to conduct the business now operated by it, or presently employed by it, and, except as otherwise disclosed on Schedule 4.16 attached hereto, presently contemplated to be operated by it as described in the SEC Filings, and the Company has not received any notice of infringement of or conflict with asserted -8- rights of others with respect to any Intellectual Property Rights except as disclosed in the SEC Filings. Except as set forth on Schedule 4.16 hereto, none of the Company's Intellectual Property Rights have expired or terminated, or are expected to expire or terminate within three years from the date of this Agreement, except where such expirations or termination would not result, either individually or in the aggregate, in a Material Adverse Effect. To the knowledge of the Company, the Company's patents and other Intellectual Property Rights and the present activities of the Company do not infringe any patent, copyright, trademark, trade name or other proprietary rights of any third party where such infringement may cause a Material Adverse Effect on the Company, and there is no claim, action or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its subsidiaries regarding its Intellectual Property Rights (other than as set forth in the SEC Filings filed at least ten (10) day prior to the date hereof), and the Company and its subsidiaries are unaware of any facts or circumstances which could reasonably be expected to give rise to any of the foregoing. The Company has no knowledge of the material infringement of its Intellectual Property Rights by third parties and has no reason to believe that any of its Intellectual Property Rights is unenforceable, and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and its subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties. 4.17 Environmental Matters. The Company is not in violation of any statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "Environmental Laws"), does not own or operate any real property contaminated with any substance that is subject to any Environmental Laws, is not liable for any off-site disposal or contamination pursuant to any Environmental Laws, and is not subject to any claim relating to any Environmental Laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Company is not aware of any pending investigation that might lead to such a claim. 4.18 Litigation. Except as disclosed in the SEC Filings, there are no pending actions, suits or proceedings against or affecting the Company or any of its properties that, if determined adversely to the Company, would individually or in the aggregate have a Material Adverse Effect; and to the Company's knowledge, no such actions, suits or proceedings are threatened or contemplated. 4.19 Financial Statements. The financial statements included in each SEC Filing present fairly and accurately in all material respects the consolidated financial position of the Company as of the dates shown and its consolidated results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis. Since September 29, 2001, no event has occurred that would cause a Material Adverse Effect on the financial condition of the Company as reflected in the financial statements included in the Form 10-Q for the quarter ended September 29, 2001, and there has not -9- been any material adverse change in the consolidated assets, liabilities, financial condition or operating results of the Company from that reflected in the financial statements included in the Company's most recent Quarterly Report on Form 10-Q, except changes in the ordinary course of business which have not had, in the aggregate, a Material Adverse Effect. 4.20 Insurance Coverage. The Company maintains in full force and effect insurance coverage that the Company reasonably believes to be adequate against all liabilities, claims and risks against which it is customary for comparably situated companies to insure. 4.21 Compliance with Nasdaq Continued Listing Requirements. The Company is in material compliance with all applicable Nasdaq National Market continued listing requirements and is in good standing on such exchange. There are no proceedings pending or, to the Company's knowledge, threatened against the Company relating to the continued listing of the Common Stock on the Nasdaq National Market and the Company has not received any notice of, nor to the knowledge of the Company is there any basis for, the delisting of the Common Stock from the Nasdaq National Market. 4.22 Brokers and Finders. The Purchasers shall have no liability or responsibility for the payment of any commission or finder's fee to any third party in connection with or resulting from this Agreement or the transactions contemplated by this Agreement by reason of any agreement of or action taken by the Company. 4.23 No General Solicitation. Neither the Company nor any Person acting on its behalf has conducted any general solicitation or general advertising (as those terms are used in Regulation D) in connection with the offer or sale of any of the Securities. 4.24 No Integrated Offering. Neither the Company nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would adversely affect reliance by the Company on Section 4(2) of the 1933 Act for the exemption from registration for the transactions contemplated hereby or would require registration of the Securities under the 1933 Act; or would require the integration of this offering with any other offering of securities for purposes of determining the need to obtain stockholder approval of the transactions contemplated hereby under the rules of the Nasdaq Stock Market. 4.25 Disclosures. For purposes of this Agreement and the transactions contemplated hereby, none of the representations or warranties made by the Company under any of the Agreements and no information furnished by the Company pursuant hereto, or in any other document, certificate or statement furnished by the Company to the Purchaser or any authorized representative of the Purchaser, pursuant to the Agreements or in connection therewith, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein -10- and therein, in the light of the circumstances under which they were made, not misleading. 4.26 Rights Plan. None of the acquisition of the Securities nor the deemed beneficial ownership of shares of Common Stock issuable upon, or the acquisition of such shares pursuant to the conversion of the Notes or the exercise of the Warrants will in any event under any circumstances in and of itself trigger the poison pill provisions of any stockholder rights or similar agreements, or plan having a similar effect, to which the Company is a party. 5. Representations and Warranties of the Purchaser. Each of the Purchasers hereby severally, and not jointly, represents and warrants on the date hereof and on the Closing Date, to the Company as to itself only that: 5.1 Organization and Existence. The Purchaser is a validly existing corporation, partnership or limited liability company and has all requisite corporate, partnership or limited liability company power and authority to invest in the Securities pursuant to this Agreement. 5.2 Authorization. The execution, delivery and performance by the Purchaser of this Agreement and the Registration Rights Agreement have been duly authorized and this Agreement and the Registration Rights Agreement will each constitute the valid and legally binding obligation of the Purchaser, enforceable against the Purchaser in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors' rights generally. 5.3 Purchase Entirely for Own Account. The Securities to be received by the Purchaser hereunder will be acquired for the Purchaser's own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of applicable securities laws, and the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of applicable securities laws. 5.4 Investment Experience. The Purchaser acknowledges that it can bear the economic risk and complete loss of its investment in the Securities and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the purchase contemplated hereby and has been represented by counsel in the negotiation of the Agreements. 5.5 Disclosure of Information. The Purchaser has had an opportunity to receive documents related to the Company and to ask questions of and receive answers from the Company regarding the Company, its business and the terms and conditions of the offering of the Securities. The Purchaser has had the opportunity to receive and read the SEC Filings which were filed with the SEC via EDGAR at least ten (10) days prior to the date hereof. Neither such inquiries nor any other due diligence investigation conducted by the Purchaser shall modify, amend or affect the Purchaser's right to rely on -11- the Company's representations and warranties contained in this Agreement or made pursuant to this Agreement. 5.6 Restricted Securities. The Purchaser understands that the Securities are characterized as "restricted securities" under the U.S. federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws, applicable state laws and applicable regulations such securities may be resold without registration under the 1933 Act only in certain limited circumstances. 5.7 Legends. It is understood that, until registration for resale pursuant to the Registration Rights Agreement or until sales under Rule 144 are permitted, certificates evidencing the Securities may bear one or all of the following legends or legends substantially similar thereto: (a) "The shares represented by this certificate may not be transferred without (i) the opinion of counsel reasonably satisfactory to the corporation (if requested) that such transfer may lawfully be made without registration under the Securities Act of 1933; or (ii) such registration or qualification." (b) If required by the authorities of any state in connection with the issuance of sale of the Securities, the legend required by such state authority. Upon registration for resale pursuant to the Registration Rights Agreement or upon Rule 144(k) under the 1933 Act becoming available, the Company shall promptly cause certificates evidencing the Underlying Shares and Warrant Shares previously issued to be replaced with certificates which do not bear such restrictive legends, and all Underlying Shares and Warrant Shares subsequently issued shall not bear such restrictive legends. Certificates evidencing the Underlying Shares and Warrant Shares issued following the registration for resale of such shares pursuant to the Registration Rights Agreement or Rule 144(k) under the 1933 Act becoming available for the sale of such shares shall be issued without any restrictive legends. 5.8 Accredited Investor. The Purchaser is an "accredited investor" as defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act. 5.9 No General Solicitation. The Purchaser did not learn of the investment in the Securities as a result of any public advertising or general solicitation. 5.10 Residency of Purchaser. The Purchaser is a resident of the state or other jurisdiction indicated next to the Purchaser's name on the signature page hereto. 5.11 Brokers and Finders. Except for the Company's own obligations owing to Ladenburg Thalmann & Co., the Company shall have no liability or responsibility for the payment of any commission or finder's fee to any third party in connection with or resulting from this Agreement or the transactions contemplated by this Agreement by reason of any agreement of or action taken by the Purchaser. -12- 6. Registration Rights Agreement and Certificate. 6.1 Registration Rights Agreement. The parties acknowledge and agree that part of the inducement for the Purchasers to enter into this Agreement is the Company's execution and delivery of the Registration Rights Agreement. The parties acknowledge and agree that simultaneously with the execution hereof, the Registration Rights Agreement is being duly executed and delivered by the parties thereto. 7. Covenants and Agreements of the Company. 7.1 19.9% Cap; Rule 144. (a) 19.9% Cap. In the event that at any time the Company would be obligated to issue an amount of shares of Common Stock upon conversion of, or in payment of interest or repayment of principal on, the Notes, or upon exercise of the Warrants, which, when aggregated with all shares of Common Stock issued to the Purchaser(s), would constitute a breach of the Company's obligations under the rules or regulations of the Nasdaq Stock Market as they apply to the Company, or any other principal securities exchange or market ("Principal Market") upon which the Common Stock is or becomes traded (the "Cap Regulations"), the Company shall not be obligated to issue any such shares of Common Stock to the extent such shares are in excess of the maximum permissible amount under such Cap Regulations ("Excess Shares"). In such case, the provisions relating to Cap Regulations in the Notes and Warrants shall apply. Only shares of Common Stock acquired pursuant to this Agreement (including Underlying Shares and Warrant Shares) will be included in determining whether the limitation contained herein would be exceeded for purposes of this Section 7.1(a). (b) Rule 144. The Company agrees to take the position that, for purposes of determining the holding period under Rule 144 of the 1933 Act for Underlying Shares issued upon conversion of, or in payment of interest or repayment of principal on, or in exchange for, the Notes, the holding period of such Underlying Shares shall be tacked to the holding period of the Notes. 7.2 Additional Financings. So long as any Notes remain outstanding and subject to clause (a) of Section 7.11 below, the Purchasers will have a right of participation with respect to any sales of any of the Company's securities in a non-registered or "shelf" offering (subject to the exclusions set forth in the definition of "Excluded Transaction") capital raising transaction on and subject to the terms and conditions set forth in this Section 7.2. During such period, the Company shall give written notice ("Financing Notice") to the Purchasers within five (5) business days following any non-registered or "shelf" sale (subject to the exclusions set forth in the definition of "Excluded Transaction") of any of the Company's equity securities or any securities convertible into or exchangeable or exercisable for such securities in a capital raising transaction (including, without limitation, any Variable Rate Transaction or MFN Transaction). Such Financing Notice shall describe the significant business terms of such transaction and be accompanied by a copy of all transaction documents pertaining to such transaction. The Purchasers shall have the right (pro rata in accordance with the -13- Purchasers' participation in this offering, or together with other investors selected by the Purchasers and reasonably acceptable to the Company) to purchase, in accordance with the procedures set forth below, an amount of identical securities issued in such transaction equal to 33.33% of the amount purchased by such other investors (i.e., 25% of the aggregate amount of such securities issued to the Purchasers and such other investors together) for the same consideration and on the same terms and conditions as such third party sale. The Company shall not consummate any such third party transaction unless following such consummation the Purchasers are permitted to purchase such percentage under the terms of all transaction documents for such other transaction and under all applicable laws and regulations. Without limiting the foregoing (a) the Company shall authorize and reserve a sufficient number and amount of such securities, or class or series thereof, in order to enable full participation by the Purchasers in such securities, class or series that is purchased by such third party, and (b) the Company shall not issue in excess of such number of shares of Common Stock (or securities which are convertible, exchangeable or exercisable into such number of shares of Common Stock) which, together with the maximum amount of securities otherwise permitted to be purchased by the Purchasers hereunder, would cause the Company to violate any shareholder approval or other requirements of NASDAQ or any other applicable market, exchange, regulatory authority, agency or commission. Each Purchaser electing to participate in such transaction must exercise such right by delivering written notice to the Company within ten (10) business days following receipt of the Financing Notice electing to participate in such offering. If, subsequent to the Company giving any Financing Notice to the Purchasers hereunder, any material term or condition of such third-party sale is changed from that disclosed in the Financing Notice and the accompanying transaction documents, the Company shall be required to provide a new Financing Notice to the Purchasers hereunder and each Purchaser shall again have the right to exercise its rights to purchase a percentage of the securities in such transaction on such changed terms and conditions as provided hereunder. The rights and obligations of this Section 7.2 shall in no way diminish the other rights of the Purchasers pursuant to this Section 7. Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by any Purchaser pursuant to any capital raising transaction as described in this Section 7.2 above shall not exceed a number that, when added to the total number of shares of Common Stock deemed beneficially owned by such Purchaser (other than by virtue of the ownership of securities or rights to acquire securities that have limitations on the Purchaser's right to convert, exercise or purchase similar to the limitation set forth herein), together with all shares of Common Stock deemed beneficially owned by the Purchaser's "affiliates" (as defined in Rule 144 of the 1933 Act) that would be aggregated for purposes of determining whether a group under Section 13(d) of the 1934 Act, exists, would exceed 9.9% of the total issued and outstanding shares of the Common Stock. The rights of participation of the Purchasers set forth in this Section 7.2 will not apply to any Excluded Transaction. All rights of the Purchasers under this Section 7.2 shall cease and be of no further effect upon the consummation of a Change in Control Transaction (as defined in the Notes). 7.3 Opinion of Counsel. On or prior to the Closing Date, the Company will deliver to the Purchasers the opinion of legal counsel to the Company in form and substance attached hereto as Exhibit 7.3. -14- 7.4 Reservation of Common Stock issuable upon Conversion of Notes and Exercise of Warrants. The Company hereby agrees at all times to reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of providing for the full conversion of Notes (including payment and repayment of interest and principal thereon in stock) and the exercise of the Warrants, such number of shares of Common Stock as shall from time to time equal 100% of the number of shares sufficient to permit the full conversion of Notes (including payment and repayment of interest and principal thereon) and 100% of the number of shares necessary to permit the full exercise of the Warrants in accordance with the terms of the Warrants. All calculations pursuant to this paragraph shall be made without regard to restrictions on beneficial ownership. 7.5 Reports; Information. (a) For so long as the Purchasers beneficially own any of the Securities, the Company will use its reasonable best efforts to furnish to the Purchasers the following reports to the extent such reports are not filed with the SEC via EDGAR, each of which shall be provided to the Purchasers by air mail or reputable international courier (within one week of filing with the SEC, in the case of SEC filings): (i) Quarterly Reports. The Company's quarterly report on Form 10-Q or, in the absence of such report, consolidated balance sheets of the Company as at the end of such period and the related consolidated statements of operations, stockholders' equity and cash flows for such period and for the portion of the Company's fiscal year ended on the last day of such quarter, all in reasonable detail and certified by the Company to have been prepared in accordance with generally accepted accounting principles, subject to year-end and audit adjustments. (ii) Annual Reports. The Company's Form 10-K or, in the absence of a Form 10-K, consolidated balance sheets of the Company as at the end of such fiscal year and the related consolidated statements of earnings, stockholders' equity and cash flows for such year, all in reasonable detail and accompanied by the report on such consolidated financial statements of an independent certified public accountant selected by the Company and reasonably satisfactory to the Purchaser. (iii) Securities Filings. Copies of (i) all notices, proxy statements, financial statements, reports and documents as the Company shall send or make available generally to its stockholders or to financial analysts, promptly after providing same to the stockholders and (ii) all periodic and special reports, documents and registration statements (other than on Form S-8) which the Company furnishes or files, or any officer or director of the Company (in such person's capacity as such) furnishes or files with the SEC. (iv) Other Information. Such other information relating to the Company as from time to time may reasonably be requested by any Purchaser provided the Company produces such information in its ordinary course of business, and further provided that the Company, solely in its own discretion, determines that such -15- information is not confidential in nature and disclosure to the Purchaser would not be harmful to the Company. (b) For so long as the Purchasers beneficially own any of the Securities, the Company will use its reasonable best efforts to furnish to the Purchasers copies of all press releases within one business day following release to the public to the extent that such releases are not immediately available on Yahoo Finance. (c) Notwithstanding anything to the contrary contained in this Section 7.5 the Company shall not disclose material nonpublic information to the Purchasers, or to advisors to or representatives of the Purchaser, unless prior to disclosure of such information the Company identifies such information as being material nonpublic information and provides the Purchasers, such advisors and representatives with the opportunity to accept or refuse to accept such material nonpublic information for review. The Company may, as a condition to disclosing any material nonpublic information hereunder, require the Purchasers' advisors and representatives to enter into a confidentiality agreement (including an agreement with such advisors and representatives prohibiting them from trading in Common Stock during such period of time as they are in possession of material nonpublic information) in form reasonably satisfactory to the Company and the Purchasers. (d) Rule 144. The Company agrees to make publicly available on a timely basis the information necessary to enable Rule 144 under the 1933 Act to be available for resale. 7.6 Press Releases; Form 8-K. (a) Any press release or other publicity concerning this Agreement or the transactions contemplated by this Agreement shall be submitted to the Purchasers for comment at least two (2) business days prior to issuance, unless the release is required to be issued within a shorter period of time by law or pursuant to the rules of the Nasdaq Stock Market or a national securities exchange. The Company shall issue a press release concerning the fact and material terms of this Agreement promptly upon Closing but in any event within one business day of the Closing. (b) Within two business days after the Closing Date, the Company will publicly report the issue and sale of the Notes and Warrants by filing with the SEC a Current Report on Form 8-K under the 1934 Act which report shall describe the material terms and include copies of the Agreements as exhibits to such report, provided that copies of the Agreements may alternatively be attached as exhibits to the next Form 10-Q or Form 10-K, as applicable and to the extent permissible under the 1934 Act, so long as such Form 8-K describes the transactions contemplated hereby in sufficient detail such that no new material information will be disclosed to the public upon such filing of the Agreements as exhibits. -16- 7.7 No Conflicting Agreements. The Company will not take any action, enter into any agreement or make any commitment that would conflict or interfere in any material respect with the obligations to the Purchasers under the Agreements. 7.8 Insurance. For so long as any Purchaser beneficially owns any of the Securities, the Company shall, and shall cause each active subsidiary to, have in full force and effect (a) insurance reasonably believed by the Company to be adequate on all assets and activities, covering property damage and loss of income by fire or other casualty, and (b) insurance reasonably believed to be adequate protection against all liabilities, claims and risks against which it is customary for companies similarly situated as the Company and the subsidiaries to insure. 7.9 Compliance with Laws. So long as the Purchasers beneficially own any Securities, the Company will use reasonable efforts to comply with all applicable laws, rules, regulations, orders and decrees of all governmental authorities, except to the extent non-compliance (in one instance or in the aggregate) would not have a Material Adverse Effect. 7.10 Listing of Underlying Shares and Related Matters. The Company hereby agrees, promptly following the Closing of the transactions contemplated by this Agreement, to take such action to cause the Underlying Shares and the Warrant Shares to be listed on the Nasdaq National Market as promptly as possible but no later than the effective date of the registration contemplated by the Registration Rights Agreement. The Company further agrees that if the Company applies to have its Common Stock or other securities traded on any other principal stock exchange or market, it will include in such application the Underlying Shares and Warrant Shares and will take such other action as is necessary to cause such Common Stock to be so listed. For so long as any Notes remain outstanding, the Company will take all action necessary to continue the listing and trading of its Common Stock on the Nasdaq National Market or on the Nasdaq Small-Cap Market, the New York Stock Exchange or the American Stock Exchange (collectively, "Approved Markets"), and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of such exchange or market, as applicable, to ensure the continued eligibility for trading of the Underlying Shares and the Warrant Shares thereon. Neither the Company nor any of its Affiliates, nor any Person acting on its or their behalf, shall directly or indirectly make any offers or sales of any security or solicit any offers to buy any security which may cause the integration of the offering hereunder with any other offering of securities for purposes of determining the need to obtain stockholder approval of the transactions contemplated hereby under the rules of the Nasdaq National Market. 7.11 Corporate Existence. So long as any Notes or Warrants remain outstanding, the Company shall maintain its corporate existence and shall not merge, consolidate or sell all or substantially all of the Company's assets, provided that the Company may merge, consolidate or sell all or substantially all of the Company's assets so long as the surviving or successor entity in such transaction (a) assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith, regardless of whether or not the Company would have had a -17- sufficient number of shares of Common Stock authorized and available for issuance in order to fulfill its obligations hereunder and effect the conversion (including payment on) and exercise in full of all Notes and Warrants outstanding as of the date of such transaction, provided that such entity shall not be required to assume any obligations under Section 7.2 hereof or under Section 2 of the Notes, as specified, in each case, herein and therein, (b) does not have any legal, contractual or other restrictions on its ability to perform the obligations of the Company hereunder and under the agreements and instruments entered into in connection herewith, and (c) is a publicly traded corporation whose common stock and the shares of capital stock issuable upon conversion and exercise of the Notes and Warrants are (or would be upon issuance thereof) listed for trading on an Approved Market, provided that this clause (c) shall not apply in the event of a merger, consolidation or sale of all or substantially all of the Company's assets with or to an unaffiliated third party in an arm's length transaction pursuant to which all holders of outstanding shares of Common Stock receive consideration consisting solely of cash. 8. Survival. All representations, warranties, covenants and agreements contained in this Agreement shall be deemed to be representations, warranties, covenants and agreements as of the date hereof and shall survive the execution and delivery of this Agreement. 9. Miscellaneous. 9.1 Successors and Assigns. This Agreement may not be assigned by a party hereto without the prior written consent of the other party hereto which consent may not be unreasonably withheld or delayed, except that without the prior written consent of the Company, but after notice duly given, a Purchaser may assign its rights and delegate its duties hereunder in whole or in part to an affiliate or to any Purchaser of Securities from such Purchaser. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 9.2 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9.3 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 9.4 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given only upon delivery to each party to be notified by (i) personal delivery, (ii) telex or telecopier, upon receipt of confirmation of complete transmittal, or (iii) an internationally -18- recognized overnight air courier, addressed to the party to be notified at the address as follows, or at such other address as such party may designate by ten days' advance written notice to the other party: If to the Company: Genome Therapeutics Corp. 100 Beaver Street Waltham, Massachusetts 02453 Telephone: (781) 398-2300 Fax: (781) 893-9535 Attention: Stephen Cohen, CFO Three Company designees to receive confirmation of Conversion Notices pursuant to Section 3 of the Notes: Name Email Address ---- ------------- Stephen Cohen stephen.cohen@genomecorp.com Manny Bogoulas manny@genomecorp.com Christopher Taylor chris.taylor@genomecorp.com Patrick O'Brien pobrien@ropesgray.com If to the Purchasers, to the addresses set forth on the signature pages hereto. The Company may change the Conversion Notice confirmation designees or their email addresses by furnishing at least ten days' advance written notice to all holders of Notes. 9.5 Expenses. The parties hereto shall pay their own costs and expenses in connection herewith, except that the Company shall pay to Tail Wind, Inc. up to $70,000 as and for legal and due diligence expenses incurred in connection with the Agreements, $30,000 of which has been paid in advance, and such remaining amount due shall be paid at Closing from gross proceeds of the offering. 9.6 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and a majority-in-interest (based on outstanding principal amount of the Notes held) of the Purchasers, provided, however, that any such amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Securities purchased under this Agreement at the time outstanding, each future holder of all such securities, and the Company. 9.7 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this -19- Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 9.8 Entire Agreement. This Agreement, including the Exhibits and Schedules hereto, and the Registration Rights Agreement, the Notes and Warrants and other documents contemplated hereby constitute the entire agreement among the parties hereof with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof and thereof. 9.9 Further Assurances. The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained. 9.10 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. 9.11 Remedies. (i) The Purchasers shall be entitled to specific performance of the Company's obligations under the Agreements. (ii) The Company on the one hand, and each Purchaser severally and not jointly on the other hand, shall indemnify the other and hold it harmless from any loss, cost, expense or fees (including attorneys' fees and expenses) arising out of any breach of any representation, warranty, covenant or agreement in any of the Agreements, or arising out of the enforcement of this Section 9.11. 9.12 JURISDICTION. THE PARTIES HEREBY AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING DIRECTLY OR INDIRECTLY FROM OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER AGREEMENTS SHALL BE LITIGATED ONLY IN THE SUPREME COURT OF THE STATE OF NEW YORK OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK LOCATED IN NEW YORK COUNTY, NEW YORK. THE PARTIES CONSENT TO THE JURISDICTION AND VENUE OF THE FOREGOING COURTS AND CONSENT THAT ANY PROCESS OR NOTICE OF MOTION OR OTHER APPLICATION TO EITHER OF SAID COURTS OR A JUDGE THEREOF MAY BE SERVED INSIDE OR OUTSIDE THE STATE OF NEW YORK OR THE SOUTHERN DISTRICT OF NEW YORK BY REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO THE PARTY BEING SERVED AT ITS ADDRESS SET FORTH IN THIS AGREEMENT (AND SERVICE SO MADE SHALL BE DEEMED COMPLETE THREE (3) DAYS AFTER THE SAME HAS BEEN POSTED AS AFORESAID) OR BY PERSONAL SERVICE OR IN SUCH OTHER MANNER AS MAY BE PERMISSIBLE UNDER THE RULES OF SAID -20- COURTS. THE PARTIES HEREBY WAIVE ANY RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION PURSUANT TO THIS AGREEMENT OR THE OTHER AGREEMENTS. 9.13 Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser hereunder or pursuant to the Registration Rights Agreement, the Notes or the Warrants or the Purchasers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person or entity under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. [Signature Page Follows] -21- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. The Company: GENOME THERAPEUTICS CORP. By: /s/ STEVEN M. RAUSCHER -------------------------------- Name: Steven M. Rauscher Title: President and Chief Executive Officer -22- The Purchasers THE TAIL WIND FUND, LTD. By: TAIL WIND ADVISORY AND MANAGEMENT LTD., as investment manager By: /s/ DAVID CROOK ------------------------ Name: David Crook Title: Chairman Purchase Price: $3,000,000 Principal Amount: $3,000,000 No. of Warrants: 97,500 Conversion Price of Notes: $8.00 Jurisdiction of Organization/Residence: B.V.I Address for Notices: The Tail Wind Fund Ltd. c/o Tail Wind Advisory and Management Ltd. 1 Regent Street, 1st Floor London, SW1Y 4NS UK Attn: David Crook Telephone: 44-171-468-7660 Facsimile: 44-171-468-7657 with a copy to: Peter J. Weisman, P.C. 110 East 59th Street, 18th Fl. New York, New York 10022 Attn: Peter J. Weisman, Esq. Telephone: (212) 418-4792 Facsimile: (212) 317-8855 -23- SMITHFIELD FIDUCIARY LLC By: /s/ ADAM J. CHILL ----------------------- Name: Adam J. Chill Title: Authorized Signatory Purchase Price: $12,000,000 Principal Amount: $12,000,000 No. of Warrants: 390,000 Conversion Price of Notes: $8.00 Jurisdiction of Organization/Residence: Cayman Islands Address for Notices: c/o Highbridge Capital Management, LLC, 9 West 57th Street, 27th Floor New York, New York 10019 Tel: 212-287-4720 Fax: 212-751-0755 Attention: Ari J. Storch/Adam J. Chill -24- Schedules to Purchase Agreement The attached Schedules are hereby delivered by Genome Therapeutics Corp. (the "Company") to The Tail Wind Fund, Ltd. and Smithfield Fiduciary LLC (each a "Purchaser" and collectively the "Purchasers"), in accordance with the provisions of that certain Purchase Agreement dated March 5, 2002 by and among the Company and the Purchasers (the "Purchase Agreement"). Capitalized terms that are used herein and in the Schedules and are not defined shall have the meaning set forth in the Purchase Agreement. The Schedules relate to certain matters concerning the disclosure required and transactions contemplated by the Purchase Agreement. Headings have been inserted on the separate Schedules for convenience of reference only and shall not have the effect of amending or changing the content or meaning of the Section as set forth in the Purchase Agreement. -25- Schedule 4.1 Subsidiaries Collaborative Securities Corp., a Massachusetts corporation. Collaborative Genetics, Inc., a Massachusetts corporation. -26- Schedule 4.3 Capitalization Capitalization a. 50 million shares of authorized common stock of the Company, $0.10 par value. b. 22,821,429 shares of common stock of the Company issued and outstanding as of February 23, 2002. c. Stock Options (issued and outstanding) 3,719,709 Stock Options (available for future grant) 2,650,092 Director's Deferred Plan (issued and outstanding) 31,283 Director's Deferred Plan (available for future grant) 110,988 ESPP (available for issuance) 122,303 d. The Company has reserved a number of shares of its common stock sufficient to cover the conversion of the Biosearch Notes (defined below). Obligation to Issue Company Securities Pursuant to a Letter Agreement dated August 6, 2001 by and between the Company and Ladenburg Thalmann & Co. Inc. ("Ladenburg"), upon the sale of at least $10,000,000 worth of securities to investors introduced to the Company by Ladenburg, the Company is obligated to issue a warrant for 100,000 shares of common stock of the Company with a four year term and at a strike price of $15 per share. Pursuant to a License and Supply Agreement dated October 8, 2001 by and between the Company and Biosearch Italia, S.p.A. ("Biosearch"), the Company is obligated to make milestone payments to Biosearch in the form of a $2 million convertible note on the date of the filing of the U.S. NDA application respecting Ramoplanin with the Food and Drug Administration ("FDA") and a $5 million convertible note on the date such application is approved by the FDA, each note convertible into common stock of the Company at a conversion price of $15 per share (such notes collectively being the "Biosearch Notes"). -27- EX-4.2 4 dex42.txt CONVERTIBLE NOTE 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. 2 "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 3 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. 4 "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: EX-4.3 5 dex43.txt PURCHASE WARRANT Exhibit 4.3 Exhibit B THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES LAWS, IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION FOR NON-PUBLIC OFFERINGS. THIS SECURITY MAY NOT BE SOLD OR TRANSFERRED UNLESS IT IS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR UNLESS THE ISSUER RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE (UNLESS WAIVED). GENOME THERAPEUTICS CORP. PURCHASE WARRANT ---------------- WARRANT ("WARRANT") TO PURCHASE SHARES OF COMMON STOCK, $0.10 PAR VALUE PER SHARE This is to certify that, FOR VALUE RECEIVED, [________________________] ("Warrantholder"), is entitled to purchase, subject to the provisions of this Warrant, from Genome Therapeutics Corp., a corporation organized under the laws of The Commonwealth of Massachusetts ("Company"), at any time and from time to time during an exercise period commencing on or after the first conversion or redemption under the Related Note (as defined below) and ending on a date on or prior to December 31, 2008 ("Expiration Date") as described in Section 3(a) below, all or a portion of up to [PRO RATA SHARE OF 487,500] shares ("Warrant Shares") of Common Stock, $0.10 par value ("Common Stock"), of the Company, at an exercise price per share equal to $8.00, subject to adjustment as provided herein (the exercise price in effect from time to time hereafter being herein called the "Warrant Price"). This Warrant has been issued pursuant to the terms of the Purchase Agreement ("Purchase Agreement") dated on or about the date hereof between the Company and the Warrantholder, and, pursuant to the Purchase Agreement, has been issued in conjunction with a Note (as defined in the Purchase Agreement) issued to the Warrantholder on or about the date hereof (the "Related Note"). Capitalized terms used herein and not defined herein shall have the meaning specified in the Purchase Agreement or the Related Note. Section 1. Registration. The Company shall maintain books for the ------------ transfer and registration of the Warrant. Upon the initial issuance of the Warrant, the Company shall issue and register the Warrant in the name of the Warrantholder. Section 2. Transfers. As provided herein, this Warrant may be --------- transferred only (1) pursuant to a registration statement filed under the Securities Act of 1933, as amended ("Securities Act") or an exemption from registration thereunder, and (2) concurrently with a transfer (to the same transferee) of the Related Note in accordance with the transfer provisions of the Related Note. Subject to such restrictions, the Company shall transfer this Warrant from time to time, upon the books to be maintained by the Company for that purpose, upon surrender thereof for transfer properly endorsed or accompanied by appropriate instructions for transfer upon any such transfer, and a new Warrant shall be issued to the transferee and the surrendered Warrant shall be canceled by the Company. Section 3. Exercise of Warrant ------------------- (a) Exercise Periods. This Warrant shall have multiple exercise ---------------- periods (each an "Exercise Period") corresponding to different tranches of Warrant Shares (each a "Tranche"). Upon each conversion of the Related Note (whether voluntary or mandatory), the number of Warrant Shares equal to 26% of the number of Underlying Shares issued or issuable upon such conversion shall constitute a separate Tranche hereunder. The Exercise Period for each Tranche shall commence on the Conversion Date applicable to such Tranche and terminate on the fourth (4th) anniversary of such Conversion Date. This Warrant may be exercised for up to the number of Warrant Shares included within a Tranche at any time and from time to time during the Exercise Period applicable to such Tranche. Upon any redemption or repayment of the Related Note in whole or in part (not including repayment of the Related Note on the original Maturity Date and not including any redemption pursuant to Section 3(k) of the Related Note) and upon the failure by the Company to pay all amounts due under the Related Note on the Maturity Date, any Warrant Shares (or in the case of a partial redemption, the proportionate part thereof) hereunder which are not yet exercisable shall become immediately exercisable, and the Exercise Period for such Warrant Shares shall commence on such redemption or Maturity Date, as the case may be, and terminate on the fourth (4th) anniversary of such redemption or Maturity Date, respectively. (If the Company is required to redeem the Related Note in accordance with its terms but fails to do so, such Related Note shall be deemed redeemed as of the scheduled redemption only for purposes hereof.) (b) Exercise Procedure. Subject to the foregoing and the other ------------------ provisions hereof, the Warrantholder may exercise this Warrant from time to time by (i) delivering (which may be by fax) a duly executed Warrant Exercise Form in the form attached hereto (the "Exercise Agreement") to the Company on any business day at the Company's principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), and (ii) making payment to the Company either (A) in cash, by certified or official bank check or by wire transfer of immediately available funds for the account of the Company, of the Warrant Price for the Warrant Shares specified in the Exercise Agreement or (B) by delivery to the Company of a written notice of an election to effect a "Cashless Exercise" (as defined below) for the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so purchased shall be deemed to be issued to the Warrantholder or such holder's designee, as the record owner of such shares, as of the close of business on the date on which the completed Exercise Agreement shall have been delivered to the Company (or such later date as may be specified in the Exercise Agreement). Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall be promptly delivered to the Warrantholder within a reasonable time, not exceeding three (3) business days after this Warrant shall have been so exercised. The certificates so delivered shall be in such denominations as may be requested by the Warrantholder and shall be registered in the name of such holder or such other name as shall be designated by such holder. If this Warrant shall have 2 been exercised only in part, then, unless this Warrant has expired, the Company shall (subject to Section 3(d) below), at its expense, at the time of delivery of such certificates, deliver to the Warrantholder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. As used herein, "business day" shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. (c) Cashless Exercise. To effect a "Cashless Exercise", the ----------------- Warrantholder shall indicate on the Exercise Agreement notice of the holder's intention to do so, including a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof. In the event of a Cashless Exercise, in lieu of paying the Warrant Price in cash, the holder shall surrender this Warrant or the portion hereof being exercised for that number of shares of Common Stock determined by multiplying the number of Warrant Shares to which it would otherwise be entitled by a fraction, the numerator of which shall be the difference between the then current Fair Market Price per share of the Common Stock and the Warrant Price, and the denominator of which shall be the then current Fair Market Price per share of the Common Stock. For this purpose, the "Fair Market Price" of the Common Stock shall be the closing price of the Common Stock as reported by the Nasdaq National Market (or other exchange or market on which the Common Stock is principally traded) on the trading day immediately preceding the date of the Exercise Agreement. (d) Book-Entry. Notwithstanding anything to the contrary set forth ---------- herein, so long as any Notes remain outstanding, upon exercise of any portion of this Warrant in accordance with the terms hereof, the Warrantholder shall not be required to physically surrender this Warrant to the Company unless such holder is purchasing the full amount of Warrant Shares represented by this Warrant. The Warrantholder and the Company shall maintain records showing the number of Warrant Shares so purchased hereunder and the dates of such purchases or shall use such other method, reasonably satisfactory to the Warrantholder and the Company, so as not to require physical surrender of this Warrant upon each such exercise. The Warrantholder and any assignee, by acceptance of this Warrant or a new Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following exercise of any portion of this Warrant, the number of Warrant Shares which may be purchased upon exercise of this Warrant may be less than the number of Warrant Shares set forth on the face hereof. Section 4. Compliance with the Securities Act. Neither this Warrant nor ---------------------------------- the Common Stock issued upon exercise hereof nor any other security issued or issuable upon exercise of this Warrant may be offered or sold except as provided in this agreement and in conformity with the Securities Act. The Company may cause the legend set forth on the first page of this Warrant to be set forth on each Warrant or similar legend on any security issued or issuable upon exercise of this Warrant until the Warrant Shares have been registered for resale pursuant to the Registration Rights Agreement or until Rule 144(k) under the Securities Act is available, unless counsel for the Company is of the opinion as to any such security that such legend is unnecessary. Section 5. Payment of Taxes. The Company will pay any documentary ---------------- stamp taxes attributable to the initial issuance of Warrant Shares issuable upon the exercise of the 3 Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Warrant Shares in a name other than that of the registered holder of this Warrant in respect of which such shares are issued, and in such case, the Company shall not be required to issue or deliver any certificate for Warrant Shares or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's satisfaction that such tax has been paid. The holder shall be responsible for income taxes due under federal or state law, if any such tax is due. Section 6. Mutilated or Missing Warrants. In case this Warrant shall be ----------------------------- mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and substitution of and upon cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and for the purchase of a like number of Warrant Shares, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of the Warrant, and with respect to a lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect thereto, if requested by the Company. Section 7. Reservation of Common Stock. The Company hereby represents --------------------------- and warrants that there have been reserved, and the Company shall at all applicable times keep reserved, out of the authorized and unissued Common Stock, a number of shares sufficient to provide for the maximum potential exercise of the rights of purchase represented by the Warrant (without regard to the limitations on exercise set forth herein), and the transfer agent for the Common Stock ("Transfer Agent"), and every subsequent transfer agent for the Common Stock or other shares of the Company's capital stock issuable upon the exercise of any of the right of purchase aforesaid, shall be irrevocably authorized and directed at all times to reserve such number of authorized and unissued shares of Common Stock as shall be requisite for such purpose. The Company agrees that all Warrant Shares issued upon exercise of the Warrant shall be, at the time of delivery of the certificates for such Warrant Shares, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company. The Company will keep a conformed copy of this Warrant on file with the Transfer Agent and with every subsequent transfer agent for the Common Stock or other shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by the Warrant. The Company will supply from time to time the Transfer Agent with duly executed stock certificates required to honor the outstanding Warrant. Section 8. Warrant Price. The Warrant Price, subject to adjustment ------------- as provided in Section 9, shall, if payment is made in cash or by certified check, be payable in lawful money of the United States of America. Section 9. Adjustments. Subject and pursuant to the provisions of ----------- this Section 9, the Warrant Price and number of Warrant Shares subject to this Warrant shall be subject to adjustment from time to time as set forth hereinafter. (a) If the Company shall at any time or from time to time while the Warrant is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or 4 combine its outstanding shares into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then the number of Warrant Shares purchasable upon exercise of the Warrant and the Warrant Price in effect immediately prior to the date upon which such change shall become effective, shall be adjusted by the Company so that the Warrantholder thereafter exercising the Warrant shall be entitled to receive the number of shares of Common Stock or other capital stock which the Warrantholder would have received if the Warrant had been exercised immediately prior to such event. Such adjustment shall be made successively whenever any event listed above shall occur. (b) If any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation, or sale, transfer or other disposition of all or substantially all of the Company's assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each Warrantholder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant (whether or not then exercisable), such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of the Warrant (whether or not then exercisable), had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of each Warrantholder to the end that the provisions hereof (including, without limitations, provision for adjustment of the Warrant Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or properties thereafter deliverable upon the exercise hereof. The Company shall not effect any such consolidation, merger, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume, by written instrument executed and delivered to the Company, the obligation to deliver to the holder of the Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase and the other obligations under this Warrant. The provisions of this paragraph (b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, transfers or other dispositions. (c) In case the Company shall fix a record date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 9(a)), or subscription rights or warrants, the Warrant Price to be in effect after such record date shall be determined by multiplying the Warrant Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the total number of shares of Common Stock 5 outstanding multiplied by the Fair Market Value per share of Common Stock (as defined below), less the fair market value (as determined by the Company's Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such current Fair Market Value per share of Common Stock. Such adjustment shall be made successively whenever such a record date is fixed. For this purpose, the "Fair Market Value" of the Common Stock shall be the closing price of the Common Stock as reported by the Nasdaq National Market (or other Principal Market) on the Trading Day immediately preceding such event. (d) 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 ("Closing Price"), or (II) the Warrant Price, then in each such case the Warrant 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 Warrant 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 Warrants for such additional shares would purchase at such Closing Price or Warrant 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 Warrants as part of such issue or sale). Upon consummation of a Change in Control Transaction (as defined in the Notes), the provisions of clause (I) in the first sentence of this Section 9(d) shall cease to have any further force or effect. The foregoing provision shall not apply to any issuances or sales of Common Stock or Convertible Securities in any transaction described in clauses (i) through (viii) of the definition of Excluded Transaction (as defined in the Notes) 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 Warrant Price. 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 9(d), 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 Warrant Price shall be used. 6 (e) An adjustment shall become effective immediately after the record date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment. (f) In the event that, as a result of an adjustment made pursuant to Section 9, the holder of this Warrant shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Warrant. (g) In the event of any adjustment in the number of Warrant Shares issuable hereunder upon exercise, the Warrant Price shall be inversely proportionately increased or decreased, as the case may be, such that the aggregate purchase price for Warrant Shares upon full exercise of this Warrant shall remain the same. Similarly, in the event of any adjustment in the Warrant Price, the number of Warrant Shares issuable hereunder upon exercise shall be inversely proportionately increased or decreased, as the case may be, such that the aggregate purchase price for Warrant Shares upon full exercise of this Warrant shall remain the same. (h) All adjustments pursuant to this Section 9 shall be made pro rata among Tranches. Section 10. Fractional Interest. The Company shall not be required to ------------------- issue fractions of Warrant Shares upon the exercise of the Warrant. If any fraction of a Warrant Share would, except for the provisions of this Section, be issuable upon the exercise of the Warrant (or specified portions thereof), the Company shall round such calculation to the nearest whole number and disregard the fraction. Section 11. Benefits. Nothing in this Warrant shall be construed to -------- give any person, firm or corporation (other than the Company and the Warrantholder) any legal or equitable right, remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Company and the Warrantholder. Section 12. Notices to Warrantholder. Upon the happening of any event ------------------------ requiring an adjustment of the Warrant Price, the Company shall forthwith give written notice thereof to the Warrantholder at the address appearing in the records of the Company, stating the adjusted Warrant Price and the adjusted number of Warrant Shares resulting from such event and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. In the event of a dispute with respect to any such calculation, the certificate of the Company's independent certified public accountants shall be conclusive evidence of the correctness of any computation made, absent manifest error. Failure to give such notice to the Warrantholder or any defect therein shall not affect the legality or validity of the subject adjustment. At the Warrantholder's request, the Company shall deliver to the Warrantholder as of a requested date a notice specifying the Warrant Price and the number of Warrant Shares into which this Warrant is exercisable as of such date. 7 Section 13. Identity of Transfer Agent. The Transfer Agent for the -------------------------- Common Stock is: EquiServe Trust Company, N.A. 150 Royall Street Canton, MA 02021 Telephone: 781-575-2000 Fax: 781-575-2420 Forthwith upon the appointment of any subsequent transfer agent for the Common Stock or other shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by the Warrant, the Company will fax to the Warrantholder a statement setting forth the name and address of such transfer agent. Section 14. Notices. Any notice pursuant hereto to be given or made by ------- the Warrantholder to or on the Company shall be sufficiently given or made personally or if sent by an internationally recognized courier by next day or two day delivery service, addressed as follows: Genome Therapeutics Corp. 100 Beaver Street Waltham, Massachusetts 02453 Telephone: (781) 398-2300 Fax: (781) 893-8277 Attention: Stephen Cohen, CFO or such other address as the Company may specify in writing by notice to the Warrantholder complying as to delivery with the terms of this Section 14. Any notice pursuant hereto to be given or made by the Company to or on the Warrantholder shall be sufficiently given or made if personally delivered or if sent by an internationally recognized courier service by overnight or two-day service, to the address set forth on the books of the Company or, as to each of the Company and the Warrantholder, at such other address as shall be designated by such party by written notice to the other party complying as to delivery with the terms of this Section 14. All such notices, requests, demands, directions and other communications shall, when sent by courier, be effective two (2) days after delivery to such courier as provided and addressed as aforesaid. Section 15. Registration Rights. The initial holder of this Warrant is ------------------- entitled to the benefit of certain registration rights in respect of the Warrant Shares as provided in the Registration Rights Agreement. 8 Section 16. Successors. All the covenants and provisions hereof by or ---------- for the benefit of the Warrantholder shall bind and inure to the benefit of its respective successors and assigns hereunder. Section 17. Governing Law. This Warrant shall be deemed to be a ------------- contract made under the laws of the State of New York, without giving effect to its conflict of law principles, and for all purposes shall be construed in accordance with the laws of said State. Section 18. 9.9% and 19.9% Limitations. -------------------------- (a) Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the holder upon exercise 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 securities (including the Warrant Shares) 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 (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" (as defined in Rule 144 of the Securities 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 (the "Restricted Ownership Percentage"). Each holder shall have the right (w) at any time and from time to time to reduce its Restricted Ownership Percentage immediately upon notice to the Corporation and (x) (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 of Control Transaction. (b) Notwithstanding anything contained herein to the contrary, the number of shares of Common Stock issuable by the Company and acquirable by the holders of all Warrants, together with the number of shares issued under all the Notes, 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 Warrants shall be entitled to receive the number of Warrant Shares, together with its Underlying Shares under the Related Note 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 9 shares shall be reallocated amongst the other holder 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 and Warrant Shares 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 Notes and Warrants to the extent that they cannot be converted or exercised (such number of Warrant Shares which would, if permitted to be issued, exceed the holder's pro rata share of the Maximum Common Stock Issuance is hereinafter referred to as "Excess Shares"). Within ten (10) days following any occurrence of Excess Shares (if no shareholder approval is sought) or after the expiration of the 90-day period to obtain shareholder approval (if shareholder approval is sought and not obtained), the Company shall promptly pay to the Warrantholder, in lieu of the Warrantholder's right to receive such Excess Shares, an amount equal to 100% of the difference between (a) the number of Excess Shares multiplied by the closing sale price per share of Common Stock on the Principal Market on the trading day immediately preceding the date of the exercise of this Warrant, and (b) the aggregate exercise price for such Excess Shares. Only shares of Common Stock acquired pursuant to the Purchase Agreement (including Underlying Shares and Warrant Shares) will be included in determining whether the limitation contained herein would be exceeded for purposes of this Section 18(b). (Redemption of the Related Note shall be governed by the terms set forth therein.) Section 19. Replacement Warrants. The Company agrees that within ten -------------------- (10) business days after any request from time to time of the Warrantholder, it shall deliver to such holder a new Warrant in substitution of this Warrant which is identical in all respects except that the then Warrant Price shall be appropriately specified in the Warrant and the number of Warrant Shares into which this Warrant is or may become exercisable shall be appropriately specified in the Warrant. Such changes are intended not as amendments to the Warrant but only as clarification of the foregoing numbers for convenience purposes, and such changes shall not affect any provisions concerning adjustments to the Warrant Price or number of Warrant Shares contained herein. 10 Section 20. Absolute Obligation to Issue Warrant Shares. The Company's ------------------------------------------- obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the holder hereof to enforce the same, any waiver or consent with respect to any provision hereof (other than a waiver of the issuance or delivery of shares), the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim or recoupment, or any breach or alleged breach by the holder hereof or any other Person of any obligation to the Company or any violation or alleged violation of law by the holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the holder hereof in connection with the issuance of Warrant Shares. The Company will at no time close its shareholder books or records in any manner which interferes with the timely exercise of this Warrant. [Signature Page Follows] 11 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of March __, 2002. GENOME THERAPEUTICS CORP. By: ______________________________ Name: Title: Attest: Sign: ------------------------------------ Print Name: 12 GENOME THERAPEUTICS CORP. WARRANT EXERCISE FORM Genome Therapeutics Corp. 100 Beaver Street Waltham, Massachusetts 02453 Telephone: (718) 398-2300 Fax: (718) 893-8277 Attention: Stephen Cohen, CFO The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant ("Warrant") for, and to purchase thereunder by (CHECK AS APPLICABLE): [ ] payment by cash, wire transfer or certified check, [ ] Cashless Exercise of the within Warrant pursuant to Section 3(c) of the Warrant, _______________ shares of Common Stock* ("Warrant Shares") provided for therein, and requests that certificates for the Warrant Shares be issued as follows: Name: ---------------------------------- Address: ---------------------------------- ---------------------------------- ---------------------------------- and, if the number of Warrant Shares shall not be all the Warrant Shares purchasable upon exercise of the Warrant, that a new Warrant for the balance of the Warrant Shares (subject to book-entry) be delivered to the undersigned. In lieu of delivering physical certificates representing the Warrant Shares purchasable upon exercise of this Warrant, 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 its best efforts to cause its transfer agent to electronically transmit the Warrant Shares issuable upon conversion or exercise to the undersigned, by crediting the account of the undersigned's prime broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. Dated: Signature: ------------------ ------------------------- ---------------------------------- Name (please print) ---------------------------------- Address - --------- * NOTE: If exercise of the Warrant is made by surrender of the Warrant and the number of shares indicated exceeds the maximum number of shares to which a holder is entitled, the Company will issue such maximum number of shares purchasable upon exercise of the Warrant registered in the name of the undersigned Warrantholder or the undersigned's Assignee as below indicated and deliver same to the address stated below. EX-4.4 6 dex44.txt REGISTRATION RIGHTS AGREEMENT Exhibit 4.4 Exhibit C --------- REGISTRATION RIGHTS AGREEMENT ----------------------------- This Registration Rights Agreement (this "Agreement") is made and entered into as of this ___ day of March, 2002 by and among GENOME THERAPEUTICS CORP., a Massachusetts corporation (the "Company"), and the persons identified as Purchasers pursuant to that certain Purchase Agreement of even date herewith by and among the Company and such Purchasers (the "Purchase Agreement"). The parties hereby agree as follows: 1. Certain Definitions. As used in this Agreement, the following terms shall have the following meanings: "Additional Registrable Securities" shall mean any shares of Common Stock which are included within the definition of Registrable Securities but not included in any Registration Statement filed pursuant to Section 2(a)(i) below. "Common Stock" shall mean the Company's Common Stock, $0.10 par value per share. "Conversion Price" shall have the meaning set forth in the Notes. "Prospectus" shall mean the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities or Additional Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus. "Purchasers" shall mean the purchasers identified in the Purchase Agreement and any subsequent holder of any Notes, Warrants, Registrable Securities or Additional Registrable Securities. "Register," "registered" and "registration" refer to a registration made by preparing and filing a registration statement or similar document in compliance with the 1933 Act (as defined below), and the declaration or ordering of effectiveness of such registration statement or document. "Registrable Securities" shall mean (i) the Underlying Shares, Warrant Shares, and the shares of Common Stock or other securities issued or issuable to each Purchaser or its permitted transferee or designee (a) upon conversion of, or payment of interest or repayment of principal under, the Notes and upon the exercise of the Warrants, or (b) upon any distribution with respect to, any exchange for or any replacement of such Notes or Warrants, or (c) upon any conversion, exercise or exchange of any securities issued in connection with any such distribution, exchange or replacement; (ii) securities issued or issuable upon any stock split, stock dividend, recapitalization or similar event with respect to such shares of Common Stock; and (iii) any other security issued as a dividend or other distribution with respect to, in exchange for, or in replacement of, the securities referred to in the preceding clauses. "Registration Statement" shall mean any registration statement of the Company filed under the 1933 Act that covers the resale of any of the Registrable Securities or Additional Registrable Securities pursuant to the provisions of this Agreement, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement. "SEC" means the U.S. Securities and Exchange Commission. "1933 Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "1934 Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Capitalized terms used herein but not otherwise defined shall have the meaning ascribed thereto in the Purchase Agreement. 2. Registration. (a) Registration Statements. (i) Registrable Securities. Promptly following the closing of the purchase and sale of Notes and Warrants contemplated by the Purchase Agreement (the "Closing Date") (but no later than thirty (30) days after the Closing Date), the Company shall prepare and file with the SEC one Registration Statement on Form S-3 (or, if Form S-3 is not then available to the Company, on such form of registration statement as is then available to effect a registration for resale of the Registrable Securities, subject to the Purchasers' consent), covering the resale of the Registrable Securities in an amount equal to 100% of the number of Underlying Shares issuable upon full conversion of the Notes (including without limitation using best efforts to register the shares issuable upon payment of all interest due under the Notes in Common Stock) plus 100% of the number of shares of Common Stock necessary to permit the exercise in full of the Warrants (in each case without regard to any restrictions on beneficial ownership or exercise periods). Such Registration Statement also shall cover, to the extent allowable under the 1933 Act and the Rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities. In the Registration Statement, the Purchasers shall be identified as selling security holders and not as underwriters. No securities shall be included in the Registration Statement without the consent of the Purchasers other than the Registrable Securities. The Registration Statement (and each amendment or supplement thereto) 2 shall be provided in accordance with Section 3(c) to the Purchasers and their counsel prior to its filing or other submission. (ii) Additional Registrable Securities. At any time and from time to time upon the written demand of any Purchaser following the existence of any Additional Registerable Securities, and in any event within thirty (30) days following such demand, the Company shall prepare and file with the SEC one Registration Statement on Form S-3 (or, if Form S-3 is not then available to the Company, on such form of registration statement as is then available to effect a registration for resale of the Additional Registrable Securities) covering the resale of the Additional Registrable Securities in an amount equal to the number of Additional Registrable Securities. Such Registration Statement also shall cover, to the extent allowable under the 1933 Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Additional Registrable Securities. The Registration Statement (and each amendment or supplement thereto) shall be provided in accordance with Section 3(c) to the Purchaser and its counsel prior to its filing or other submission. (b) Expenses. The Company will pay all expenses associated with each registration, including the Purchasers' reasonable expenses (including reasonable attorneys fees of one counsel to the Purchasers) in connection with the registration but excluding discounts, commissions, applicable transfer taxes, fees of underwriters, selling brokers, dealer managers or similar securities industry professionals. (c) Effectiveness. (i) The Company shall use its best efforts to have each Registration Statement declared effective as soon as practicable. If (A) the Registration Statement covering Registrable Securities is not declared effective by the SEC within four (4) months following the Closing Date, or the Registration Statement covering Additional Registrable Securities is not declared effective by the SEC within four (4) months following demand of a Purchaser relating to the Additional Registrable Securities to be covered thereby (each of the foregoing deadlines, a "Registration Date"), (B) after a Registration Statement has been declared effective by the SEC, sales cannot be made pursuant to such Registration Statement for any reason (including, without limitation, by reason of a stop order or the Company's failure to update the Registration Statement) but except as excused pursuant to subparagraph (ii) below, (C) the Common Stock generally or the Registrable Securities (or Additional Registrable Securities) after issuance and registration specifically are not listed or included for quotation on the Nasdaq National Market, the Nasdaq Small Cap Market, the New York Stock Exchange or the American Stock Exchange (each, an "Approved Market") or trading of the Common Stock is suspended or halted thereon for more than one Trading Day, or (D) the Company fails, refuses or is otherwise unable to timely issue Underlying Shares upon conversion of Notes or Warrant Shares upon exercise of the Warrants in accordance with the terms of the Notes and Warrants, respectively, or issue unlegended (after effective registration of the Registrable Securities) certificates as required under the Agreements, in each case within five (5) days following the Purchaser's written demand for issuance of such 3 Underlying Shares or Warrant Shares or certificates, then the Company will make pro-rata payments to each Purchaser as liquidated damages and not as a penalty, in an amount equal to 2% of the sum of the aggregate amount paid by such Purchaser on the Closing Date to the Company for the Notes still held by such Purchaser and the aggregate market value of Registrable Securities held by such Purchaser for each month (or portion thereof) following the Registration Date during which any of the events described in (A), (B), (C) or (D) above occurs and is continuing (the "Blackout Period"). Each such payment shall be due and payable within five (5) days of the end of each month (or ending portion thereof) of the Blackout Period until the termination of the Blackout Period. The Blackout Period shall terminate upon (w) the effectiveness of the applicable Registration Statement in the case of (A) and (B) above; (x) listing or inclusion and/or trading of the Common Stock on an Approved Market in the case of (C) above; (y) delivery of such shares in the case of (D) above; and (z) in the case of the events described in (A) or (B) above, the earlier termination of the Registration Period (as defined in Section 3(a) below). The amounts payable as liquidated damages pursuant to this paragraph shall be payable, at the option of the Purchasers, in lawful money of the United States or in shares of Common Stock at the lower of the Conversion Price or Market Price (as defined in the Notes), and amounts payable as liquidated damages shall be paid monthly within five (5) business days of the last day of each month following the commencement of the Blackout Period until the termination of the Blackout Period. Amounts payable as liquidated damages hereunder shall cease when a Purchaser no longer holds Notes, Warrants, Registrable Securities or Additional Registrable Securities, as applicable. The Company shall submit to the SEC, within two (2) business days after the Company learns that no review of a particular Registration Statement will be made by the staff of the SEC or that the staff has no further comments on the Registration Statement, as the case may be, a request for acceleration of effectiveness of such Registration Statement to a time and date not later than 48 hours after the submission of such request. The Company acknowledges that any failure, refusal or inability by the Company to perform the obligations described in the foregoing clauses (A) through (D) will cause the Purchasers to suffer damages in an amount that will be difficult to ascertain, including without limitation damages resulting from the loss of liquidity in the Registrable Securities and the additional investment risk in holding the Registrable Securities. Accordingly, the parties agree, after consulting with counsel, that it is appropriate to include in this Agreement the foregoing provisions for payments of liquidated damages in order to compensate the Purchasers for such damages. The parties acknowledge and agree that such payments set forth above represent the parties' good faith effort to quantify such damages and, as such, agree that the form and amount of such payments are reasonable and will not constitute a penalty. Such payments provided for above are in addition to and not in lieu or limitation of any other rights the Purchasers may have at law, in equity or under the terms of the Agreements including without limitation the right to specific performance. Each Purchaser shall be entitled to specific performance of any and all obligations of the Company in connection with the registration rights of the Purchasers hereunder. 4 (ii) For not more than ten (10) consecutive trading days or for a total of not more than forty (40) calendar days in any consecutive twelve (12) month period, the Company may delay the disclosure of material non-public information concerning the Company by terminating or suspending effectiveness of any registration contemplated by this Section the disclosure of which at the time is not, in the good faith opinion of the Company, in the best interests of the Company, provided that any such suspension or termination may not occur within ten trading days following a prior suspension or termination (an "Allowed Delay"); provided, that the Company shall promptly (a) notify the Purchasers in writing of the existence of (but in no event, without the prior written consent of a Purchaser, shall the Company disclose to such Purchaser any of the facts or circumstances regarding) material non-public information giving rise to an Allowed Delay, and (b) advise the Purchasers in writing to cease all sales under the Registration Statement until the end of the Allowed Delay. (d) Underwritten Offering. If any offering pursuant to a Registration Statement pursuant to Section 2(a) hereof involves an underwritten offering, the Company shall have the right to select an investment banker and manager to administer the offering, which investment banker or manager shall be reasonably satisfactory to the Purchasers. 3. Company Obligations. The Company will use its best efforts to effect the registration of the Registrable Securities and Additional Registrable Securities in accordance with the terms hereof, and pursuant thereto the Company will, as expeditiously as possible: (a) use its best efforts to cause such Registration Statement to become effective and to remain continuously effective for a period (the "Registration Period") that will terminate upon the earlier of (i) the date on which all Registrable Securities or Additional Registrable Securities have been sold (and no Notes or Warrants remain outstanding), (ii) the date on which all Registrable Securities or Additional Registrable Securities, as the case may be, may be sold pursuant to Rule 144(k) (and no Notes or Warrants remain outstanding), and (iii) the fifth anniversary of the Closing Date. (b) prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement and the Prospectus as may be necessary to keep the Registration Statement effective for the period specified in Section 3(a) and to comply with the provisions of the 1933 Act and the 1934 Act with respect to the distribution of all Registrable Securities and Additional Registrable Securities; provided that, at a time reasonably prior to the filing of a Registration Statement or Prospectus, or any amendments or supplements thereto, the Company will furnish to the Purchasers copies of all documents proposed to be filed, which documents will be subject to the comments of the Purchasers; (c) permit counsel designated by the Purchasers to review each Registration Statement and all amendments and supplements thereto no fewer than five (5) business days prior to their filing with the SEC and make any changes reasonably requested by such counsel (provided that no changes shall be required to be made to the 5 extent counsel to the Company reasonably determines such changes may reasonably be expected to cause a failure to comply with applicable law); (d) furnish to the Purchasers and their legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one copy of any Registration Statement and any amendment thereto, each preliminary prospectus and Prospectus and each amendment or supplement thereto, and each letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion of any thereof which contains information for which the Company has sought confidential treatment), and (ii) such number of copies of a Prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as each Purchaser may reasonably request in order to facilitate the disposition of the Registrable Securities and Additional Registrable Securities owned by such Purchaser; (e) in the event the Company selects an underwriter for the offering, the Company shall enter into and perform its reasonable obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the underwriter of such offering; (f) if required by the underwriter, or if any Purchaser is described in the Registration Statement as an underwriter, the Company shall use its best efforts to furnish, on the effective date of the Registration Statement, on the date that Registrable Securities or Additional Registrable Securities, as applicable, are delivered to an underwriter, if any, for sale in connection with the Registration Statement and at periodic intervals thereafter from time to time on request, (i) an opinion, dated as of such date, from independent legal counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the underwriter and any such Purchaser and (ii) a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriter and any such Purchaser; (g) use best efforts to prevent the issuance of any stop order or other suspension of effectiveness and, if such order is issued, obtain the withdrawal of any such order at the earliest possible moment; (h) furnish to each Purchaser at least five (5) copies of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules by air mail or reputable courier within three (3) business days of the effective date thereof; (i) prior to any public offering of Registrable Securities or Additional Registrable Securities, use its best efforts to register or qualify or cooperate 6 with the Purchasers and their counsel in connection with the registration or qualification of such Registrable Securities or Additional Registrable Securities, as applicable, for offer and sale under the securities or blue sky laws of such jurisdictions requested by the Purchaser and do any and all other reasonable acts or things necessary or advisable to enable the distribution in such jurisdictions of the Registrable Securities or Additional Registrable Securities covered by the Registration Statement; provided, however, that the Company will not be obligated to file any general consent to service of process or to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it would not otherwise be so subject; (j) cause all Registrable Securities or Additional Registrable Securities covered by a Registration Statement to be listed on each securities exchange, interdealer quotation system or other market on which similar securities issued by the Company are then listed; (k) immediately notify the Purchasers, at any time when a Prospectus relating to the Registrable Securities or Additional Registrable Securities is required to be delivered under the 1933 Act, upon discovery that, or upon the happening of any event as a result of which, the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such holder, promptly prepare and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities or Additional Registrable Securities, as applicable, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and (l) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC under the 1933 Act and the 1934 Act, take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities and Additional Registrable Securities, if applicable, hereunder; and make available to its security holders, as soon as reasonably practicable, but not later than the Availability Date (as defined below), an earnings statement covering a period of at least twelve months, beginning after the effective date of each Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act (for the purpose of this subsection 3(l), "Availability Date" means the 45th day following the end of the fourth fiscal quarter that includes the effective date of such Registration Statement, except that, if such fourth fiscal quarter is the last quarter of the Company's fiscal year, "Availability Date" means the 90th day after the end of such fourth fiscal quarter). 4. Due Diligence Review; Information. The Company shall make available, during normal business hours, for inspection and review by the Purchasers who may be deemed an underwriter, advisors to and representatives of such Purchasers (who may or 7 may not be affiliated with the Purchasers and who are reasonably acceptable to the Company), and any underwriter participating in any disposition of Common Stock on behalf of the Purchasers pursuant to the Registration Statement or amendments or supplements thereto or any blue sky, NASD or other filing, all financial and other records, all SEC Documents and other filings with the SEC, and all other corporate documents and properties of the Company as may be reasonably necessary for the purpose of establishing a due diligence defense under applicable securities laws and such other reasonable purposes, and cause the Company's officers, directors and employees, within a reasonable time period, to supply all such information reasonably requested by such Purchasers or any such representative, advisor or underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling such Purchasers and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy of the Registration Statement. The Company shall not disclose material nonpublic information to the Purchasers, or to advisors to or representatives of the Purchasers, unless prior to disclosure of such information the Company identifies such information as being material nonpublic information and provides the Purchasers, such advisors and representatives with the opportunity to accept or refuse to accept such material nonpublic information for review. The Company may, as a condition to disclosing any material nonpublic information hereunder, require the Purchasers' advisors and representatives to enter into a confidentiality agreement (including an agreement with such advisors and representatives prohibiting them from trading in Common Stock during such period of time as they are in possession of material nonpublic information) in form reasonably satisfactory to the Company and the Purchasers. Nothing herein shall require the Company to disclose material nonpublic information to the Purchasers or their advisors or representatives. 5. Obligations of the Purchasers. (a) Each Purchaser shall furnish in writing to the Company such information regarding itself, the Registrable Securities or Additional Registrable Securities, as applicable, held by it and the intended method of disposition of the Registrable Securities or Additional Registrable Securities, as applicable, held by it, as shall be reasonably required to effect the registration of such Registrable Securities or Additional Registrable Securities, as applicable, and shall execute such documents in connection with such registration as the Company may reasonably request. At least fifteen (15) business days prior to the first anticipated filing date of any Registration Statement, the Company shall notify each Purchaser of the information the Company requires from such Purchaser if such Purchaser elects to have any of the Registrable Securities or Additional Registrable Securities included in the Registration Statement. (b) Each Purchaser, by its acceptance of the Registrable Securities and Additional Registrable Securities, if any, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation 8 and filing of a Registration Statement hereunder, unless such Purchaser has notified the Company in writing of its election to exclude all of its Registrable Securities or Additional Registrable Securities, as applicable, from the Registration Statement. Each Purchaser agrees to comply with the applicable prospectus delivery requirements under the 1933 Act in connection with any resales of Registrable Securities pursuant to the Registration Statement. (c) In the event the Company determines to engage the services of an underwriter which engagement is reasonably acceptable to the Purchasers, each Purchaser agrees to enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the dispositions of the Registrable Securities or Additional Registrable Securities, as applicable. (d) Each Purchaser agrees that, upon receipt of any notice from the Company of the happening of any event rendering a Registration Statement no longer effective, such Purchaser will immediately discontinue disposition of Registrable Securities or Additional Registrable Securities pursuant to the Registration Statement covering such Registrable Securities or Additional Registrable Securities, until the Purchaser's receipt of the copies of the supplemented or amended prospectus filed with the SEC and declared effective and, if so directed by the Company, the Purchaser shall deliver to the Company (at the expense of the Company) or destroy all copies in the Purchaser's possession of the prospectus covering the Registrable Securities or Additional Registrable Securities, as applicable, current at the time of receipt of such notice. (e) No Purchaser may participate in any third party underwritten registration hereunder unless it (i) agrees to sell the Registrable Securities or Additional Registrable Securities, as applicable, on the basis provided in any underwriting arrangements in usual and customary form entered into by the Company, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay its pro rata share of all underwriting discounts and commissions and any expenses in excess of those payable by the Company pursuant to the terms of this Agreement. 6. Indemnification. (a) Indemnification by Company. The Company agrees to indemnify and hold harmless, to the fullest extent permitted by law, the Purchasers, each of their officers, directors, managers and employees and each person who controls the Purchasers (within the meaning of the 1933 Act) against all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorney's fees) and expenses imposed on such person caused by (i) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or any preliminary prospectus or 9 any amendment or supplement thereto or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are based upon any information furnished in writing to the Company by such Purchasers, expressly for use therein, or (ii) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company in connection with any Registration Statement, Prospectus or any preliminary prospectus, or any amendment or supplement thereto, and shall reimburse in accordance with subparagraph (c) below, each of the foregoing persons for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claims. The foregoing is subject to the condition that, insofar as the foregoing indemnities relate to any untrue statement, alleged untrue statement, omission or alleged omission made in any preliminary prospectus or Prospectus that is eliminated or remedied in any Prospectus or amendment or supplement thereto, the above indemnity obligations of the Company shall not inure to the benefit of any indemnified party if a copy of such corrected Prospectus or amendment or supplement thereto had been provided to such indemnified party and was not sent or given by such indemnified party at or prior to the time such action was required of such indemnified party by the 1933 Act and if delivery of such Prospectus or amendment or supplement thereto would have eliminated (or been a sufficient defense to) any liability of such indemnified party with respect to such statement or omission. Indemnity under this Section 6(a) shall remain in full force and effect regardless of any investigation made by or on behalf of any indemnified party and shall survive the permitted transfer of the Registrable Securities and Additional Registrable Securities. (b) Indemnification by Holder. In connection with any registration pursuant to the terms of this Agreement, each Purchaser will furnish to the Company in writing such information as the Company reasonably requests concerning the holders of Registrable Securities and Additional Registrable Securities or the proposed manner of distribution for use in connection with any Registration Statement or Prospectus and agrees, severally but not jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors, officers, employees and each person who controls the Company (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expense (including reasonable attorney's fees) (i) resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or preliminary prospectus or amendment or supplement thereto or necessary to make the statements therein not misleading, to the extent, but only to the extent that such untrue statement or omission is contained in any information furnished in writing by such Purchaser to the Company specifically for inclusion in such Registration Statement or Prospectus or amendment or supplement thereto and that such information was substantially relied upon by the Company in preparation of the Registration Statement or Prospectus or any amendment or supplement thereto or (ii) caused by any violation by such Purchaser of any federal, state or common law rule or regulation applicable to such Purchaser in connection with any Registration Statement, Prospectus or any preliminary prospectus, or any amendment or supplement thereto. In no event shall the liability of a Purchaser be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Purchaser and the amount of any damages such holder has otherwise been required to pay 10 by reason of such untrue statement or omission) received by such Purchaser upon the sale of the Registrable Securities or Additional Registrable Securities included in the Registration Statement giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. Any person entitled to indemnification hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses, or (b) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such person, based upon written advice of its counsel, a conflict of interest exists between such person and the indemnifying party with respect to such claims (in which case, if the person notifies the indemnifying party in writing that such person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such person); and provided, further, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations hereunder, except to the extent that such failure to give notice shall materially adversely affect the indemnifying party in the defense of any such claim or litigation. It is understood that the indemnifying party shall not, in connection with any proceeding in the same jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any time for all such indemnified parties. No indemnifying party will, except with the consent of the indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. (d) Contribution. If for any reason the indemnification provided for in the preceding paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless, other than as expressly specified therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. No person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation. In no event shall the contribution obligation of a holder of Registrable Securities or Additional Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such holder and the amount of any damages such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities or Additional Registrable Securities giving rise to such contribution obligation. 7. Miscellaneous. 11 (a) Amendments and Waivers. This Agreement may be amended only by a writing signed by the parties hereto. The Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of the Purchasers affected by such amendment, action or omission to act. (b) Notices. All notices and other communications provided for or permitted hereunder shall be made as set forth in Section 9.4 of the Purchase Agreement. (c) Assignments and Transfers by Purchasers. This Agreement and all the rights and obligations of any Purchaser hereunder may be assigned or transferred to any transferee or assignee of the Notes, Warrants or Registrable Securities, except as set forth herein. A Purchaser may make such assignment or transfer to any transferee or assignee of any Note, Warrant, Registrable Securities or Additional Registrable Securities, provided that (i) such transfer is made expressly subject to this Agreement and the transferee agrees in writing to be bound by the terms and conditions hereof, (ii) the Company is provided with written notice of such assignment, (iii) the transfer or assignment of any Note or Warrant is permitted under the terms of such Note or Warrant; and (iv) if the transfer or assignment is of Registrable Securities or Additional Registrable Securities, it involves a number of such shares having a fair market value based on the Market Price (as defined in the Note) as of the date of such transfer of at least $100,000 (or all the Registrable Securities or Additional Registrable Securities held by such holder if the fair market value of all such securities is less than $100,000). (d) Assignments and Transfers by the Company. This Agreement may not be assigned by the Company without the prior written consent of the Purchasers; provided that, after notice duly given, the Company may assign its rights and delegate its duties hereunder to any successor-in-interest corporation, and such successor-in-interest shall assume such rights and duties, in the event of a merger or consolidation of the Company with or into another corporation or the sale of all or substantially all of the Company's assets (and it shall be a condition to any such merger, consolidation or sale that such successor-in-interest assume in writing all obligations hereunder). (e) Benefits of the Agreement. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. (f) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12 (g) Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. (h) Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms to the fullest extent permitted by law. (i) Further Assurances. The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained. (j) Entire Agreement. This Agreement, together with the Purchase Agreement, Notes and Warrants and documents contemplated thereby, is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement, together with the Purchase Agreement, Notes and Warrants and documents contemplated thereby, supersedes all prior agreements and understandings between the parties with respect to such subject matter. (k) Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without regard to principles of conflicts of law. [Signature Page Follows] 13 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. THE COMPANY: GENOME THERAPEUTICS CORP. By: --------------------------- Name: Title: THE PURCHASERS: THE TAIL WIND FUND, LTD. By: --------------------------- Name: Title: SMITHFIELD FIDUCIARY LLC By: --------------------------- Name: Title: 14 EX-99.1 7 dex991.txt PRESS RELEASE Exhibit 99.1 Contact: Christopher Taylor Sr. Director of Investor Relations Genome Therapeutics Corp. 781-398-2466 FOR IMMEDIATE RELEASE GENOME THERAPEUTICS RAISES $15 MILLION THROUGH PRIVATE PLACEMENT OF CONVERTIBLE DEBENTURES Waltham, Mass., March 6, 2002 - Genome Therapeutics Corp. (Nasdaq: GENE) today announced that it has closed a sale of convertible debentures to two institutional investors, raising $15 million in gross proceeds. The proceeds of the financing will be used primarily to continue clinical development for its lead drug candidate, Ramoplanin, including the ongoing Phase III clinical trial. The debentures may be converted into shares of Genome Therapeutics common stock at the option of the holder, at a price of $8.00 U.S., subject to customary adjustments, approximately a 50% premium from the closing price of $5.40 on March 1, 2002. The maturity date of the debentures is December 31, 2004. Interest on the debentures accrues at 6% annually. The investors also received warrants to purchase up to 487,500 shares of Genome Therapeutic's common stock at an exercise price of $8.00 per share, subject to certain adjustments. The warrants only become exercisable to the extent the debentures are converted or if certain other redemptions or repayments of the debentures occur. Ladenburg Thalmann & Co. Inc. acted as the placement agent for this transaction. The securities issued in the transaction have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration under the Securities Act and applicable state securities laws or an applicable exemption from those registration requirements. Genome Therapeutics has filed additional details of this transaction with the Securities and Exchange Commission on form 8-K. Genome Therapeutics (www.genomecorp.com) is a biopharmaceutical company focused on the discovery and development of pharmaceutical and diagnostics products. The Company's first product candidate, Ramoplanin, is in Phase III clinical trials for the prevention of bloodstream infections caused by vancomycin-resistant enterococci (VRE). Genome Therapeutics' biopharmaceutical business includes six major product discovery alliances with pharmaceutical companies including Schering-Plough, AstraZeneca, Wyeth-Ayerst and bioMerieux, a joint venture with ArQule and a significant portfolio of internal drug discovery programs. The Company also maintains an active genomics services business, GenomeVision(TM) Services, providing services to pharmaceutical companies in their drug discovery efforts. These services include custom contract sequencing, SNP discovery and the PathoGenome(TM) Database. ### -----END PRIVACY-ENHANCED MESSAGE-----