-----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, U0NY3xuYsHAI0+OC0OjwV+zXHVhAgBLq9M0KXX40s6EKsL7w3EPDkt7C5Y2JDLy1 KqZNbZcERXMYm3h7a17yZw== 0000912057-99-007416.txt : 19991129 0000912057-99-007416.hdr.sgml : 19991129 ACCESSION NUMBER: 0000912057-99-007416 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19991124 FILER: COMPANY DATA: COMPANY CONFORMED NAME: A D A M SOFTWARE INC CENTRAL INDEX KEY: 0000863650 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 581878070 STATE OF INCORPORATION: GA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-91685 FILM NUMBER: 99764573 BUSINESS ADDRESS: STREET 1: 1600 RIVEREDGE PARKWAY STREET 2: STE 800 CITY: ATLANTA STATE: GA ZIP: 30328 BUSINESS PHONE: 7709800888 MAIL ADDRESS: STREET 1: 1600 RIVEREDGE PKWY STREET 2: STE 800 CITY: ATLANTA STATE: GA ZIP: 30328 S-3 1 S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1999. REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------ ADAM.COM, INC. (Exact name of registrant as specified in its charter) GEORGIA (State or other jurisdiction of 58-1878070 incorporation or organization) (I.R.S. Employer Identification Number)
------------------------------ 1600 RIVEREDGE PARKWAY, SUITE 800 ATLANTA, GEORGIA 30328 TELEPHONE: (770) 980-0888 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------------ ROBERT S. CRAMER, JR. CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER ADAM.COM, INC. 1600 RIVEREDGE PARKWAY, SUITE 800 ATLANTA, GEORGIA 30328 TELEPHONE: (770) 980-0888 FACSIMILE: (770) 989-4970 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ COPIES TO: WILLIAM G. ROCHE, ESQ. STACEY K. GEER, ESQ. KING & SPALDING 191 PEACHTREE STREET, N.E. ATLANTA, GEORGIA 30303 TELEPHONE: (404) 572-4600 FACSIMILE: (404) 572-5100 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement and from time to time thereafter. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. /X/ If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / __________ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / __________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT TO BE AGGREGATE AGGREGATE AMOUNT OF TITLE OF SHARES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE Common Stock, $.01 par value 528,000 shares $14.16 $7,476,480 $2,079
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(c). ------------------------------ The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED NOVEMBER 24, 1999 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. PROSPECTUS 528,000 SHARES ADAM.COM, INC. COMMON STOCK This prospectus relates to the sale of shares of our common stock which we have issued to Fusion Capital Fund I, LLC, referred to in this prospectus as the selling shareholder, and up to additional shares of our common stock which from time to time we may issue to Fusion Capital Fund I, LLC upon conversion of an outstanding convertible debenture held by the selling shareholder. We will not receive any of the proceeds from the sale of the shares being offered. The shares offered are being registered due to our obligations to the selling shareholder. The selling shareholder may elect to sell all, a portion or none of the shares described in this prospectus. The selling shareholder from time to time may offer and sell the shares directly to purchasers or through agents, underwriters or dealers on terms to be determined at the time of sale. If required, the names of any agents, underwriters or dealers and any other required information will be set forth in an accompanying prospectus supplement. Such sales may be through brokers and may be at the market price prevailing at the time of such sales. The selling shareholder will pay regular commissions to any brokers effecting such sales. The shares also may be offered by the selling shareholder in block trades, private transactions or otherwise at prices to be negotiated. All expenses of registration of these shares are being borne by us, but the selling shareholder will pay any brokerage and other expenses of a sale incurred by it. Our common stock is quoted on the Nasdaq National Market under the symbol "ADAM." On , , the last reported sale price for our common stock as reported on the Nasdaq National Market was $ per share. We will apply to have the shares of common stock offered pursuant to this prospectus approved for trading on the Nasdaq National Market. ------------------------ INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF THESE RISKS. THE SELLING SHAREHOLDER AND ANY BROKER EXECUTING SELLING ORDERS ON BEHALF OF THE SELLING SHAREHOLDER MAY BE DEEMED TO BE AN "UNDERWRITER." COMMISSIONS RECEIVED BY ANY BROKER MAY BE DEEMED TO BE UNDERWRITING COMMISSIONS. ------------------------ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is , . TABLE OF CONTENTS About This Prospectus....................................... 1 Where You Can Find More Information......................... 2 adam.com.................................................... 2 Risk Factors................................................ 3 The Financing Transaction................................... 7 Use of Proceeds............................................. 9 Selling Shareholder......................................... 9 Plan of Distribution........................................ 10 Validity of Common Stock.................................... 11 Experts..................................................... 11
ABOUT THIS PROSPECTUS This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission using a "shelf" registration process. Under this shelf process, a company that has the right to receive shares of our common stock (the "selling shareholder") may sell up to an aggregate of 528,000 shares of common stock in one or more offerings. This prospectus and any applicable prospectus supplement provided to you should be considered together with the additional information described under the heading "Where You Can Find More Information." The registration statement that contains this prospectus (including the exhibits to the registration statement) contains additional information about our company and the securities offered under this prospectus. That registration statement can be read at the SEC web site or at the SEC offices mentioned under the heading "Where You Can Find More Information." 1 WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any document we file at the SEC's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and later information filed with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings made with the SEC under Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until our offering is completed. - Our Annual Report on Form 10-K for the year ended March 31, 1999, filed with the SEC on June 29, 1999; - Our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999; - Our Quarterly Report on Form 10-Q for the quarter ended September 30, 1999; and - The description of our common stock contained in our registration statement on Form 8-A filed with the SEC on October 11, 1995, including any amendments or reports filed for the purpose of updating such description. You may request a copy of these filings (other than an exhibit to a filing unless that exhibit is specifically incorporated by reference into that filing), at no cost, by writing or telephoning us at the following address: Michael Fisher Director of Finance/Administration adam.com, Inc. 1600 RiverEdge Parkway, Suite 800 Atlanta, GA 30328 (770) 980-0888 You should rely only on the information incorporated by reference or provided in this prospectus. We have authorized no one to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of the document. ADAM.COM adam.com, Inc. ("adam.com") is a leading developer of health education content and software technologies, and since January 1999, we have taken steps to become a leading provider of health, medical and wellness information online. We have created, published and marketed multimedia software products, content and Internet-ready applications that provide anatomical, medical and health- related information for the education, consumer and professional markets. During the fiscal year ended March 31, 1999 ("fiscal 1999"), adam.com made the strategic decision to focus the majority of its efforts on the online dissemination of consumer health information, resulting in the May 1999 launch of WWW.ADAM.COM, our consumer health destination. In connection with this redirected strategy, we discontinued further sales and marketing effort, as well as product update and upgrade support for certain of our historical products. We are incorporated under the laws of the State of Georgia. Our principal executive offices are located at 1600 RiverEdge Parkway, Suite 800, Atlanta, Georgia 30328. Our telephone number at that address is (770) 980-0888. 2 RISK FACTORS YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE YOU DECIDE TO BUY OUR COMMON STOCK.. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IN SUCH CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. CERTAIN STATEMENTS MADE IN THIS PROSPECTUS, AND OTHER WRITTEN OR ORAL STATEMENTS MADE BY OR ON BEHALF OF ADAM.COM, MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS. WHEN USED IN THIS PROSPECTUS, THE WORDS "BELIEVES," EXPECTS," "ESTIMATES," "INTENDS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. STATEMENTS REGARDING FUTURE EVENTS AND DEVELOPMENTS AND OUR FUTURE PERFORMANCE, AS WELL AS OUR EXPECTATIONS, BELIEFS, PLANS, INTENTIONS, ESTIMATES OR PROJECTIONS RELATING TO THE FUTURE, ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THESE LAWS. EXAMPLES OF SUCH STATEMENTS IN THIS PROSPECTUS INCLUDE DESCRIPTIONS OF OUR PLANS AND STRATEGIES WITH RESPECT TO DEVELOPING OUR WEB SITE, OUR PLANS TO DEVELOP ADDITIONAL STRATEGIC PARTNERSHIP, OUR INTENTION TO ADD E-COMMERCE TO OUR BUSINESS STRATEGY, OUR CONTINUING GROWTH AND OUR ABILITY TO ADDRESS YEAR 2000 ISSUES. ALL FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL EVENTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. WE BELIEVE THAT THESE FORWARD-LOOKING STATEMENTS ARE REASONABLE; HOWEVER, YOU SHOULD NOT PLACE UNDUE RELIANCE ON SUCH STATEMENTS. THESE STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND SPEAK ONLY AS OF THE DATE OF SUCH STATEMENTS. WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF FUTURE EVENTS, NEW INFORMATION OR OTHERWISE. WE ARE A YOUNG COMPANY THAT HAS INCURRED LOSSES. We have experienced substantial losses of $2.1 million in fiscal 1999, $5.4 million in fiscal 1997, $3.9 million in fiscal 1996, $3.2 million in fiscal 1994. We cannot be certain that we can obtain profitability in any future period. We operate in a new and rapidly evolving market and must, among other things: - respond to competitive developments; - continue to upgrade and expand our content and healthcare information services offerings; and - continue to attract, retain and motivate our employees. We cannot be certain that we will be successful. CAPITAL CONSTRAINTS MAY AFFECT OUR RESOURCES. Since inception we have funded operations with debt and equity capital. Our ability to operate profitably under our current business plan is largely contingent upon success in obtaining additional sources of capital. There can be no assurance that sources of capital will be available on satisfactory terms or at all. Under the terms of the debenture issued to the selling shareholders and related agreements, the $6,000,000 provided to us by the selling shareholder to purchase the debenture has been pledged by us as security to the selling shareholder to secure our obligations under the debenture. Such $6,000,000 is currently restricted cash of adam.com. We expect that such cash will become unrestricted at a rate of $1,000,000 per month as the outstanding principal balance of the debenture is reduced from conversions of the debenture into common stock. Whether or not and when some or all of this cash will become unrestricted is not assured. The timing of the access to or amount of this capital is not assured. Without additional capital we may not be able to fully implement our business, operating and development plans. There can be no assurance that any such financing, if obtained, will be adequate to meet our ultimate capital needs. If adequate capital can not be obtained or obtained on satisfactory terms, our operations could be negatively impacted. 3 WE FACE INTENSE COMPETITION WITH OTHER ONLINE PROVIDERS OF HEALTHCARE INFORMATION. The market for providing healthcare information online is intensely competitive, and we expect competition to increase in the future. Our business has low barriers to entry, and we cannot guarantee that we will compete successfully against our current or potential competitors, especially those with significantly greater financial resources or brand name recognition. Our current competitors include Dr. Koop.com and Healtheon/WebMD. We have yet to derive significant revenues as an online provider of healthcare information. Mergers or consolidations among our competitors, or acquisitions of small competitors by larger companies, would make such combined entities more formidable competitors to us. Large companies may have advantages over us because of their longer operating histories, greater name recognition, or greater financial, technical and marketing resources. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements. They can also devote greater resources to the promotion and sale of their products or services than we can. For the above reasons, we may not be able to compete successfully against our current and future competitors. Increased competition may result in reduced gross margins and loss of market share. WE FACE RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY. Rapid changes in technology pose significant risks to us. To remain successful, we must continue to change, adapt and improve our content and delivery mediums in response to changes in technology. Our future success hinges on our ability to both continue to enhance our current content and to successfully market this content. We cannot be sure that we will successfully develop and market new content. Any failure by us to timely develop and disseminate new or to update and enhance our current content could adversely affect our business, operating results and financial condition. WE FACE RISKS REGARDING OUR POTENTIAL FUTURE ACQUISITIONS OR INVESTMENTS. As part of our growth strategy, we have recently acquired all of the assets of Informational Medical Systems, Inc. and drgreene.com. We may continue to acquire or make investments in, companies with products, technologies or professional services capabilities complementary to ours. In acquiring companies in the future, we could encounter difficulties in assimilating their personnel and operations into our company. These difficulties could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations. These difficulties could also include accounting requirements, such as amortization of goodwill or in-process research and development expense. We cannot be certain that we will successfully overcome these risks with respect to any future acquisitions or that we will not encounter other problems in connection with our prior or any future acquisitions. In addition, any future acquisitions may require us to incur debt or issue equity securities. The issuance of equity securities could dilute the investment of our existing shareholders. WE DEPEND ON OUR KEY PERSONNEL. Our future success also depends on our continuing ability to attract and retain highly qualified personnel. The competition for employees at all levels of our industry is increasingly intense. Furthermore, in order to promote the development of our Web Site, we will need to identify, attract and retain software engineers, web designers and content editors. If we do not succeed in attracting such new employees and retaining and motivating our current employees, our business could suffer significantly. 4 WE ARE SUBJECT TO RISKS RELATING TO THE YEAR 2000. Many currently installed computer systems and software products accept only two-digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, computer systems and software used by many companies and governmental agencies may need to be upgraded to comply with such "Year 2000" requirements. Noncompliant computer systems or software may cause system failure or result in miscalculations that will cause disruptions of normal business activities. Although we have designed all of the products that we currently offer to be Year 2000 compliant, we cannot assure you that our products contain all necessary date code changes, or that, in the year 2000, our products will be compatible with third-party software that may be integrated or used in conjunction with our products. There can be no assurances that we have identified all Year 2000 issues with respect to our products and products supplied to us by third parties and the failure to do so could have a material adverse effect on our business. Furthermore, there can be no assurance that our estimates related to the Year 2000 issue will prove to be accurate and actual results could differ materially from those currently anticipated. Specific factors that could cause such material differences include, but are not limited to, the ability to identify, assess, and remediate and test all relevant computer codes and embedded technology, and similar uncertainties. In addition, variability of definitions of "compliance with Year 2000" and the myriad of different products and services, and combinations thereof, sold by adam.com may lead to claims whose impact on adam.com is not currently estimable. No assurance can be given that the aggregate cost of defending and resolving such claims, if any, will not materially adversely affect our results of operation. Although some of the our agreements and contracts with third parties contain provisions requiring such parties to indemnify us under some circumstances, there can be no assurance that such indemnification arrangements will cover all of our liabilities and costs related to claims by third parties related to the Year 2000 issue. THE CONVERSION PRICE OF THE DEBENTURE IS NOT FIXED; FUTURE SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK TO DECLINE IN PRICE. The conversion price of the debenture issued to the selling shareholder is equal to the lesser of (a) the closing bid price of our common stock on the date the selling shareholder submits its election to convert the debenture into common stock, (b) the average of the two lowest closing bid prices of our common stock for the 10 consecutive trading days immediately preceding the date the selling shareholder submits its election to convert the debenture into common stock or (c) $ . The sale of a substantial number of shares of our common stock under this offering, or anticipation of such sales could make it more difficult for us to sell equity or equity related securities in the future at a time and price we deem appropriate. After this offering is completed, shares of our common stock will be outstanding, assuming the debenture is converted into a total of shares. If our stock price decreases to less than $ during any 10 consecutive trading days prior to a conversion of the debenture, we may be required to issue more shares upon conversion of the debenture, resulting in more shares being outstanding. All shares registered in this offering are freely tradable. It is anticipated that shares registered in this offering will be sold over a period of up to six months from the date hereof. The sale of a significant amount of shares registered in this offering at any given time could cause the trading price of our common stock to decline and to be highly volatile. THERE HAS BEEN LIMITED PRIOR MARKET FOR OUR COMMON STOCK AND OUR STOCK PRICE IS EXTREMELY VOLATILE. Our common stock has only been publicly traded since our initial public offering on November 15, 1995. Since that date, the closing price of the common stock has ranged from a low price of $1.875 per share to a high price of $40 per share, and there has been significant volatility in the price of our 5 common stock in the past year. There can be no assurance that the market price of our common stock will be maintained or that the volume of trading in our shares will not decrease. The risks detailed in this prospectus may significantly adversely affect the market price of our common stock after the offering. In particular, the stock prices for many high technology companies, especially those that base their businesses on the Internet, recently have experienced wide fluctuations and extreme volatility which have often been unrelated to the operating performance of such companies. Such fluctuations have adversely affected and may in the future adversely affect the market price of our common stock. Furthermore, following periods of volatility in the market price of a company's securities, securities class action claims frequently are brought against the subject company. To the extent that the market price of our shares falls dramatically in any period of time, shareholders may bring claims, with or without merit, against us. Such litigation would be expensive to defend and would divert management attention and resources regardless of outcome. WE HAVE ADOPTED CERTAIN ANTI-TAKEOVER PROVISIONS THAT MAY DETER A TAKEOVER. Our articles of incorporation and bylaws contain the following provisions that may deter a takeover, including a takeover on terms that many of our shareholders might consider favorable, such as: - the authority of our board of directors to issue common stock and preferred stock and to determine the price, rights (including voting rights), preferences, privileges and restrictions of each series of preferred stock, without any vote or action by our shareholders; - the existence of large amounts of authorized but unissued common stock and preferred stock; - staggered, three-year terms for our board of directors; and - advance notice requirements for board of directors nominations and for shareholder proposals. The rights and preferences of any series of preferred stock could include a preference over the common stock on the distribution of our assets upon a liquidation or sale of our company, preferential dividends, redemption rights, the right to elect one or more directors and other voting rights. The rights of the holders of any series of preferred stock that may be issued in the future may adversely affect the rights of the holders of the common stock. We have no current plans to issue preferred stock. In addition, certain provisions of Georgia law and our stock option plan may also discourage, delay or prevent a change in control of our company or unsolicited acquisition proposals. MANY OF OUR SHARES ARE ELIGIBLE FOR FUTURE SALE AND ARE SUBJECT TO REGISTRATION RIGHTS WHICH COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK. If our shareholders sell substantial additional amounts of common stock (including shares issued upon the exercise of outstanding stock options) in the public market following this offering, the market price of our common stock could fall. Such sales also could make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. Certain shareholders may have the right, subject to certain conditions, to include their shares in certain registration statements relating to our securities. By exercising their registration rights and causing a large number of shares to be registered and sold in the public market, these holders may cause the price of our common stock to fall. In addition, any demand by holders of registration rights to include shares of common stock held by them in a registration initiated by us could adversely affect our ability to raise needed capital. PRINCIPAL SHAREHOLDERS HAVE SUBSTANTIAL INFLUENCE. As of September 30, 1999, our executive officers, directors and persons who beneficially more than 10% of our outstanding common stock controlled approximately 25% of the combined outstanding voting power of our common stock. As a result, with limited exception, such persons exert substantial influence with respect to all matters submitted to a vote of holders of common stock, including election of our directors. 6 THE FINANCING TRANSACTION GENERAL On November 15, 1999 adam.com executed a securities purchase agreement with Fusion Capital Fund I, LLC ("Fusion Capital") pursuant to which it agreed to issue to Fusion Capital up to two 0% senior secured convertible debentures, each with an aggregate principal amount of $6,000,000. The purchase price for each debenture is $6,000,000. The debentures will not bear any interest or premium accrual. Each debenture will be convertible into shares of common stock of adam.com at a price equal to the lesser of (1) 130% of the average of the closing bid prices for the common shares during the 10 trading days prior to issuance of such debenture or (2) a price based upon the future performance of the common stock, in each case without any fixed discount to the market price. The first debenture was purchased by Fusion Capital on . The second debenture will be issued after delivery of an irrevocable written notice by us to Fusion Capital stating that we elect to sell such debenture to Fusion Capital. Such notice may be given no earlier than the sooner to occur of (1) or (2) at such time as the first debenture is no longer outstanding. Each debenture will mature six months from its date of issuance. The obligation of Fusion Capital to purchase the second debenture is subject only to customary closing conditions, all of which are outside the control of Fusion Capital. Each debenture will be secured by a pledge of $6,000,000 in cash by adam.com which will be restricted cash of adam.com. adam.com will be the legal and beneficial owner of such cash and will also be the legal and beneficial owner of all interest and investment income earned with respect to such proceeds while held as restricted cash. adam.com will direct the investment of such cash. Fusion Capital will have a security interest on customary terms in such cash. We expect that the amount of cash subject to Fusion Capital's security interest will be reduced at a rate of $1,000,000 per month as the outstanding principal amount of the debenture is reduced from conversion into common stock. The corresponding amount of cash will become unrestricted cash of adam.com. NO SHORTING OR HEDGING BY FUSION CAPITAL Fusion Capital has agreed that Fusion Capital and its affiliates shall not to engage in any direct or indirect short-selling or hedging of adam.com's common stock during any time any debenture is or could become outstanding. CONVERSION OF THE DEBENTURE INTO COMMON STOCK CONVERSIONS AT FUSION CAPITAL'S DISCRETION. Subject to the limits on conversion and the redemption rights described below, each month during the term of the first debenture Fusion Capital will have the right to convert up to $1,000,000 of the principal amount of the debenture, plus any amounts for any prior month that have not yet been converted, into shares of common stock at the applicable conversion price. The conversion price per share is equal to the lesser of: (A) the closing bid price of the shares of common stock on the day of submission of a conversion notice by Fusion Capital; or (B) the average of the two lowest closing bid prices of the shares of common stock during the 10 trading days prior to the submission of a conversion notice by Fusion Capital; or (C) $ (the "Fixed Conversion Price"). ADAM.COM'S RIGHT TO PREVENT CONVERSIONS. If the closing sale price of adam.com's common stock is below the Fixed Conversion Price for any three consecutive trading days, adam.com will have the unconditional right to prevent conversions until the earlier of (1) revocation of such suspension by 7 adam.com and (2) such time as the closing sale price of adam.com's common stock is above the Fixed Conversion Price for any three consecutive trading days. ADAM.COM'S MANDATORY CONVERSION RIGHTS. adam.com will have the right to require that Fusion Capital convert a specified principal amount of the debenture during any specified month. adam.com may revoke, in its sole discretion, its written request with respect to any conversions in excess of the amount that Fusion Capital is otherwise permitted to convert. LIMITATION ON FUSION CAPITAL'S BENEFICIAL OWNERSHIP. Notwithstanding the foregoing, no conversion of the debenture will be permitted if such conversion would result in Fusion Capital or its affiliates beneficially owning more than 4.99% of the then aggregate outstanding common stock immediately after such conversion. REDEMPTION REDEMPTION AT THE OPTION OF ADAM.COM. If the closing price of the common stock is below the Fixed Conversion Price for any 10 consecutive trading days, then adam.com may redeem the unconverted remaining principal balance of the debenture in cash at a price of 106% of the remaining principal balance. REDEMPTION AT THE OPTION OF FUSION CAPITAL. Upon (1) an event of default under the debenture or (2) the maturity of the debenture, Fusion Capital may redeem the unconverted remaining principal balance of the debenture for cash at a price of 106% of the remaining principal balance. CHANGE IN CONTROL Upon a change in control of adam.com, adam.com may exercise its redemption right or, if the market price is below the Fixed Conversion Price, may require mandatory conversion of the debenture. EVENTS OF DEFAULT Generally, the debenture will become immediately due and payable at the option of Fusion Capital upon the occurrence of any of the following events of default: - a default in the payment of the principal amount of the debenture when due; - if for any reason the shares offered hereby cannot be sold pursuant to this prospectus for a period of three consecutive trading days or for more than an aggregate of 10 trading days in any 365-day period; - suspension of adam.com's common stock from trading for a period of three consecutive trading days or for more than an aggregate of 10 trading days in any 365-day period; - failure of adam.com to satisfy any listing criteria of its principal securities exchange or market for a period of 10 consecutive trading days or for more than an aggregate of 45 trading days in any 365-day period; - notice from adam.com or its transfer agent to the effect that it intends not to comply with a proper request for conversion of the debenture or the failure of adam.com to confirm to the transfer agent Fusion Capital's conversion notice or the failure of the transfer agent to issue shares of common stock upon delivery of a conversion notice; - if at any time more than 964,664 shares of common stock (representing 19.99% of the common stock as of the date of the securities purchase agreement) are issuable to Fusion Capital upon conversion of the debenture; 8 - any material breach of the representations or warranties or covenants contained in the securities purchase agreement or any related agreements which has or which could have a material adverse affect on adam.com or the value of the debenture, subject to a cure period of 10 trading days; - a default of any payment obligation of adam.com in excess of $1,000,000; or - adam.com's participation in insolvency or bankruptcy proceedings by or against adam.com. ADDITIONAL SHARES ISSUED TO FUSION CAPITAL Under the terms of the purchase agreement, on , in connection with the issuance of the first debenture, Fusion Capital received shares of our common stock. Such shares are included in this offering. Unless an event of default occurs, such shares must be held by Fusion Capital until the first debenture has been converted or repaid in full. On the date of the issuance of the second debenture, Fusion Capital will be entitled to receive a commitment fee, payable in shares of common stock, equal to 7% of the aggregate principal amount of the second debenture. NO VARIABLE PRICED FINANCINGS BY ADAM.COM So long as any debenture is outstanding, adam.com has agreed not to issue, or enter into any agreement with respect to the issuance of, any variable priced equity or variable priced equity-like securities unless it has obtained Fusion Capital's prior written consent. USE OF PROCEEDS We will not receive any of the proceeds from the sale of shares of the common stock offered by the selling shareholder. We are registering the shares for sale to provide the holder thereof with freely tradable securities, but the registration of such shares does not necessarily mean that any of such shares will be offered or sold by the holder thereof. SELLING SHAREHOLDER The selling shareholder is Fusion Capital Fund I, LLC ("Fusion Capital"). Prior to November 15, 1999, Fusion Capital did not own or have any interest in any shares of our common stock. However, on , pursuant to the securities purchase agreement dated November 15, 1999, Fusion Capital purchased for $6,000,000 a 0% senior secured convertible debenture in the aggregate principal amount of $6,000,000. Each month a portion of the debenture may be converted into shares of our common stock. Assuming an average conversion price of $ per share (based on ), we would issue to Fusion Capital an aggregate of shares of our common stock pursuant to conversion of the debenture. Such amount would represent % of our outstanding common stock as of . If we issue to Fusion Capital an aggregate of shares of our common stock pursuant to conversions of the debenture (which is the maximum number of shares offered hereby from conversions of the debenture) such number of shares would represent % of our outstanding common stock as of . If the debenture is actually convertible into greater than the maximum number of shares offered hereby from conversions of the debenture, we intend to register the additional shares on an additional registration statement. Under the terms of the purchase agreement, on , in connection with the issuance of the first debenture, Fusion Capital received shares of our common stock. Such shares are included in this offering. Unless an event of default occurs, such shares must be held by Fusion Capital until the first debenture has been converted or repaid in full. Fusion Capital has had no business or financial relationship with adam.com during the past three years. 9 Because the selling shareholder may sell all, some or none of the common stock offered under this prospectus, no estimate can be given as to the amount of common stock that will be held by the selling shareholder upon termination of the offering. PLAN OF DISTRIBUTION The common stock offered by this prospectus is being offered by the selling shareholder, Fusion Capital Fund I, LLC. Such common stock may be sold or distributed from time to time by the selling shareholder, or by donees or transferees of, or other successors in interests to, the selling shareholder, directly to one or more purchasers or through brokers, dealers or underwriters who may act solely as agents or may acquire such common stock as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at negotiated prices, or at fixed prices, which may be changed. The sale of the common stock offered hereby may be effected in one or more of the following methods: - ordinary brokers' transactions; - transactions involving cross or block trades or otherwise on the Nasdaq National Market; - purchases by brokers, dealers or underwriters as principal and resale by such purchasers for their own accounts pursuant to this prospectus; - "at the market" to or through market makers or into an existing market for the common stock; - in other ways not involving market makers or established trading markets, including direct sales to purchasers or sales effected through agents; - in privately negotiated transactions; or - any combination of the foregoing. In order to comply with the securities laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in such state or an exemption from such registration or qualification requirement is available and complied with. Brokers, dealers, underwriters or agents participating in the distribution of the shares as agents may receive compensation in the form of commissions, discounts or concessions from the selling shareholder and/or purchasers of the common stock for whom such broker-dealers may act as agent, or to whom they may sell as principal, or both (which compensation as to a particular broker-dealer may be less than or in excess of customary commissions). THE SELLING SHAREHOLDER AND ANY BROKER-DEALERS WHO ACT IN CONNECTION WITH THE SALE OF THE SHARES HEREUNDER MAY BE DEEMED TO BE "UNDERWRITERS" WITHIN THE MEANING OF THE SECURITIES ACT, AND ANY COMMISSIONS THEY RECEIVE AND PROCEEDS OF ANY SALE OF THE SHARES MAY BE DEEMED TO BE UNDERWRITING DISCOUNTS AND COMMISSIONS UNDER THE SECURITIES ACT. Neither adam.com nor the selling shareholder can presently estimate the amount of such compensation. adam.com knows of no existing arrangements between any selling shareholder, any other shareholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares. At a time particular offer of shares is made, a prospectus supplement, if required, will be distributed that will set forth the names of any agents, underwriters or dealers and any compensation from the selling shareholder and any other required information. adam.com will pay all of the expenses incident to the registration, offering and sale of the shares to the public other than commissions or discounts of underwriters, broker-dealers or agents. adam.com 10 has also agreed to indemnify the selling shareholder and certain related persons against certain liabilities, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of adam.com, adam.com has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore, unenforceable. FUSION CAPITAL AND ITS AFFILIATES HAVE AGREED NOT TO ENGAGE IN ANY DIRECT OR INDIRECT SHORT SELLING OR HEDGING OF ADAM.COM'S COMMON STOCK DURING THE TERM OF THE DEBENTURES. adam.com has advised the selling shareholder that during such time as they may be engaged in a distribution of the shares included in this prospectus they are required to comply with Regulation M promulgated under the Securities Exchange Act of 1934, as amended. With certain exceptions, Regulation M precludes the selling shareholder, any affiliated purchasers, and any broker-dealer or other person who participates in such distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the shares offered hereby. This offering will terminate on the earlier of (a) the date on which the shares are eligible for resale without restrictions pursuant to Rule 144(k) under the Securities Act or (b) the date on which all shares offered by this prospectus have been sold by the selling shareholder. VALIDITY OF COMMON STOCK The validity of the common stock offered hereby will be passed upon for us by King & Spalding, Atlanta, Georgia. EXPERTS The financial statements incorporated in this Prospectus by reference to the Annual Report on Form 10-K of adam.com, Inc. (formerly, A.D.A.M. Software, Inc.) for the year ended March 31, 1999 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 11 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ADAM.COM, INC. 528,000 SHARES OF COMMON STOCK -------------- PROSPECTUS -------------- , - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, payable by the registrant connection with the sale of common stock being registered. All amounts are estimates, except the SEC registration fee. SEC registration fee........................................ $ 2,079 Nasdaq National Market listing fee.......................... 17,500 Printing expenses........................................... 10,000 Legal fees and expenses..................................... 50,000 Accounting fees and expenses................................ 10,000 Blue sky fees and expenses.................................. 500 Miscellaneous............................................... 921 ------- Total................................................... $91,000 =======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Georgia Business Corporation Code permits a corporation to eliminate or limit the personal liability of a director to the corporation or its shareholders for monetary damages for breach of duty of care or other duty as a director, provided that no provision shall eliminate or limit the liability of a director: (A) for any appropriation, in violation of his duties, of any business opportunity of the corporation; (B) for acts or omissions which involve intentional misconduct or a knowing violation of law; (C) for unlawful corporate distributions; or (D) for any transaction from which the director received an improper personal benefit. This provision pertains only to breaches of duty by directors in their capacity as directors (and not in any other corporate capacity, such as officers) and limits liability only for breaches of fiduciary duties under Georgia corporate law (and not for violation of other laws, such as the federal securities laws). The Company's Amended and Restated Articles of Incorporation (the "Restated Articles") exonerate the Company's directors from monetary liability to the extent permitted by this statutory provision. The Company's Restated Articles and Amended and Restated Bylaws (the "Restated Bylaws") also provide that the Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including any action by or in the right of the Company), by reason of the fact that such person is or was a director or officer of the Company, or is or was serving at the request of the Company as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including reasonable attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company (and with respect to any criminal action or proceeding, if such person had no reasonable cause to believe such person's conduct was unlawful), to the maximum extent permitted by, and in the manner provided by, the Georgia Business Corporation Code. In addition, the Restated Bylaws provide that the Company will advance to its directors or officers reasonable expenses of any such proceeding. Notwithstanding any provisions of the Company's Restated Articles and Amended Bylaws to the contrary, the Georgia Business Corporation Code provides that the Company shall not indemnify a director or officer for any liability incurred in a proceeding in which the director is adjudged liable to the Company or is subjected to injunctive relief in favor of the Company: (1) for any appropriation, in violation of his duties, of any business opportunity of the Company; (2) for acts or omissions which II-1 involve intentional misconduct or a knowing violation of law; (3) for unlawful corporate distributions; or (4) for any transaction from which the director or officer received an improper personal benefit. The Company has purchased insurance with respect to, among other things, any liabilities that may accrue under the statutory provisions referred to above. ITEM 16. EXHIBITS 4.1(1) Amended and Restated Articles of Incorporation of the Registrant 4.2(1) By Laws of the Registrant 4.3 Form of Debenture to be issued by the Company to Fusion Capital Fund I, LLC 5.1 Opinion of King & Spalding 10.1 Securities Purchase Agreement, dated as of November 15, 1999, between the Company and Fusion Capital Fund, LLC 23.1 Consent of PricewaterhouseCoopers LLP 23.3 Consent of King and Spalding (included in its opinion filed as exhibit 5.1).
- ------------------------ (1) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. ITEM 17. UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by section 10(a)(3) of the Securities Act; (ii) to reflect in the Prospectus any facts of events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the commission pursuant to Rule 424(b) if, in the aggregate, the charges in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; PROVIDED, HOWEVER, that paragraphs (1) (i) and (1) (ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to section 13 or section 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement. II-2 (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the Georgia Business Corporation Act, the charter or the bylaws of the registrant, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on this 24th day of November, 1999. ADAM.COM, INC. BY: /S/ ROBERT S. CRAMER, JR. ----------------------------------------- Robert S. Cramer, Jr. CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Robert S. Cramer, Jr. and Michael S. Fisher and each of them, his true and lawful attorney-in-fact and agents, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities on November 24, 1999.
NAME TITLE ---- ----- /s/ ROBERT S. CRAMER, JR. Chairman of the Board and Chief Executive ------------------------------------------- Officer Robert S. Cramer, Jr. (Principal Executive Officer) /s/ MICHAEL S. FISHER ------------------------------------------- Director of Finance and Administration Michael S. Fisher (Principal Financial and Accounting Officer) ------------------------------------------- Director Linda Davis /s/ SALLY D. ELLIOTT ------------------------------------------- Director Sally D. Elliott
II-4
NAME TITLE ---- ----- /s/ DAVID S. HOWE ------------------------------------------- Director David S. Howe ------------------------------------------- Director Hamilton Jordan /s/ JOHN W. MCCLAUGHERTY ------------------------------------------- Director John W. McClaugherty /s/ GREGORY M. SWAYNE ------------------------------------------- Director Gregory M. Swayne ------------------------------------------- Director Francis J. Tedesco, M.D.
II-5 EX-4.3 2 EXHIBIT 4.3 Exhibit 4.3 EXHIBIT A FORM OF DEBENTURE THE SECURITY REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND REGISTRATION IS THEREFORE NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. ANY TRANSFEREE OF THIS DEBENTURE SHOULD CAREFULLY REVIEW THE TERMS OF THIS DEBENTURE, INCLUDING SECTION 2(E)(VI) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS DEBENTURE MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(E)(VI) OF THIS DEBENTURE. 0% SENIOR SECURED CONVERTIBLE DEBENTURE ADAM.COM, INC. DEBENTURE NO. ___ [ISSUANCE DATE] $6,000,000 FOR VALUE RECEIVED, ADAM.COM, INC., a Georgia corporation (the "COMPANY"), hereby promises to pay to the order of FUSION CAPITAL FUND I, LLC or its assigns ("HOLDER") the principal amount of Six Million Dollars ($6,000,000), on ___________, (the "MATURITY DATE"), or upon acceleration or by conversion or redemption in accordance with the terms hereof or otherwise. 1. PAYMENTS OF PRINCIPAL. All payments of principal on this Debenture (to the extent such principal is not converted into Common Stock (as defined below) 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 Debenture. Whenever any amount expressed to be due by the terms of this Debenture is due on any day which is not a Trading Day (as defined below), the same shall instead be due on the next succeeding day which is a Trading Day. For purposes of this Debenture, "TRADING DAY" shall mean any day on which the Principal Market (as defined below) is open for customary trading. Capitalized terms used herein, and not otherwise defined herein, shall have the meaning ascribed thereto in the Securities Purchase Agreement, dated November 15, 1999, pursuant to which this Debenture was originally issued (as amended, restated, supplemented or otherwise modified from time to time, the "SECURITIES PURCHASE AGREEMENT"). This Debenture is issued by the Company on the date hereof (the "ISSUANCE DATE") pursuant to the Securities Purchase Agreement. The Company's obligations under this Debenture are secured pursuant to a Pledge and Security Agreement, dated as of the date hereof (the "PLEDGE AND SECURITY AGREEMENT") between the Company, the Holder and the Collateral Agent named therein. 2. CONVERSION OF DEBENTURE. This Debenture shall be convertible into shares of the Company's common stock, par value $.01 per share (the "COMMON STOCK"), on the terms and conditions set forth in this Section 2. (a) CERTAIN DEFINED TERMS. For purposes of this Debenture, the following terms shall have the following meanings: (i) "CLOSING BID PRICE" means, for any security as of any date, the last closing bid price for such security on the Principal Market as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg. (ii) "CLOSING SALE PRICE" means, for any security as of any date, the last closing trade price for such security on the Principal Market as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg. (iii) "CONVERSION AMOUNT" means the portion of the principal amount of this Debenture submitted for conversion into Common Stock. (iv) "CONVERSION DATE" means the actual date that the Holder submits a Conversion Notice to the Company to convert any outstanding principal amount of this Debenture into shares of Common Stock so long as the Holder shall transmit by facsimile (or otherwise deliver) to the Company on or prior to 11:59 p.m., Central Time on such date. (v) "CONVERSION PRICE" means, as of any Conversion Date or other date of determination, the lower of the (A) Fixed Conversion Price and the (B) Variable Conversion Price, each in effect as of such date. (vi) "FIXED CONVERSION PRICE" means 130% of the arithmetic average of the Closing Bid Prices of the Common Stock for the ten (10) consecutive Trading Days immediately preceding the Issuance Date (to be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction occurring during such ten (10) Trading Days ). (vii) "MANDATORY CONVERSION RIGHTS" means the mandatory conversion rights of the Company pursuant to Section 2(d)(iii). (viii) "MONTHLY BASE AMOUNT" means One Million Dollars ($1,000,000) per Monthly Period. (ix) "MONTHLY CONVERSION AMOUNT" means the Monthly Base Amount for such Monthly Period plus the Monthly Base Amount for any prior Monthly Periods which has not been previously converted into Common Stock pursuant to Section 2 hereof; PROVIDED HOWEVER, that to the extent that the Company exercises its Mandatory Conversion Rights, the Monthly Conversion Amount for any remaining Monthly Periods shall be reduced by any amount subject to the Mandatory Conversion Rights in reverse chronological order i.e. the Monthly Conversion Amount for the last remaining Monthly Period shall be reduced first; PROVIDED FURTHER, on or after the Maturity Date, the Monthly Conversion Amount shall thereafter be the entire outstanding principal amount of the Debenture. (x) "MONTHLY PERIOD" means each of the following periods of time: Issuance Date to __________; ___________ to __________; ___________ to __________; ___________ to __________; ___________ to __________; and ___________ to Maturity Date; [SIX PERIODS EACH HAVING APPROXIMATELY 30 CALENDER DAYS. SPECIFIC DATES TO BE ENTERED AT CLOSING.] (xi) "PERSON" means an individual or entity including any a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (xii) "PRINCIPAL MARKET" means the Nasdaq National Market. (xiii) "REDEMPTION PRICE" means for any Company Redemption (as defined in Section 3) or Holder Redemption (as defined in Section 5) an amount equal to the product of (A) 1.06 and (B) the outstanding principal balance of the Debenture to be redeemed. (xiv) "VARIABLE CONVERSION PRICE" means, as of any Conversion Date or other date of determination, the lower of: (A) the Closing Bid Price of the Common Stock on the Conversion Date or such other date of determination and (B) the arithmetic average of the two (2) lowest Closing Bid Prices for the Common Stock during the ten (10) consecutive Trading Days ending on the Trading Day immediately preceding such Conversion Date or other date of determination (to be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction occurring during such ten (10) Trading Days). (b) HOLDER'S CONVERSION RIGHTS AND OBLIGATIONS. Subject to the provisions of Section 2(d) below, during each Monthly Period, the Holder shall have the right to convert the outstanding principal amount of this Debenture up to the Monthly Conversion Amount for such Monthly Period into fully paid and nonassessable shares of Common Stock in accordance with Section 2(e), at the Conversion Rate (as defined below). Subject to the provisions of Section 2(d) below, at any time on or after the Maturity Date, the Holder shall have the right to convert the entire outstanding principal amount of this Debenture into fully paid and nonassessable shares of Common Stock in accordance with Section 2(e), at the Conversion Rate. The Company shall not issue any fraction of a share of Common Stock upon any conversion. All shares of Common Stock (including fractions thereof) issuable upon conversion of this Debenture by the Holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of a fraction of a share of Common Stock. If, after the aforementioned aggregation, the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up or down to the nearest whole share. (c) CONVERSION RATE. The number of shares of Common Stock issuable upon conversion of a Conversion Amount of this Debenture pursuant to Section 2(b) shall be determined according to the following formula (the "CONVERSION RATE"): CONVERSION AMOUNT Conversion Price (d) LIMITATIONS ON CONVERSION. (i) LIMITATION ON BENEFICIAL OWNERSHIP. The Company shall not effect any conversion of this Debenture and no Holder shall have the right to convert any portion of this Debenture pursuant to Section 2(b) to the extent that after giving effect to such conversion such Person (together with such Person's affiliates) would beneficially own in excess of 4.99% of the outstanding shares of the Common Stock following such conversion. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by a Person and its affiliates or acquired by a Person and its affiliates, as the case may be, shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which the determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted portion of this Debenture beneficially owned by such Person and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by such Person and its affiliates. For purposes of this Section, in determining the number of outstanding shares of Common Stock the Holder may rely on the -4- number of outstanding shares of Common Stock as reflected in (1) the Company's most recent Form 10-Q or Form 10-K, as the case may be, (2) a more recent public announcement by the Company or (3) any other written communication by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. Upon the reasonable written or oral request of the Holder, the Company shall promptly confirm orally and in writing to the Holder the number of shares Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to conversions of the Debenture by the Holder since the date as of which such number of outstanding shares of Common Stock was reported. Except as otherwise set forth herein, for purposes of this Section 2(d)(i), beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. (ii) COMPANY'S RIGHT TO BLOCK CONVERSIONS. The right of the Holder to convert this Debenture pursuant to this Section 2 shall be limited as set forth below. If during any three (3) consecutive Trading Days the Closing Sale Price of the Common Stock is below the Fixed Conversion Price for each of such three (3) Trading Days, the Company shall have three (3) Trading Days to give written notice (a "CONVERSION SUSPENSION NOTICE") to the Holder suspending any and all conversions. The Conversion Suspension Notice shall be effective only for conversions which have a Conversion Date later than three (3) Trading Days after receipt of the Conversion Suspension Notice by the Holder. Any conversions submitted by the Holder which have a Conversion Date not later than three (3) Trading Days after receipt by the Holder of the Company's Conversion Suspension Notice must be honored by the Company as otherwise provided herein. Such conversion suspension shall continue in effect until the earlier of: (A) revocation in writing by the Company, at its sole discretion, or (B) such time as the Closing Sale Price of the Common Stock is above the Fixed Conversion Price for three (3) consecutive Trading Days. (iii) COMPANY'S MANDATORY CONVERSION RIGHTS. The Company shall have the right from time to time by delivering written notice (a "MANDATORY CONVERSION NOTICE") to the Holder five (5) Trading Days prior to the first Trading Day of any Monthly Period to require that the Holder convert at the Conversion Rate such principal amount of this Debenture as specified by the Company in the Mandatory Conversion Notice during such Monthly Period on such Trading Days during the Monthly Period as the Holder shall determine. The Company acknowledges and agrees that the Company's mandatory conversion rights represent an agreement by the Holder to extend financial accommodations to the Company. Accordingly, it shall be a condition to the exercise of the Company's mandatory conversion rights that no Event of Default shall have occurred, and the Company's delivery of a Mandatory Conversion Notice shall be deemed a representation to the Holder that no Event of Default has occurred. The Company may revoke a Mandatory Conversion Notice, in whole or in part, by delivering written notice thereof to the Holder (a "REVOCATION OF MANDATORY CONVERSION -5- NOTICE"). A Revocation of Mandatory Conversion Notice shall be effective only as to conversions which are in excess of the Monthly Conversion Amount and which have a Conversion Date later than three (3) Trading Days after receipt by the Holder of the Revocation of Mandatory Conversion Notice. Any conversions submitted by the Holder which have a Conversion Date not later than three (3) Trading Days after receipt by the Holder of the Revocation of Mandatory Conversion Notice must be honored by the Company as otherwise provided herein. (e) MECHANICS OF CONVERSION. The conversion of this Debenture shall be conducted in the following manner: (i) HOLDER'S DELIVERY REQUIREMENTS. To convert this Debenture into shares of Common Stock on any date, the Holder hereof shall (A) transmit by facsimile (or otherwise deliver) on or prior to 11:59 p.m., Central Time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to the Company with a copy thereof to the Company's designated transfer agent (the "TRANSFER AGENT") and (B), subject to Section 2(e)(vi) surrender to a common carrier for delivery to the Company as soon as practicable following such date the original Debenture being converted (or an indemnification undertaking with respect to such Debenture in the case of its loss, theft or destruction). (ii) COMPANY'S RESPONSE. Upon receipt by the Company of a copy of a Conversion Notice, the Company shall as soon as practicable, but in no event later than one (1) Trading Day after receipt of such Conversion Notice, send, via facsimile, a confirmation of receipt of such Conversion Notice in the form attached hereto as Exhibit II (a "COMPANY CONFIRMATION OF CONVERSION NOTICE") to the Holder and the Transfer Agent, which confirmation shall constitute an irrevocable instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein. Upon receipt by the Transfer Agent of a copy of the executed Conversion Notice and a copy of the applicable Company Confirmation of Conversion Notice, the Transfer Agent shall, on the first (1st) Trading Day following the date of receipt of the Company Confirmation of Conversion Notice, (A) issue and surrender to a common carrier for overnight delivery to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled, or (B) provided the Transfer Agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system. Subject to Section 2(e)(vi), if less than the principal amount of this Debenture is submitted for conversion, then the Company shall, as soon as practicable and in no event later than three (3) Trading Days after receipt of the Debenture and at its own expense, issue and deliver to the Holder a new Debenture for the outstanding principal amount not converted. (iii) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Conversion Price or the arithmetic calculation of the Conversion Rate, the Company shall instruct the Transfer Agent to issue to the Holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the Holder via facsimile within one (1) Trading Day of receipt of the Holder's Conversion Notice. If the Holder and the Company are unable to agree upon the determination of the Conversion Price or arithmetic calculation of the Conversion Rate within one (1) Trading Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall within one (1) Trading Day submit via facsimile (A) the disputed determination of the Conversion Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (B) the disputed arithmetic calculation of the Conversion Rate to the Company's independent, outside accountant. The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than the fifth (5th) day after the date it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent manifest error. (iv) RECORD HOLDER. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of this Debenture shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. (v) COMPANY'S FAILURE TO TIMELY CONVERT. If within five (5) Trading Days after the Transfer Agent's receipt of a copy of the Conversion Notice (subject to extension in accordance with Section 2(e)(iii) for a good faith dispute made in accordance with the terms of Section 2(e)(iii)) (the "SHARE DELIVERY PERIOD") the Transfer Agent shall fail to issue a certificate to the Holder or credit the Holder's balance account with The Depository Trust Company for the number of shares of Common Stock to which such Holder is entitled upon such Holder's conversion of this Debenture (a "CONVERSION FAILURE"), in addition to all other available remedies which such Holder may pursue hereunder and under the Securities Purchase Agreement (including indemnification obligations of the Company therein), the Company shall pay additional damages to the Holder on each day after such fifth (5th) Trading Day such conversion is not timely effected in an amount equal to 1.0% of the product of (I) the sum of the number of shares of Common Stock not issued to the Holder on a timely basis pursuant to Section 2(e)(ii) and to which such Holder is entitled and, subject to Section 2(e)(viii) and (II) the Closing Sale Price of the Common Stock on the last possible date which the Company could have issued such Common Stock to the Holder without violating Section 2(e)(ii). Such 1% amount shall no longer accrue after written notice from the Holder to the Company of a Holder Redemption pursuant to Section 5 hereof which redeems the entire outstanding principal amount of the Debenture. (vi) BOOK-ENTRY. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Debenture in accordance with the terms hereof, the Holder shall not be required to physically surrender this Debenture to the Company unless the full outstanding principal amount represented by this Debenture is being converted. The Holder and the Company shall each maintain records showing the aggregate principal amount outstanding and aggregate principal amount converted and the dates and Conversion Amounts for each conversion or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Debenture upon each conversion. The Holder and any assignee, by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of any portion of this Debenture, the outstanding principal amount represented by this Debenture may be less than the principal amount set forth on the face hereof. (f) TAXES. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Common Stock upon the conversion of this Debenture. 3. COMPANY'S REDEMPTION RIGHTS. Subject to the terms and conditions of this Section, at any time after the Issuance Date, and so long as the Company has provided appropriate notice as described below, if during any ten (10) consecutive Trading Days the Closing Sale Price of the Common Stock is below the Fixed Conversion Price for each of such ten (10) Trading Days, the Company shall have three (3) Trading Days to give written notice (a "COMPANY REDEMPTION NOTICE") to the Holder electing to redeem the outstanding principal amount of the Debenture for the Redemption Price (a "COMPANY REDEMPTION"). Any conversions submitted by the Holder which have a Conversion Date which is not later than three (3) Trading Days after receipt by the Holder of the Company Redemption Notice, must be honored by the Company as otherwise provided herein. Immediately upon receipt of a Company Redemption Notice, the Holder shall be entitled to receive any funds in the Collateral Account (as defined in the Pledge and Security Agreement) and any funds in the Collateral Proceeds Account (as defined in the Pledge and Security Agreement) directly from the Collateral Agent (as defined in the Pledge and Security Agreement) up to the aggregate Redemption Price. To the extent that there are insufficient funds in the Collateral Account and the Collateral Proceeds Account, the Company shall promptly pay to the Holder the balance of the Redemption Price by wire transfer of immediately available funds. The effective date for a Company Redemption shall be the date that the full Redemption Price is paid to the Holder pursuant to this Section 3(a). 4. DEFAULTS AND REMEDIES. (a) EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall be deemed to have occurred at such time as any of the following events: (i) a default in payment of the principal amount of this Debenture when and as due; (ii) while any Registration Statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement entered into by the Company and the Holder as of the Issuance Date (the "REGISTRATION RIGHTS AGREEMENT"), the effectiveness of such Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to the Holder for sale of all of the Registrable Securities (as defined in the Registration Rights Agreement) in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of three (3) consecutive Trading Days or for more than an aggregate of ten (10) Trading Days in any 365-day period; (iii) the suspension from trading or failure of the Common Stock to be listed on the Principal Market for a period of three (3) consecutive Trading Days or for more than an aggregate of ten (10) Trading Days in any 365-day period; (iv) the failure of the Company or the Common Stock to fully meet the requirements (without regard to any grace period provided therein) for continued listing on the Principal Market for a period of ten (10) consecutive Trading Days or for more than an aggregate of forty-five (45) Trading Days in any 365-day period; (v) the Company's or the Transfer Agent's notice to the Holder, including by way of public announcement, at any time, of its intention not to comply with a proper request for conversion of the Debenture into shares of Common Stock that is tendered in accordance with the provisions of this Debenture, the failure of the Company to deliver a Company Confirmation of Conversion Notice to the Holder and to the Transfer Agent in accordance with the provisions of this Debenture within two (2) Trading Days after the receipt by the Company of a Conversion Notice (subject to extension in accordance with Section 2(e)(iii) for a good faith dispute made in accordance with the terms of Section 2(e)(iii)); or the failure of the Transfer Agent to comply with a Company Confirmation of Conversion Notice tendered in accordance with the provisions of this Debenture within five (5) Trading Days after the receipt by the Transfer Agent of the Conversion Notice; (vi) if at any time after the Issuance Date, the Exchange Cap (as defined in Section 8) is reached; (vii) the Company breaches any representation, warranty, covenant or other term or condition of the Securities Purchase Agreement, the Registration Rights Agreement, this Debenture or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby and hereby if such breach could have a Material Adverse Effect (as defined in the Securities Purchase Agreement) and except, in the case of a breach of a covenant which is reasonably curable, only if such breach continues for a period of at least ten (10) Trading Days; (viii) any payment default under or acceleration prior to maturity of any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company or for money borrowed the repayment of which is guaranteed by the Company, whether such indebtedness or guarantee now exists or shall be created hereafter which is in excess of $1,000,000; (ix) if any Person credibly threatens by way of any public announcement to commence a proceeding against the Company pursuant to or within the meaning of any Bankruptcy Law (as defined below); (x) if the Company pursuant to or within the meaning of any Bankruptcy Law; (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, (E) becomes insolvent, or (F) is generally unable to pay its debts as the same become due; or (xi) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that; (A) is for relief against the Company in an involuntary case, (B) appoints a Custodian of the Company or for all or substantially all of its property, or (C) orders the liquidation of the Company or any subsidiary. The term "BANKRUPTCY LAW" means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors. The term "CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. (b) REMEDIES. If an Event of Default occurs from events described in clauses (i) through and (ix) of Section 4(a), in addition to any remedy the Holder may have under this Debenture (including Section 5 hereof) and the Securities Purchase Agreement, the Holder of this Debenture may at any time thereafter declare the entire principal balance of this Debenture to be due and payable immediately. In the case of an Event of Default arising from events described in clauses (x) and (xi) of Section 4(a), this Debenture shall automatically become due and payable without further action or notice. In addition to any remedy the Holder may have under this Debenture and the Securities Purchase Agreement, such unpaid amount shall bear interest at a rate of 2.0% per month (prorated for partial months) until paid in full; provided however, any unpaid amount shall not accrue any additional interest under this Section 6(b) so long as interest is being accrued under Section 5 hereof with respect to such unpaid amount. 5. REDEMPTION AT THE OPTION OF HOLDER. In addition to all other rights of the Holder contained herein,(i) immediately upon the occurrence of, and at any time after an Event of Default has occurred or (ii) on or any time after the Maturity Date, the Holder shall have the right, at the Holder's sole option, to require the Company to immediately redeem all or any portion of the outstanding principal balance of this Debenture at the Redemption Price (a "HOLDER REDEMPTION"). The Company's right to effect a Holder Redemption shall not be affected by the Company's prior or contemporaneous delivery of a Mandatory Conversion Notice, which shall under any of the foregoing circumstances be deemed to be without effect. Immediately upon the occurrence of, and at any time after, (i) an Event of Default or (ii) the Maturity Date, the Holder shall be entitled to receive any funds in the Collateral Account (as defined in the Pledge and Security Agreement) and any funds in the Collateral Proceeds Account (as defined in the Pledge and Security Agreement) directly from the Collateral Agent (as defined in the Pledge and Security Agreement) up to the aggregate Redemption Price. To the extent that there are insufficient funds in the Collateral Account and the Collateral Proceeds Account, the Company shall promptly pay to the Holder the balance of the Redemption Price by wire transfer of immediately available funds. In addition to any remedy the Holder may have under this Debenture and the Securities Purchase Agreement, such unpaid amount shall bear interest at the rate of 2.0% per month (prorated for partial months) until paid in full. The effective date for a Holder Redemption shall be the date that the full Redemption Price is paid to the Holder pursuant hereto. The Holder shall provide notice to the Company in the event that the Holder has declared a Holder Redemption as a result of an Event of Default occurring. The Holder shall specify in such notice which Event of Default or Events of Default have occurred in the opinion of the Holder. 6. OTHER RIGHTS OF HOLDER. (a) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not the surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "ACQUIRING ENTITY") a written agreement (in form and substance satisfactory to the Holder) to deliver to the Holder in exchange for this Debenture and the Pledge and Security Agreement, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Debenture, secured in the manner substantially similar in form and substance as set forth in the Pledge and Security Agreement and with the registration rights substantially similar in form and substance as set forth in the Registration Rights Agreement, and, in each case, satisfactory to the Holder. Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Holder) to insure that the Holder will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the conversion of the Holder's Debenture such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock which would have been acquirable and receivable by the Holder upon the conversion of the Debenture as of the date of such Organic Change (without taking into account any limitations or restrictions on the convertibility of the Debenture). Nothing in this Section 6(a) shall effect or limit the Company's redemption rights under Section 3 hereof or the Company's Mandatory Conversion Rights, (b) PURCHASE RIGHTS. If at any time the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then upon conversion the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of the Debenture (without taking into account any limitations or restrictions on the convertibility of the Debenture) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. 7. RESERVATION OF SHARES. The Company shall, so long as any principal amount of the Debenture is outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Debenture, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of the entire outstanding principal amount of the Debenture without regard to any restrictions or limitations on conversions. 8. EXCHANGE CAP; LIMITATION ON NUMBER OF CONVERSION SHARES. The "EXCHANGE CAP" shall be deemed to be reached at such time as: (a) upon any conversion of this Debenture if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Company may issue upon conversion of this Debenture without breaching the Company's obligations under the rules or regulations of the Principal Market, or the market or exchange where the Common Stock is then traded, in such case, the Company shall not be obligated to issue any such shares of Common Stock, or (b) if at any time after the Issuance Date, more than 964,664 shares of Common Stock (19.99% of the Company's outstanding Common Stock determined as of the signing date of the Securities Purchase Agreement) would be issuable to the Holder assuming a full conversion of the entire original principal balance of the Debenture without regard to any restrictions or limitations on conversions contained in this Debenture. 9. REISSUANCE OF DEBENTURE. Subject to Section 2(e)(vi) in the event of a conversion or redemption pursuant to this Debenture of less than all of the outstanding principal amount represented by this Debenture, the Company shall promptly cause to be issued and delivered to the Holder, upon tender by the Holder of the Debenture converted or redeemed, a new debenture of like tenor representing the remaining principal amount of this Debenture which has not been so converted or redeemed. 10. VOTE TO CHANGE THE TERMS OF THIS DEBENTURE. This Debenture and any provision hereof may only be amended by an instrument in writing signed by the Company and the Holder. The term "Debenture" and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented. 11. LOST OR STOLEN DEBENTURE. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Debenture, and, in the case of loss, theft or destruction, of an indemnification undertaking by the Holder to the Company in a form reasonably acceptable to the Company and, in the case of mutilation, upon surrender and cancellation of the Debenture, the Company shall execute and deliver new Debenture of like tenor and date; provided, however, the Company shall not be obligated to re-issue a Debenture if the Holder contemporaneously requests the Company to convert such remaining principal amount into Common Stock. 12. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If: (i) this Debenture is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding; or (ii) an attorney is retained to represent the Holder in any bankruptcy, reorganization, receivership or other proceedings affecting creditors' rights and involving a claim under this Debenture; or (iii) an attorney is retained to represent the Holder in any other proceedings whatsoever in connection with this Debenture, then the Company shall pay to the Holder all reasonable cost and expenses including attorneys' fees incurred in connection therewith, in addition to all other amounts due hereunder. 13. CANCELLATION AND SURRENDER OF DEBENTURE. After the entire outstanding principal amount owed on this Debenture has been converted into Common Stock or paid in full, this Debenture shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued. 14. DEBENTURE EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Debenture is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Debenture or Debentures (in principal amounts of at least $100,000) containing the same terms and conditions and representing in the aggregate the principal amount of this Debenture, and each such new Debenture will represent such portion of such principal amount as is designated by the Holder at the time of such surrender. The date the Company initially issues this Debenture will be deemed to be the "Issuance Date" hereof regardless of the number of times a new Debenture shall be issued. 15. WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Debenture and the Securities Purchase Agreement. 16. GOVERNING LAW; JURISDICTION; JURY TRIAL. All questions concerning the construction, validity, enforcement and interpretation of this Debenture and the Other Transaction Documents shall be governed by the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of Chicago, for the adjudication of any dispute hereunder or under the other Transaction Documents or in connection herewith or therewith, or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS DEBENTURE OR ANY TRANSACTION CONTEMPLATED HEREBY. 17. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit the Holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Debenture. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. 18. CONSTRUCTION. This Debenture shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any person as the drafter hereof. 19. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of this Debenture in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. * * * * IN WITNESS WHEREOF, the Company has caused this Debenture to be signed by its Chief Executive Officer as of the __ day of ____________. ADAM.COM, INC. By: Name: Robert S. Cramer, Jr. Its: Chief Executive Officer EXHIBIT I ADAM.COM, INC. FORM OF CONVERSION NOTICE Reference is made to the 0% senior secured convertible debenture (the "DEBENTURE") issued by adam.com, Inc. (the "COMPANY") on __________. In accordance with and pursuant to the Debenture, the undersigned hereby elects to convert the principal amount of the Debenture, indicated below into shares of Common Stock, par value $.01 per share (the "COMMON STOCK"), of the Company, by tendering the Debenture as of the date specified below. Conversion Date: Aggregate outstanding principal amount of Debenture PRIOR TO this conversion: Aggregate principal amount to be converted: Aggregate outstanding principal amount of Debenture AFTER this conversion: Please confirm the following information: Conversion Price per share: If Fixed Conversion Priced not used, describe how the Variable Conversion Price was determined: Number of shares of Common Stock to be issued: Please issue the Common Stock into which the Debenture is being converted in the following name and to the following address: Issue to: Authorized Signature: Name: Title: Phone #: Fax #: Account Number: (if electronic book entry transfer): Transaction Code Number (if electronic book entry transfer): EXHIBIT II ADAM.COM, INC. FORM OF COMPANY CONFIRMATION OF CONVERSION NOTICE Reference is made to the 0% senior secured convertible debenture (the "DEBENTURE") issued by adam.com, Inc. (the "COMPANY") on __________. In accordance with and pursuant to the Debenture, the undersigned hereby confirms and authorizes the issuance of shares of Common Stock, par value $.01 per share (the "COMMON STOCK") of the Company, in connection with the Conversion Notice (as defined in the Debenture) attached hereto. Specifically, the Company hereby confirms the following information: Conversion Date: Aggregate outstanding principal amount of Debenture PRIOR TO this conversion: Aggregate principal amount to be converted: Aggregate outstanding principal amount of Debenture AFTER this conversion: Conversion Price per share: Number of shares of Common Stock to be issued: The shares of Common Stock into which the Debenture is being converted shall be issued in the name and to the address as set forth in the applicable Conversion Notice. Authorized Signature Name: Title: Phone #: Fax #: EX-5.1 3 EX 5.1 EXHIBIT 5.1 November 24, 1999 adam.com, Inc. 1600 Riveredge Parkway Suite 800 Atlanta, Georgia 30328 Re: adam.com, Inc. Registration Statement on Form S-3 Ladies and Gentlemen: We have acted as counsel for adam.com, Inc., a Georgia corporation (the "Company"), in connection with the preparation of a Registration Statement on Form S-3 (the "Registration Statement") to be filed with the Securities and Exchange Commission relating to 450,000 Conversion Shares and 73,000 First Closing Commitment Shares, each as defined in and to be issued pursuant to that certain Securities Purchase Agreement dated as of November 15, 1999 by and between the Company and Fusion Capital Fund, LLC (the "Shares"). As such counsel, we have examined and relied upon such records, documents, certificates and other instruments as in our judgment are necessary or appropriate to form the basis for the opinions hereinafter set forth. In all such examinations, we have assumed the genuineness of signatures on original documents and the conformity to such original documents of all copies submitted to us as certified, conformed or photographic copies, and as to certificates of public officials, we have assumed the same to have been properly given and to be accurate. The opinions expressed herein are limited in all respects to the corporate law of the State of Georgia, and no opinion is expressed with respect to the laws of any other jurisdiction or any effect which such laws may have on the opinions expressed herein. This opinion is limited to the matters stated herein, and no opinion is implied or may be inferred beyond the matters expressly stated herein. Based upon the foregoing, we are of the opinion that the Shares will be validly issued, fully paid and nonassessable. This opinion is given as of the date hereof, and we assume no obligation to advise you after the date hereof of facts or circumstances that come to our attention or changes in law that occur which could affect the opinions contained herein. This letter is being rendered solely for the benefit of adam.com, Inc. in connection with the matters addressed herein. This opinion may not be furnished to or relied upon by any person or entity for any purpose without our prior written consent. We consent to the filing of this opinion as an Exhibit to the Registration Statement. Very truly yours, King & Spalding EX-10.1 4 EXHIBIT 10.1 Exhibit 10.1 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of November 15, 1999, by and between ADAM.COM, INC., a Georgia corporation, (the "COMPANY"), and FUSION CAPITAL FUND I, LLC (together with its assigns, the "BUYER"). WHEREAS: A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 ACT"); B. Subject to the terms and conditions set forth herein, the Company has authorized the issuance and sale to the Buyer of up to two 0% Senior Secured Convertible Debentures (each a "DEBENTURE" and collectively the "DEBENTURES"), substantially in the form attached hereto as EXHIBIT A, with each Debenture having an aggregate principal amount of Six Million Dollars ($6,000,000) and each Debenture shall be convertible into shares of the Company's Common Stock, par value $.01 per share (the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in accordance with the terms of each Debenture; and C. The Buyer wishes to purchase from the Company, upon the terms and conditions stated in this Agreement, the Debentures. NOW THEREFORE, the Company and the Buyer hereby agree as follows: 1. PURCHASE AND SALE OF DEBENTURES. a. PURCHASE OF DEBENTURES. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below: (i) the sale and purchase of the first Debenture to be sold and purchased under this Agreement (the "FIRST DEBENTURE") shall take place within five (5) Trading Days (as defined in the last sentence of this Section 1(a)) of the date that the Registration Statement on Form S-3 referred to in the first sentence of Section 4(a) hereof is declared effective under the 1933 Act by the SEC (the "FIRST CLOSING"); and (ii) the sale and purchase of the second Debenture to be sold and purchased under this Agreement (the "SECOND DEBENTURE") shall take place within five (5) Trading Days of the date that the Registration Statement on Form S-3 referred to in the second sentence of Section 4(a) hereof is declared effective under the 1933 Act by the SEC (the "SECOND CLOSING"), in each case, the Company shall issue and sell to the Buyer and the Buyer agrees to purchase from the Company the respective Debenture (each such purchase and sale of a Debenture, a "CLOSING"). The purchase price (the "PURCHASE PRICE") of each Debenture at the Closing shall be Six Million Dollars ($6,000,000), its original aggregate principal amount. It is agreed and acknowledged by the parties hereto that the sale and purchase of the Second Debenture shall be at the option of the Company in its sole discretion until such time has the Company shall have delivered an irrevocable written notice (the "SECOND CLOSING NOTICE") to the Buyer stating that the Company elects to sell to the Buyer the Second Debenture under the terms and conditions provided herein. The Company agrees that without the consent of the Buyer, the Company shall deliver a Second Closing Notice to the Buyer no earlier than the sooner to occur of: (i) 30 days prior to the Maturity Date (as defined in the First Debenture) or (ii) such time as the First Debenture has been issued pursuant to this Agreement and the First Debenture is no longer outstanding. Upon delivery of the Second Closing Notice to the Buyer, subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall be obligated to issue and to sell to the Buyer, and the Buyer shall be obligated to purchase from the Company for the Purchase Price, the Second Debenture. For purposes of this Agreement, "TRADING DAY" shall mean any day on which the Principal Market (as defined in Section 4(d) hereof) is open for customary trading. b. CLOSING DATES. The date of each Closing (each a "CLOSING DATE") shall be within five (5) Trading Days following the date of satisfaction (or waiver) of the conditions to the Closing set forth in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and the Buyer) with respect to the Closing of each Debenture. c. FORM OF PAYMENT. On each Closing Date, (i) the Buyer shall pay the Purchase Price for the respective Debenture to be issued and sold to the Buyer at such Closing to the Collateral Agent pursuant to a Pledge and Security Agreement substantially in the form attached hereto as EXHIBIT B, and (ii) the Company shall deliver to the Buyer the Debenture which the Buyer is then purchasing hereunder, duly executed on behalf of the Company and registered in the name of the Buyer or its designee. 2. BUYER'S REPRESENTATIONS AND WARRANTIES. The Buyer represents and warrants to the Company that: a. INVESTMENT PURPOSE. The Buyer (i) is acquiring the Debentures and the Commitment Shares (as defined in Section 7(b)) (collectively referred to herein as the "SECURITIES"), for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof; provided however, by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term. b. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D. c. RELIANCE ON EXEMPTIONS. The Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and the Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities. d. INFORMATION. The Buyer has been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer. The Buyer understands that its investment in the Securities involves a high degree of risk. The Buyer (i) is able to bear the economic risk of an investment in the Securities including a total loss, (ii) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the proposed investment in the Securities, and (iii) has had an opportunity to ask questions of and receive answers from the officers of the Company concerning the financial condition and business of the Company and others matters related to an investment in the Securities. Neither such inquiries nor any other due diligence investigations conducted by the Buyer or its representatives shall modify, amend or affect the Buyer's right to rely on the Company's representations and warranties contained in Section 3 below. The Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. e. NO GOVERNMENTAL REVIEW. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities. f. TRANSFER OR RESALE. The Buyer understands that except as provided in the Registration Rights Agreement (as defined in Section 6(a) hereof): (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder or (B) an exemption exists permitting such Securities to be sold, assigned or transferred without such registration; (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. g. VALIDITY; ENFORCEMENT. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Buyer and is a valid and binding agreement of the Buyer enforceable against the Buyer in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. h. RESIDENCY. The Buyer is a resident of the State of Illinois. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Buyer that: a. ORGANIZATION AND QUALIFICATION. The Company and its "SUBSIDIARIES" (which for purposes of this Agreement means any entity in which the Company, directly or indirectly, owns 50% or more of the voting stock or capital stock or other similar equity interests) are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power and authorization to own their properties and to carry on their business as now being conducted. Each of the Company and its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing could not reasonably be expected to have a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse effect on any of: (i) the business, properties, assets, operations, results or operations or financial condition of the Company and its Subsidiaries, if any, taken as a whole, (ii) the value of the Common Stock or the value of, or security for, any Debenture, (iii) on the transactions contemplated hereby or by the agreements and instruments to be entered into in connection herewith or (iv) on the authority or ability of the Company to perform its obligations under the Transaction Documents (as defined in Section 2(b) hereof). The Company has no Subsidiaries except as set forth on SCHEDULE 3(a). b. AUTHORIZATION; ENFORCEMENT; VALIDITY. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Debentures, the Registration Rights Agreements, the Pledge and Security Agreements (each as defined in Section 6(a) hereof) and each of the other agreements entered into by the parties hereto in connection with the transactions contemplated by this Agreement (collectively, the "TRANSACTION DOCUMENTS"), and to issue the Securities in accordance with the terms hereof and thereof, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including without limitation the issuance of the Debentures and the Commitment Shares and the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion of the Debentures, have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its shareholders, (iii) this Agreement has been, and each other Transaction Document shall be at its respective Closing, duly executed and delivered by the Company, and (iv) this Agreement constitutes, and each other Transaction Document shall constitute as of its respective Closing, the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. c. CAPITALIZATION. As of the date hereof, the authorized capital stock of the Company consists of (i) 20,000,000 shares of Common Stock, of which as of the date hereof, 4,825,736 shares are issued and outstanding, 574,845 are held as treasury shares, 3,000,000 shares are reserved for issuance pursuant to the Company's stock option plan and 75,000 shares are issuable and reserved for issuance pursuant to securities (other than the Debentures or stock options issued pursuant to the Company's stock option plan) exercisable or exchangeable for, or convertible into, shares of Common Stock, and (ii) 10,000,000 shares of preferred stock of which as of the date hereof no shares are issued and outstanding. All of such outstanding shares have been, or upon issuance will be, validly issued and are fully paid and nonassessable. Except as disclosed in SCHEDULE 3(c), (i) no shares of the Company's capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company, (ii) there are no outstanding debt securities, (iii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, (iv) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except the Registration Rights Agreement), (v) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries, (vi) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities as described in this Agreement, and (vii) the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement. The Company has furnished to the Buyer true and correct copies of the Company's Articles of Incorporation, as amended and as in effect on the date hereof (the "ARTICLES OF INCORPORATION"), and the Company's By-laws, as amended and as in effect on the date hereof (the "BY-LAWS"), and the terms of all securities convertible into or exercisable for Common Stock, if any, and the material rights of the holders thereof in respect thereto. d. ISSUANCE OF SECURITIES. The Securities have been duly authorized and, upon issuance in accordance with the terms hereof, shall be (i) validly issued, fully paid and non-assessable, and (ii) free from all taxes, liens and charges with respect to the issue thereof. 750,000 shares of Common Stock have been duly authorized and reserved for issuance upon conversion of each Debenture. Upon conversion in accordance with the terms and conditions of the Debentures, the Conversion Shares will be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. The issuance by the Company of the Securities is exempt from registration under the 1933 Act pursuant to Regulation D. e. NO CONFLICTS. Except as disclosed in SCHEDULE 3(e), the execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the reservation for issuance and issuance of the Conversion Shares) will not (i) result in a violation of the Articles of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the By-laws or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of the Principal Market applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. Except as disclosed in SCHEDULE 3(e), neither the Company nor its Subsidiaries is in violation of any term of or in default under its Articles of Incorporation, any Certificate of Designation, Preferences and Rights of any outstanding series of preferred stock of the Company or By-laws or their organizational charter or by-laws, respectively. Except as disclosed in SCHEDULE 3(e), neither the Company or any of its Subsidiaries is in violation of any term of or in default under any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its Subsidiaries, except for possible conflicts, defaults, terminations, amendments which could not reasonably be expected to have a Material Adverse Effect. The business of the Company and its Subsidiaries is not being conducted, and shall not be conducted, in violation of any law, ordinance, regulation of any governmental entity, except for possible violations the sanctions for which either individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. Except as specifically contemplated by this Agreement and as required under the 1933 Act, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self-regulatory agency in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents in accordance with the terms hereof or thereof. Except as disclosed in SCHEDULE 3(e), all consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is not and has not been since January 1, 1998, in violation of the listing requirements of the Principal Market. f. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since January 1, 1998, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 ACT") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the "SEC DOCUMENTS"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). g. ABSENCE OF CERTAIN CHANGES. Except as disclosed in SCHEDULE 3(g), since April 1, 1999, there has been no material adverse change in the business, properties, operations, financial condition or results of operations of the Company or its Subsidiaries. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or any of its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings. h. ABSENCE OF LITIGATION. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company, the Common Stock or any of the Company's Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or directors in their capacities as such, which could reasonably be expected to have a Material Adverse Effect. A description of each action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body which, as of the date of this Agreement, is pending or threatened in writing against or affecting the Company, the Common Stock or any of the Company's Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or directors in their capacities as such, is set forth in SCHEDULE 3(h). i. ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF THE SECURITIES. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm's length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby and any advice given by the Buyer or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to the Buyer's purchase of the Securities. The Company further represents to the Buyer that the Company's decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives and advisors. j. NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities. k. NO INTEGRATED OFFERING. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the 1933 Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable shareholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated, nor will the Company or any of its Subsidiaries take any action or steps that would require registration of any of the Securities under the 1933 Act or cause the offering of the Securities to be integrated with other offerings. l. DILUTIVE EFFECT. The Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Debentures will increase in certain circumstances. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Debentures in accordance with this Agreement and the Debentures is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company. m. INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or possess adequate rights or licenses to use all material trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. Except as set forth on SCHEDULE 3(m), none of the Company's material trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights have expired or terminated, or, by the terms and conditions thereof, could expire or terminate within two years from the date of this Agreement. The Company and its Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of any material trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and, except as set forth on SCHEDULE 3(M), there is no material claim, action or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its Subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement. n. ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where, in each of the three foregoing clauses, the failure to so comply could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. o. TITLE. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in SCHEDULE 3(o) or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries. Any real property and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries. p. INSURANCE. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its Subsidiaries, taken as a whole. q. REGULATORY PERMITS. The Company and its Subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit. r. TAX STATUS. The Company and each of its Subsidiaries has made or filed all federal and state income and all other material tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. s. TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE 3(s) and other than the grant or exercise of stock options disclosed on SCHEDULE 3(c), none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has an interest or is an officer, director, trustee or partner. t. APPLICATION OF TAKEOVER PROTECTIONS. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Articles of Incorporation or the laws of the state of its incorporation which is or could become applicable to the Buyer as a result of the transactions contemplated by this Agreement, including, without limitation, the Company's issuance of the Securities and the Buyer's ownership of the Securities. u. RIGHTS AGREEMENT. The Company has not adopted a shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company. v. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. 4. COVENANTS. a. FILING REGISTRATION STATEMENTS. The Company shall within seven (7) Trading Days from the date hereof file a Registration Statement on Form S-3 covering only the resale of at least 750,000 Conversion Shares underlying the First Debenture and the resale of 78,000 First Closing Commitment Shares (as defined in Section 7(b)). The Company shall also within ten (10) Trading Days from the date of the delivery to the Buyer of the Second Closing Notice file a Registration Statement on Form S-3 covering only the resale of a reasonable estimate of the number of Conversion Shares underlying the Second Debenture and a reasonable estimate of the number of Second Closing Commitment Shares (as defined in Section 7(b)). For each such Registration Statement, the Company shall also include an indeterminate number of registrable securities pursuant to Rule 416 under the 1933 Act so as to cover any and all securities which may become issuable to prevent dilution resulting from stock splits, stock dividends or similar transactions. The Buyer and its counsel shall have a reasonable opportunity to review and comment upon each such registration statement and any related prospectus prior to its filing with the SEC. The Company shall use its reasonable best efforts to have such registration statements declared effective by the SEC at the earliest possible date. b. FORM D AND BLUE SKY. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Buyer promptly after such filing. The Company shall, on or before each Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Securities for sale to the Buyer at each Closing pursuant to this Agreement under applicable securities or "Blue Sky" laws of the states of the United States, and shall provide evidence of any such action so taken to the Buyer on or prior to each Closing Date. The Company shall make all filings and reports relating the offer and sale of the Securities required under applicable securities or "Blue Sky" laws of the states of the United States following each Closing Date. c. NO VARIABLE PRICED FINANCING. Other than pursuant to this Agreement, the Company agrees that beginning on the date of this Agreement and ending on the date of termination of this Agreement as provided in Section 9(k), and so long as any Debenture is outstanding, neither the Company nor any of its Subsidiaries shall, without the prior written consent of the Buyer, contract for any equity financing (including any debt financing with an equity component) or issue any equity securities of the Company or any Subsidiary or securities convertible or exchangeable into or for equity securities of the Company or any Subsidiary (including debt securities with an equity component) which (i) are convertible into or exchangeable for an indeterminate number of shares of common stock, (ii) are convertible into or exchangeable for Common Stock at a price which varies with the market price of the Common Stock, (iii) directly or indirectly provide for any "re-set" or adjustment of the purchase price, conversion rate or exercise price or (iv) contain any "make- whole" provision based upon, directly or indirectly, the market price of the Common Stock, in each case, other than reasonable and customary anti-dilution adjustments for issuance of shares of Common Stock at a price which is below the market price of the Common Stock. d. LISTING. The Company shall promptly secure the listing of all of the Conversion Shares and Commitment Shares upon each national securities exchange and automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all such securities from time to time issuable under the terms of the Transaction Documents. The Company shall maintain the Common Stock's authorization for quotation on the Nasdaq National Market (the "PRINCIPAL MARKET"). Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market. The Company shall promptly, and in no event later than the following Trading Day, provide to the Buyer copies of any notices it receives from the Principal Market regarding the continued eligibility of the Common Stock for listing on such automated quotation system or securities exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section. e. LIMITATION ON SHORT SALES AND HEDGING TRANSACTIONS. The Buyer agrees that beginning on the date of this Agreement and ending on the date of termination of this Agreement as provided in Section 9(k), the Buyer and its affiliates shall not in any manner whatsoever enter into or effect, directly or indirectly, any (i) "short sale" (as such term is defined in Rule 3b-3 of the 1934 Act) of the Common Stock or (ii) hedging transaction, which establishes a net short position with respect to the Common Stock; provided, however, that such restrictions shall not apply if (A) with respect to the restrictions on short sales, the Buyer submits within five (5) Trading Days of a sale a Conversion Notice (as defined in the Debenture) entitling the Buyer to receive a number of shares of Common Stock at least equal to the number of shares so sold, or (B) an Event of Default (as defined the Debenture) has occurred, or any event which, after notice and/or lapse of time, would become an Event of Default has occurred, under any Debenture including any failure by the Company to timely effect any conversion properly submitted pursuant to a Debenture. f. LIMITATION ON SALES OF COMMITMENT SHARES. The Buyer agrees that beginning on the date of this Agreement and ending on the date of termination of this Agreement as provided in Section 9(k), the Buyer shall not transfer or sell (i) the First Closing Commitment Shares (as defined in Section 7(b) hereof) until such date as the First Debenture is no longer outstanding and (ii) the Second Closing Commitment Shares (as defined in Section 7(b) hereof) until such date as the Second Debenture is no longer outstanding; provided, however, that such restrictions shall not apply: (A) to any transfers to or among affiliates, (B) to any pledge in connection with a bona fide loan or margin account, (C) if an Event of Default has occurred, or any event which, after notice and/or lapse of time, would become an Event of Default, under any Debenture including any failure by the Company to timely effect any conversion properly submitted pursuant to a Debenture, or (E) if Robert S. Cramer, Jr. ceases for any reason to be Chief Executive Officer of the Company engaged on a full-time basis as his or her principal business activity. 5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable instructions to its transfer agent, and any subsequent transfer agent, to issue certificates, registered in the name of the Buyer or its respective nominee(s), for the Conversion Shares from time to time upon conversion of a Debenture (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). The Company warrants to the Buyer that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, will be given by the Company to its transfer agent with respect to the Securities and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Registration Rights Agreement subject to the provisions of Section 4(f) in the case of the Commitment Shares. Nothing in this Section 5 shall affect in any way the Buyer's obligations to comply with all applicable prospectus delivery requirements, if any, upon resale of the Securities. If a Buyer provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment or transfer of the Securities may be made without registration under the 1933 Act or the Buyer provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by the Buyer and without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5, that the Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue and sell each Debenture to the Buyer at each Closing is subject to the satisfaction, at or before the respective Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion by providing the Buyer with prior written notice thereof: a. The Buyer shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company applicable to the respective Closing including for each Closing: (i) a Pledge and Security Agreement substantially in the form of EXHIBIT B hereto (individually, a "PLEDGE AND SECURITY AGREEMENT" and collectively, the "PLEDGE AND SECURITY AGREEMENTS"), and (ii) a Registration Rights Agreement substantially in the form of EXHIBIT C hereto (individually, a "REGISTRATION RIGHTS AGREEMENT" and collectively, the "REGISTRATION RIGHTS AGREEMENTS"). b. Subject to the Company's compliance with Section 4(a), a Registration Statement on Form S-3 covering the resale of the respective Commitment Shares and the Conversion Shares underlying the Debenture to be sold at such Closing shall have been declared effective under the 1933 Act by the SEC and no stop order with respect to the Registration Statement shall be pending or threatened by the SEC. c. The Buyer shall have paid the Purchase Price for such Debenture being purchased by the Buyer at such Closing in the manner as set forth in the respective Pledge and Security Agreement. d. The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of such Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date. It is agreed and acknowledged by the parties hereto, that until such time has the Company shall have delivered the Second Closing Notice to the Buyer with respect to the Closing of the Second Debenture, the Company shall not be obligated to issue and sell to the Buyer the Second Debenture. 7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. The obligation of the Buyer hereunder to purchase each Debenture at the respective Closing is subject to the satisfaction, at or before the respective Closing Date, of each of the following conditions, provided that these conditions are for the Buyer's sole benefit and may be waived by the Buyer at any time in its sole discretion by providing the Company with prior written notice thereof: a. The Company shall have executed each of the Transaction Documents and delivered the same to the Buyer applicable to the respective Closing including for each Closing: (i) the respective Debenture, (ii) a Pledge and Security Agreement substantially in the form of EXHIBIT B hereto and an unconditional, fully valid, first priority, perfected security interest in favor of the Buyer shall attach to the Collateral (as defined in the respective Pledge and Security Agreement) as of the Closing, and (iii) a Registration Rights Agreement substantially in the form of EXHIBIT C hereto. b. On the Closing Date for the First Closing the Company shall have delivered to the Buyer a number of shares of Common Stock (the "FIRST CLOSING COMMITMENT SHARES") equal to: (x) 10% of the Purchase Price of the First Debenture divided by the arithmetic average of the Closing Bid Prices of the Common Stock for the ten (10) consecutive Trading Days immediately preceding the Trading Day which is two (2) Trading Days prior to the Closing Date for the First Closing, PLUS (y) 3% of the Purchase Price of the Second Debenture divided by the arithmetic average of the Closing Bid Prices of the Common Stock for the ten (10) consecutive Trading Days immediately preceding the Trading Day which is two (2) Trading Days prior to the Closing Date for the First Closing. On the Closing Date for the Second Closing the Company shall have delivered to the Buyer a number of shares of Common Stock (the "SECOND CLOSING COMMITMENT SHARES" and together with the First Closing Commitment Shares, the "COMMITMENT SHARES") equal to 7% of the Purchase Price of the Second Debenture divided by the arithmetic average of the Closing Bid Prices of the Common Stock for the ten (10) consecutive Trading Days immediately preceding the Trading Day which is two (2) Trading Days prior to the Closing Date for the Second Closing. (To be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction during such ten (10) Trading Day period.) c. The Common Stock shall be authorized for quotation on the Principal Market, trading in the Common Stock shall not have been within the last 365 days suspended by the SEC or the Principal Market and the Conversion Shares and the Commitment Shares shall be listed upon the Principal Market. d. The Buyer shall have received the opinion of the Company's legal counsel dated as of the respective Closing Date, in the form of EXHIBIT D attached hereto. e. The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties is already qualified as to materiality in Section 3 above, in which case, such representations and warranties shall be true and correct without further qualification) as of the date when made and as of the respective Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the respective Closing Date. The Buyer shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as of the respective Closing Date, to the foregoing effect in the form attached hereto as EXHIBIT E. f. The Board of Directors of the Company shall have adopted resolutions in the form attached hereto as EXHIBIT F which shall be in full force and effect without any amendment or supplement thereto as of the respective Closing Date. g. As of the respective Closing Date, the Company shall have reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the respective Debenture, at least 750,000 shares of Common Stock. h. The Irrevocable Transfer Agent Instructions, in the form of EXHIBIT G attached hereto, shall have been delivered to and acknowledged in writing by the Company's transfer agent. i. The Company shall have delivered to the Buyer a certificate evidencing the incorporation and good standing of the Company in the State of Georgia issued by the Secretary of State of the State of Georgia as of a date within ten (10) Trading Days of the respective Closing Date. j. The Company shall have delivered to the Buyer a certified copy of the Articles of Incorporation as certified by the Secretary of State of the State of Georgia within ten (10) Trading Days of the respective Closing Date. k. The Company shall have delivered to the Buyer a secretary's certificate executed by the Secretary of the Company, dated as of the respective Closing Date, in the form attached hereto as EXHIBIT H. l. A Registration Statement on Form S-3 covering the resale of all of the respective Commitment Shares and the Conversion Shares (assuming the Closing Date is the Conversion Date) underlying the Debenture to be sold at such Closing shall have been declared effective under the 1933 Act by the SEC and no stop order with respect to the Registration Statement shall be pending or threatened by the SEC. The Company shall have made all filings under all applicable federal and state securities laws necessary to consummate the issuance of the Securities pursuant to this Agreement in compliance with such laws. m. No Event of Default (as defined the Debenture) has occurred, or any event which, after notice and/or lapse of time, would become an Event of Default under the Debenture has occurred. 8. INDEMNIFICATION. In consideration of the Buyer's execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company's other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless the Buyer and each other holder of the Securities and all of their shareholders, officers, directors, employees and direct or indirect investors and any of the foregoing person's agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "INDEMNITEES") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities anddamages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (c) any cause of action, suit or claim brought or made against such Indemnitee and arising out of or resulting from the execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby or (d) the status of the Buyer as the purchaser of a Debenture. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. 9. GOVERNING LAW; MISCELLANEOUS. a. GOVERNING LAW; JURISDICTION; JURY TRIAL. The corporate laws of the State of Georgia shall govern all issues concerning the relative rights of the Company and its shareholders. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement and the other Transaction Documents shall be governed by the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of Chicago, for the adjudication of any dispute hereunder or under the other Transaction Documents or in connection herewith or therewith, or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. b. COUNTERPARTS. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. c. HEADINGS. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. d. SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other prior oral or written agreements between the Buyer, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement, the Other Transaction Documents and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Buyer, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. f. NOTICES. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one Trading Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: adam.com, Inc. 1600 RiverEdge Parkway, Suite 800 Atlanta, Georgia 30328 Telephone: 770-980-0888 Facsimile: 770-989-4970 Attention: Robert S. Cramer, Jr. With a copy to: King & Spalding 191 Peachtree Street Atlanta, Georgia 30303 Telephone: 404-572-4600 Facsimile: 404-572-5100 Attention: Stacey K. Geer If to the Buyer: Fusion Capital Fund I, LLC 216 West Jackson Boulevard, Suite 400 Chicago, Illinois 60606 Telephone: (312) 795-7940 Facsimile: (312) 795-7845 Attention: Steven G. Martin with a copy to: Ungaretti & Harris 3500 Three First National Plaza Chicago, Illinois 60602 Telephone: (312) 977-4400 Facsimile: (312) 977-4405 Attention: Al Harris If to the Transfer Agent: SunTrust Bank, Atlanta 58 Edgewood Avenue Atlanta, Georgia 30303 Telephone: 404-588-8728 Facsimile: 404-332-3875 Attention: Peggy White or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) Trading Days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Debentures. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Buyer, including by merger or consolidation, except pursuant to an Organic Change (as defined in the Debentures) with respect to which the Company is in compliance with Section 6 of the Debentures. The Buyer may assign some or all of its rights hereunder without the consent of the Company, provided, however, that any such assignment shall not release the Buyer from its obligations hereunder unless such obligations are assumed by such assignee and the Company has consented in writing to such assignment and assumption. Notwithstanding anything to the contrary contained in the Transaction Documents, the Buyer shall be entitled to pledge the Securities in connection with a bona fide loan or margin account. h. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. i. PUBLICITY. The Company and the Buyer shall have the right to approve before issuance any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Buyer, to make any press release or other public disclosure with respect to such transactions as is required by applicable law and regulations (although the Buyer shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release and shall be provided with a copy thereof). j. FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. k. TERMINATION; SURVIVAL. This Agreement may be terminated only as follows: (i) By the Buyer any time after an Event of Default (as defined in the Debentures) has occurred. (ii) In the event that the First Closing shall not have occurred, the Company shall have the option to terminate this Agreement without liability of any party to any other party. If this Agreement is terminated pursuant to this Section 9(k)(ii), the Company shall issue to the Buyer the First Closing Commitment Shares immediately prior to the termination hereof. In the such case, the number of First Closing Commitment Shares shall be equal to: (x) 10% of the Purchase Price of the First Debenture divided by the arithmetic average of the Closing Bid Prices of the Common Stock for the ten (10) consecutive Trading Days immediately preceding the Trading Day which is two (2) Trading Days prior to the date of termination of this Agreement, plus (y) 3% of the Purchase Price of the Second Debenture divided by the arithmetic average of the Closing Bid Prices of the Common Stock for the ten (10) consecutive Trading Days immediately preceding the Trading Day which is two (2) Trading Days prior to the date of termination of this Agreement. (iii) In the event that the First Closing shall not have occurred on or before February 28, 2000, due to the failure to satisfy the conditions set forth in Sections 6 and 7 above with respect to the First Closing (and the nonbreaching party's failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement at the close of business on such date without liability of any party to any other party; provided, however, that any such termination shall not release any breaching party from liability hereunder. If this Agreement is terminated pursuant to this Section 9(k)(iii) prior to the First Closing other than solely as a result of the failure of a registration statement to be declared effective by the SEC with respect to the First Closing or any material breach of the Buyer's obligation hereunder, the Company shall issue to the Buyer the First Closing Commitment Shares immediately upon the termination hereof. In the such case, the number of First Closing Commitment Shares shall be equal to: (x) 10% of the Purchase Price of the First Debenture divided by the arithmetic average of the Closing Bid Prices of the Common Stock for the ten (10) consecutive Trading Days immediately preceding the Trading Day which is two (2) Trading Days prior to the date of termination of this Agreement, plus (y) 3% of the Purchase Price of the Second Debenture divided by the arithmetic average of the Closing Bid Prices of the Common Stock for the ten (10) consecutive Trading Days immediately preceding the Trading Day which is two (2) Trading Days prior to the date of termination of this Agreement. (iv) If the First Debenture has been issued as provided herein, by the Company any time after the date the First Debenture is no longer outstanding but prior to the delivery to the Buyer of the Second Closing Notice. (v) If the First Debenture has been issued as provided herein, by either the Company or the Buyer if the First Debenture is no longer outstanding and the Company has not delivered a Second Closing Notice to the Buyer on or prior to the tenth (10th) Trading Day after the earlier of (A) the stated Maturity Date of the First Debenture or (B) fifty (50) Trading Days after the date the First Debenture is no longer outstanding. (vi) If the First Debenture has been issued as provided herein, the First Debenture is no longer outstanding and the Company has delivered a Second Closing Notice to the Buyer, in the event that the Second Closing shall not have occurred on or before forty (40) Trading Days from the date of the Second Closing Notice due to the failure to satisfy the conditions set forth in Sections 6 and 7 above with respect to the Second Closing (and the nonbreaching party's failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement at the close of business on such date without liability of any party to any other party; provided, however, that any such termination shall not release any breaching party from liability hereunder. If this Agreement is terminated pursuant to this Section 9(k)(vi) prior to the Second Closing other than solely as a result of the failure of a registration statement to be declared effective by the SEC with respect to the Second Closing or any material breach of the Buyer's obligation hereunder, the Company shall issue to the Buyer the Second Closing Commitment Shares immediately upon the termination hereof. In the such case, the number of Second Closing Commitment Shares shall be equal to 7% of the Purchase Price of the Second Debenture divided by the arithmetic average of the Closing Bid Prices of the Common Stock for the ten (10) consecutive Trading Days immediately preceding the Trading Day which is two (2) Trading Days prior to the date of termination of this Agreement. (vii) If the Second Debenture has been issued as provided herein, this Agreement shall automatically terminate on the date the Second Debenture is no longer outstanding. Except for termination of this Agreement under Section 9(k)(vii), any termination of this Agreement pursuant to this Section 9(k) shall be effected by written notice from the Company to the Buyer, or the Buyer to the Company, as the case may be, setting forth the basis for the termination hereof. A termination of this Agreement under Section 9(k)(vii) shall automatically occur on such date as the Second Debenture is no longer outstanding without any action or notice on the part of any party. Except as expressly set forth in this Agreement, the representations and warranties of the Company and the Buyer contained in Sections 2 and 3 hereof, the indemnification provisions set forth in Section 8 hereof and the agreements and covenants set forth in Section 9, shall survive each Closing and any termination hereof. l. PLACEMENT AGENT. The Company acknowledges that it has engaged SunTrust Equitable Securities Corporation as placement agent in connection with the sale of the Securities, which placement agent may have formally or informally engaged other agents on its behalf. The Company shall be responsible for the payment of any placement agent's fees or broker's commissions relating to or arising out of the transactions contemplated hereby. The Company shall pay, and hold the Buyer harmless against, any liability, loss or expense (including, without limitation, attorneys' fees and out of pocket expenses) arising in connection with any such claim. m. NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. n. REMEDIES. The Buyer and each holder of the Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any person having any rights under any provision of the Transaction Documents shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of the Transaction Documents and to exercise all other rights granted by law. o. PAYMENT SET ASIDE. To the extent that the Buyer receives a payment or payments hereunder or pursuant to the other Transaction Documents or the Buyer enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. * * * * * * IN WITNESS WHEREOF, the Buyer and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above. COMPANY: ADAM.COM, INC. By: /s/ Robert S. Cramer, Jr. --------------------------- Name: Robert S. Cramer, Jr. Title: Chief Executive Officer BUYER: FUSION CAPITAL FUND I, LLC BY: FUSION CAPITAL PARTNERS, LLC BY: AUTARKY SYSTEMS, INC. By: /s/ Joe Riney ---------------------- Name: Joe Riney Title: President EX-23.1 5 EX 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of our report dated May 14, 1999 relating to the financial statements and financial statement schedules, which appears in adam.com, Inc.'s (formerly A.D.A.M. Software, Inc.) Annual Report on Form 10-K for the year ended March 31, 1999. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PricewaterhouseCoopers LLP Atlanta, Georgia November 24, 1999 -----END PRIVACY-ENHANCED MESSAGE-----