<PAGE> 1
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20552
------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------------
Date of Report (Date of earliest event reported): May 3, 1996
HEARx LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 0-16453 22-2748248
(State or other jurisdiction (Commission (IRS Employer
or incorporation) File Number) Identification no.)
471 Spencer Drive
West Palm Beach, Florida 33409
(407) 478-8770
(Address, including zip code, and telephone number
of principal executive offices)
Not Applicable
(Former name or former address, if changed since last report)
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ITEM 5. Other
On May 10, 1996, HEARx Ltd., a Delaware corporation (the "Company"), closed
the second of two offerings of its securities in a side-by-side offering
pursuant to Regulation D and Regulation S, each promulgated under the
Securities Act of 1933, as amended. The following summary of these
transactions is qualified in its entirety by the terms of the related
agreements, and by the terms of the certificates of designations, preferences
and rights of the preferred stock of the Company, filed herewith as exhibits to
this Form 8-K.
Regulation D Offering
On May 3, 1996, the Company entered into a Securities Purchase
Agreement with certain purchasers named therein (the "Regulation D
Purchasers"), pursuant to which the Company will sell a total of 15,000 shares
of a newly designated preferred stock, the 1996 Series B-1 Convertible
Preferred Stock, par value $1.00 per share (the "Series B-1 Preferred Stock"),
and 9,900 shares of another newly designated preferred stock, the 1996 Series
B-2 Convertible Preferred Stock, par value $1.00 per share (the "Series B-2
Preferred Stock"), pursuant to Regulation D.
The Series B-1 and Series B-2 Preferred Stock is convertible into the
Common Stock of the Company, $.10 par value per share (the "Common Stock").
Upon conversion, holders will be entitled to receive a number of shares of
Common Stock determined by dividing the stated value of the Preferred Stock
($1,000 per share), plus a premium in the amount of 8% per annum of the stated
value from the date of issuance (unless the Company chooses to pay that premium
in cash), by a conversion price equal to the lesser of $5.00 or a percentage
(ranging from 100% on or before July 7, 1996, to 75% after May 7, 1997) of the
average of the closing bid prices for shares of Common Stock during a ten-day
period prior to conversion, subject to adjustment upon the occurrence of
certain dilutive events. The Series B-1 and B-2 Preferred Stock may be
converted by holders at any time prior to April 30, 1999, and must be converted
on that date. Upon conversion of the Series B-1 Preferred Stock, those holders
also will be entitled to receive five-year warrants (the "Warrants") to
purchase a total of 3,750,000 shares of Common Stock at an exercise price of
$8.00 per share, subject to adjustment upon the occurrence of certain dilutive
events. The holders of the Series B-1 and Series B-2 Preferred Stock have no
voting power except for certain actions by the Company which might adversely
affect the rights of such holders and as otherwise provided by Delaware General
Corporation Law.
In connection with this transaction, the Company also entered into a
Registration Rights Agreement with the Regulation D Purchasers under which the
Company is required to file a registration statement on Form S-3 by May 22,
1996, covering the shares of Common Stock underlying all of the Series B-1 and
B-2 Preferred Stock and the Warrants. Under the Agreement, the Company may be
required to make certain payments to holders of the Series B Preferred Stock as
partial damages if, among other things, the registration statement has not been
declared effective by the Securities and Exchange Commission on or before
September 4, 1996.
Pursuant to the terms of the Securities Purchase Agreement, the
purchase and sale of the Series B-1 Preferred Stock and the Series B-2
Preferred Stock will take place in two separate closings. The first closing
occurred on May 7, 1996 and involved the purchase and sale of 7,500 shares of
<PAGE> 3
Series B-1 Preferred Stock and 4,950 shares of Series B-2 Preferred Stock for
an aggregate purchase price of $12,450,000. The second closing, covering the
balance of 7,500 shares of Series B-1 Preferred Stock and 4,950 shares of
Series B-2 Preferred Stock, for an aggregate purchase price of $12,450,000,
will take place upon the effectiveness of the registration statement on
Form S-3 described above, and the fulfillment of certain other conditions by
the Company. In addition, the Company has agreed in the Securities Purchase
Agreement, that (a) for a period beginning on the date of the first closing and
ending 180 days following the date of the second closing, the Company will
obtain the prior written consent of the buyers of the Series B-1 Preferred
Stock to any additional equity financings by the Company; and (b) the Company
will provide to the Regulation D Purchasers a right to participate, pro rata,
in any future equity financings by the Company before May 7, 1997.
Regulation S Offering
On May 10, 1996, the Company closed the offer and sale of 5,100 shares
of a newly designated preferred stock, the 1996 Series A Convertible Preferred
Stock, $1.00 par value per share (the "Series A Preferred Stock"), pursuant to
Regulation S. The Series A Preferred Stock was offered and sold pursuant to
Securities Subscription Agreements, effective May 10, 1996, with each of the
purchasers named therein (the "Regulation S Purchasers"), for an aggregate
purchase price of $5,100,000. The Series A Preferred Stock bears cumulative
dividends of 8%, payable upon conversion in cash or, at the option of the
Company, in shares of Common Stock. The Series A Preferred Stock may be
converted by the holders thereof at any time on or after July 10, 1996. Upon
conversion, the holders will be entitled to receive a number of shares of
Common Stock determined by dividing the stated value of the Series A Preferred
Stock ($1,000 per share), plus the cumulative 8% dividend (unless the Company
chooses to pay the dividend in cash), by a conversion price equal to the lesser
of $5.00 or a percentage (ranging from 95% to 75%) of the average of the
closing bid prices for the Common Stock during the five trading days prior to
the conversion, subject to adjustment upon the occurrence of certain dilutive
events.
In connection with this transaction, the Company also entered into a
Registration Rights Agreement with the Regulation S Purchasers entitling such
purchasers to one demand registration covering the shares of Common Stock
underlying the Series A Preferred Stock under certain circumstances.
Use of Proceeds; Redemption of 1996 Senior Preferred Stock
Four million dollars of the proceeds of the Regulation D offering,
plus $2,040,000 of the Company's existing funds, were used to redeem all of the
shares of the 1996 Senior Preferred Stock, $1.00 par value per share ("Senior
Preferred Stock") and the Class B Warrants issued by the Company in January
1996. The Company intends to use the balance of the net proceeds from the
offerings for general corporate purposes, including the expansion of the
Company's network of hearing care centers to support its contracts with managed
care and health insurance companies.
Outstanding Securities of the Company
At May 15, 1996, there were issued and outstanding approximately
68,001,983 shares of Common Stock, 5,100 shares of the Series A Preferred
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Stock, 7,500 shares of Series B-1 Preferred Stock and 4,950 shares of
Series B-2 Preferred Stock. Upon completion of the Regulation D Offering, an
additional 7,500 shares of Series B-1 Preferred Stock and 4,950 shares of
Series B-2 Preferred Stock will be issued and outstanding. The following table
sets forth information regarding warrants to purchase Common Stock outstanding
at May 15, 1996:
Shares Subject to Warrants Exercise Price Per Share Expiration
- -------------------------- ------------------------ -------------------------
12,500 $ l.00 June 1996
100,000 $ l.00 December 1996
1,100,000 .01 February 1998
81,250 2.00 September 1998
5,000 .50 June 1999
1,500 .67 June 1999
20,000 1.50 September 1999
30,000 1.50 December 1999
11,070,480 .55 January 2001
2,283,278 .63 January 2001
657,125 1.25 January 2003
2,371,875 2.00 January 2004
In addition, Minnesota Mining and Manufacturing Company holds an option to
purchase 800,000 shares of Common Stock at an exercise price of $1.25 per
share, which expires in April 1997, and certain employees, non-employee
directors and consultants of the Company hold options to purchase shares of
Common Stock. The warrants and options may be subject to adjustment as the
result of the occurrence of dilutive events.
ITEM 7. Exhibits
The following exhibits are filed with this report:
Number Description
- ------ ----------------------------------------------------------------------
3 Restated Certificate of Incorporation of the Company, including
certificates of designations, preferences and rights of the preferred
stock of the Company
4.1 Securities Purchase Agreement, dated May 3, 1996 between HEARx Ltd.
and each of the purchasers set forth on the signature pages thereto,
including Exhibit A thereto (form of Warrant).
4.2 Registration Rights Agreement, dated May 3, 1996 between HEARx Ltd.
and each of the purchasers set forth on the signature pages thereto.
4.3 Securities Subscription Agreement, dated as of the closing thereunder
of May 10, 1996 between HEARx Ltd. and the purchasers set forth on the
signature pages thereto.
4.4 Registration Rights Agreement, dated May 10, 1996 between HEARx Ltd.
and the purchasers set forth on the signature pages thereto.
99 Press release dated May 8, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HEARx Ltd.
DATE: May 17, 1996 By: /S/ PAUL A. BROWN
---------------------------------
Paul A. Brown, M.D.,
Chairman and CEO
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EXHIBIT INDEX
Number Description
- ------ ----------------------------------------------------------------------
3 Restated Certificate of Incorporation of the Company, including
certificates of designations, preferences and rights of the preferred
stock of the Company
4.1 Securities Purchase Agreement, dated May 3, 1996 between HEARx Ltd.
and each of the purchasers set forth on the signature pages thereto,
including Exhibit A thereto (form of Warrant).
4.2 Registration Rights Agreement, dated May 3, 1996 between HEARx Ltd.
and each of the purchasers set forth on the signature pages thereto.
4.3 Securities Subscription Agreement, dated as of the closing thereunder
of May 10, 1996 between HEARx Ltd. and the purchasers set forth on the
signature pages thereto.
4.4 Registration Rights Agreement, dated May 10, 1996 between HEARx Ltd.
and the purchasers set forth on the signature pages thereto.
99 Press release dated May 8, 1996.
<PAGE> 1
EXHIBIT 3
RESTATED CERTIFICATE OF INCORPORATION
OF
HEARx LTD.
HEARx LTD., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is HEARx LTD.
2. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State on April 11, 1986, and a Restated Certificate of
Incorporation of the Corporation was filed with the Secretary of State on
February 5, 1987.
3. This Restated Certificate of Incorporation restates and integrates
(including the provisions as provided under the Certificate of Designations,
Preferences and Rights of 1996-Series A Convertible Preferred Stock as filed
with the Secretary of State of the State of Delaware on April 30, 1996; the
Certificate of Designations, Preferences and Rights of 1996 Series B-1
Convertible Preferred Stock as filed with the Secretary of State of the State
of Delaware on May 1, 1996; and the Certificate of Designations, Preferences
and Rights of 1996 Series B-2 Convertible Preferred Stock as filed with the
Secretary of State of the State of Delaware on May 1, 1996) and does not
further amend the provisions of the Corporation's Certificate of Incorporation
as theretofore restated, amended or supplemented, and there is no discrepancy
between those provisions and the provisions of the Restated Certificate.
4. The text of the Restated Certificate of Incorporation, as heretofore
amended or supplemented, shall read in its entirety as follows:
1. The name of the Corporation is:
HEARx LTD.
2. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at
such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the
State of Delaware.
4. The total number of shares of stock which the Corporation
shall have authority to issue is one hundred two million
(102,000,000), consisting of two million (2,000,000) shares of
Preferred Stock of the par value of One Dollar ($1.00) per share and
one hundred million (100,000,000) shares of Common Stock of the par
value of Ten Cents ($.10) per share.
Authority is hereby expressly vested in the Board of Directors to
adopt from time to time resolutions providing for the issuance of the
authorized shares of Preferred Stock, which resolutions shall provide
<PAGE> 2
for the division of shares into classes and series and the designations thereof
and shall fix any or all voting powers, preferences and relative,
participating, optional or other rights, if any, or the qualifications,
limitations or restrictions thereof, including such provisions as may be
desired for the redemption of such shares and/or the conversion of such shares
into shares of any other class or series of stock. Such authority shall be
deemed to include the power to specify the number of shares of any series and
to increase or decrease the number of shares in a class or series previously
determined by the Board of Directors or to change the designation of the shares
of any class or series and to change the preferences and rights of the shares
of Preferred Stock or any class or series thereof, providing that such
increase, decrease or change shall not affect issued shares.
A. 1996-Series A Convertible Preferred Stock shall have the
voting powers, preferences and relative, participating, optional
or other rights, if any, or the qualifications, limitations or
restrictions as set forth on Exhibit A hereto.
B. 1996 Series B-1 Convertible Preferred Stock shall have the
voting powers, preferences and relative, participating, optional
or other rights, if any, or the qualifications, limitations or
restrictions as set forth on Exhibit B hereto.
C. 1996 Series B-2 Convertible Preferred Stock shall have the
voting powers, preferences and relative, participating, optional
or other rights, if any, or the qualifications, limitations or
restrictions as set forth on Exhibit C hereto.
5. The Board of Directors is authorized to make, alter or repeal
the by-laws of the Corporation. Election of directors need not be by
written ballot.
6. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the
application in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for this Corporation under the provisions of section 291 of
Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the
said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case
may be, agree to any compromise or arrangement and to any
reorganization of this Corporation as a consequence of such compromise
or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of
this Corporation, as the case may be, and also on this Corporation.
7. The directors of the Corporation shall have no personal
liability to the Corporation or its stockholders for monetary damages
<PAGE> 3
for breach of fiduciary duty as a director, except to the extent
provided by Section 102(b)(7) of the General Corporation Law of the
State of Delaware.
5. That this Restated Certificate of Incorporation was duly adopted in
accordance with the provisions of Section 245 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed by Paul A. Brown, Chairman and Chief Executive Officer, this 16th day of
May, 1996.
HEARx LTD.
By: /s/ Paul A. Brown
-------------------------------------
Name: Paul A. Brown
Title: Chairman and Chief Executive
Officer
<PAGE> 4
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
1996-SERIES A CONVERTIBLE PREFERRED STOCK
OF
-HEARx LTD.-
HEARx Ltd., a corporation organized on April 11, 1986 and existing under the
laws of the State of Delaware (the "Company"), the Restated Certificate of
Incorporation of which was filed in the office of the Secretary of State of
Delaware on February 5, 1987, does by its Chairman hereby certify:
That pursuant to the authority vested in the Board of Directors by the Restated
Certificate of Incorporation, the Board, at a meeting duly held on April 8,
1996, adopted the following resolutions:
RESOLVED, that pursuant to the authority so conferred upon it, the Board of
Directors hereby authorizes the issuance of 15,000 shares of 1996-Series A
Convertible Preferred Stock, par value $1.00 per share ("1996-Series A
Convertible Preferred"), and
RESOLVED, that the voting powers, preferences and relative rights and
privileges and other rights granted to the 1996-Series A Convertible Preferred
and the qualifications, limitations or restrictions imposed thereon be, and
they hereby are, as follows:
SECTION 1. DESIGNATION AND AMOUNT.
The shares of such series shall be designated as "1996-Series A Convertible
Preferred Stock" (the "1996-Series A Convertible Preferred") and the number of
shares constituting the 1996-Series A Convertible Preferred shall be 15,000.
Such number of shares may be increased or decreased by resolution of the Board
of Directors; provided, that no decrease shall reduce the number of shares of
1996-Series A Convertible Preferred to a number less than the number of shares
then outstanding.
SECTION 2. RANK.
The 1996-Series A Convertible Preferred shall rank: (i) prior to all of the
Company's Common Stock, par value $0.10 per share ("Common Stock"); (ii) prior
to any class or series of capital stock of the Company hereafter created
specifically ranking by its terms junior to any 1996-Series A Convertible
Preferred of whatever subdivision (collectively, with the Common Stock, "Junior
Securities"); (iii) on parity with any class or series of capital stock of the
Company hereafter created specifically ranking by its terms on parity with the
1996-Series A Convertible Preferred Stock ("Parity Securities"); (iv) after all
of the Company's 1996 Senior Preferred Stock; and (v) after any class or series
of capital stock of the Company hereafter created and specifically ranking by
its terms senior to the 1996-Series A Convertible Preferred with the prior
consent of the holders of a majority of the shares of then outstanding 1996-
Series A Convertible Preferred (collectively, with the 1996 Senior Preferred
Stock, "Senior Securities"), in each case as to distributions of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary (all such distributions being referred to collectively as
"Distributions").
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SECTION 3. DIVIDENDS.
The 1996-Series A Convertible Preferred will bear dividends of 8% payment in
kind or cash upon conversion at the option of the Company, and the holders of
1996-Series A Convertible Preferred ("Holders") shall be entitled to receive
such dividends.
SECTION 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the Holders of shares of 1996-Series A
Convertible Preferred shall be entitled to receive, immediately after any
distributions to Senior Securities required by the Company's Certificate of
Incorporation, and prior and in preference to any distribution to Junior
Securities but in parity with any distribution of Parity Securities, an amount
per share equal to the sum of (i) $1,000 for each outstanding shares of 1996-
Series A Convertible Preferred (the "Original 1996-Series A Issue Price") and
(ii) an amount equal to 8% of the Original 1996-Series A Issue Price per annum
for the period that has passed since the date of issuance of any 1996-Series A
Convertible Preferred (such amount being referred to herein as the "Dividend").
If upon the occurrence of such event, the assets and funds thus distributed
among the Holders of the 1996-Series A Convertible Preferred and Parity
Securities shall be insufficient to permit the payment to such holders of the
full preferential amounts due to the holders of the 1996-Series A Convertible
Preferred and the Parity Securities, respectively, then the entire assets and
funds of the Company legally available for such distribution shall be
distributed among the holders of the 1996-Series A Convertible Preferred and
the Parity Securities, on a pro rata basis in proportion to the respective
amounts that otherwise would be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such shares
were paid in full.
(b) Upon the completion of the distribution required by subsection 4(a), if
assets remain in the Company, they shall be distributed to holders of Parity
Securities (unless holders of Parity Securities have received distributions
pursuant to subsection (a) above) and Junior Securities in accordance with the
Company's Certificate of Incorporation.
(c) A consolidation or merger of the Company with or into any other
corporation or corporations, or a sale, conveyance or disposition of all or
substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than
50% of the voting power of the Company is disposed of, shall not be deemed to
be a liquidation, dissolution or winding up within the meaning of this
Section 4, but shall instead be treated pursuant to Section 5(c) hereof.
SECTION 5. CONVERSION.
(a) Holder's Right to Convert.
(i) The record Holder of this 1996-Series A Convertible Preferred shall be
entitled (at the times and in the amounts set forth below), subject to the
Company's right of redemption set forth in Section 6(a), at the office of the
Company or any transfer agent for the 1996-Series A Convertible Preferred, to
convert portions of the 1996-Series A Convertible Preferred held by such Holder
<PAGE> 6
(but only in multiples of $10,000) into that number of unrestricted, fully-paid
and non-assessable shares of the Common Stock at the Conversion Price as set
forth below. The number of shares of Common Stock into which this 1996-Series
A Convertible Preferred may be converted is hereinafter referred to as the
"Conversion Number" for such 1996-A Series A Convertible Preferred. The record
Holder of this 1996-Series A Convertible Preferred shall be entitled to convert
up to 100 percent of the number of shares of 1996-Series A Convertible
Preferred held by such Holder beginning 60 days following the date of the last
closing (the "Last Closing") of a sale of such 1996-Series A Convertible
Preferred Stock that occurs pursuant to the offering of the 1996-Series A
Convertible Preferred Stock by the Company. The following formula sets forth
the Conversion Number for each share of 1996-Series A Convertible Preferred in
the event the Company chooses payment of dividends in kind:
Conversion Number = (.08)(N/365)(1,000) + 1,000
---------------------------
Conversion Price
and the following formula sets forth the Conversion Number for each shares of
1996-Series A Convertible Preferred in the event the Company chooses payment of
dividends in cash:
Conversion Number = 1,000
----------------
Conversion Price
where,
N = the number of days between (i) the date that, in connection with the
consummation of the initial purchase of this 1996-Series A Convertible
Preferred from the Company, the escrow agent first has in its possession,
prior to 10:30 A.M., New York City time on such date (or after 10:30 A.M.
on such date, if the escrow agent is able to deposit such funds in an
interest bearing account in time for such funds to accrue interest for that
day), funds representing full payment for the shares of 1996-Series A
Convertible Preferred for which conversion is being elected, and (ii) the
applicable date of conversion for the shares of 1996-Series A Convertible
Preferred for which conversion is being elected, and
Conversion Price = Lesser of (a) 100% of the average closing bid price of
the Company's Common Stock as reported by the American Stock Exchange
("AMEX") for the five trading days immediately preceding the date of
closing; or (b) 75% of the Strike Price (as defined below) for the five
trading days preceding the Date of Conversion, if average closing bid price
is over $4.50; or if the average closing bid price is between $2.50 and
$4.50, 75% of the Strike Price for the five trading days immediately
preceding the Date of Conversion plus 1% of such Strike Price for every
full $0.10 that the Strike Price is below $4.50; or 95% of the Strike Price
for the five trading days immediately preceding the date of conversion, if
average closing bid price is below $2.50. In no event shall the Conversion
Price exceed $5.00. For purposes hereof, the term "Strike Price" shall
mean the average closing bid price of the Company's Common Stock as
reported by AMEX (or, if not reported by AMEX as reported by such other
exchange or market where traded).
(ii) Mechanics of Conversion. In order to convert 1996-Series A Convertible
Preferred into full shares of Common Stock, the Holder shall (i) transmit
facsimile copy of the fully executed notice of conversion in the form attached
hereto ("Notice of Conversion") to the Company at such office that he elects to
<PAGE> 7
convert the same (Facsimile number (407) 478-9603), which notice shall specify
the number of shares of 1996-Series A Convertible Preferred to be converted and
shall contain a calculation of the Conversion Price (together with a copy of
the first page of each certificate to be converted) to the Company or its
designated transfer agent prior to midnight, New York City time (the
"Conversion Notice Deadline") on the date of conversion specified on the Notice
of Conversion and (ii) surrender the original certificate or certificates
therefor, duly endorsed, and deliver the original Notice of Conversion by
either overnight courier or 2-day courier, to the office of the Company or of
any transfer agent for the 1996-Series A Convertible Preferred; provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless
either the certificates evidencing such 1996-Series A Convertible Preferred are
delivered to the Company or its transfer agent as provided above, or the Holder
notifies the Company or its transfer agent that such certificates have been
lost, stolen or destroyed. Upon receipt by the Company of evidence of the
loss, theft, destruction or mutilation of the certificate or certificates
("Stock Certificates") representing shares of 1996-Series A Convertible
Preferred, and (in the case of loss, theft or destruction) of indemnity or
security reasonably satisfactory to the Company, and upon surrender and
cancellation of the Stock Certificate(s), if mutilated, the Company shall
execute and deliver new Stock Certificate(s) of like tenor and date. No
fractional shares of Common Stock shall be issued upon conversion of this 1996-
Series A Convertible Preferred. In lieu of any fractional share to which the
Holder would otherwise be entitled, the Company shall pay cash to such Holder
in an amount equal to such fraction multiplied by the Conversion Price then in
effect. In the case of a dispute as to the calculation of the Conversion
Price, the Company's calculation shall be deemed conclusive absent manifest
error.
The Company shall use all reasonable efforts to issue and deliver within three
(3) business days after delivery to the Company of such certificates, or after
such agreement and indemnification, to such Holder of 1996-Series A Convertible
Preferred at the address of the Holder on the books of the Company, a
certificate or certificates for the number of shares of Common Stock equal to
the Conversion Number, which, at the option of the Company may include
dividends payable in kind as aforesaid. The date on which conversion occurs
(the "Date of Conversion") shall be deemed to be the date set forth in such
Notice of Conversion, provided (i) that the copy of the Notice of Conversion is
faxed to the Company before midnight, New York City time, on the Date of
Conversion, and (ii) that the original Stock Certificates representing the
shares of 1996-Series A Convertible Preferred to be converted are received by
the transfer agent or the Company within three business days thereafter. The
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. If the original Stock
Certificates representing the 1996-Series A Convertible Preferred to be
converted are not received by the transfer agent or the Company within three
business days after the Date of Conversion or if the facsimile of the Notice of
Conversion is not received by the Company or its designated transfer agent
prior to the Conversion Notice Deadline, the Notice of Conversion, at the
Company's option, may be declared null and void.
(b) Mandatory Conversion. At any time after April 30, 1999, the Company may
require the Holders of this 1996-Series A Convertible Preferred to convert such
1996-Series A Convertible Preferred into that number of fully paid and non-
assessable shares of Common Stock, computed pursuant to the applicable formula
set forth in Section 5(a)(i) above, where the Conversion Price equals 80% of
<PAGE> 8
the Strike Price for the five trading days preceding the date of conversion.
The Company shall effect such conversion by giving written notice to Holders at
least two but not more than ten days prior to effectuating the conversion
("Effective Mandatory Conversion Date"). Holders will thereupon be required to
surrender their preferred stock certificates to the Company in order to receive
certificates evidencing shares of the Company's Common Stock, and all rights of
Holders, except the right to receive certificates evidencing Common Stock
pursuant to the mandatory conversion, shall be extinguished as of the Effective
Mandatory Conversion Date.
(c) Reservation of Stock Issuable Upon Conversion. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the 1996-
Series A Convertible Preferred, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all then
outstanding 1996-Series A Convertible Preferred; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of 1996-Series A
Convertible Preferred, the Company will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
(d) Adjustment to Conversion Price.
(i) If, prior to the conversion of all 1996-Series A Convertible Preferred,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Company shall be changed into the same or a different number of
shares of the same or another class or classes of stock or securities of the
Company or another entity, then the Holders of 1996-Series A Convertible
Preferred shall thereafter have the right to purchase and receive upon
conversion of 1996-Series A Convertible Preferred, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities as may be issued or payable with respect to or in exchange for the
number of shares of Common Stock immediately theretofore purchasable and
receivable upon the conversion of 1996-Series A Convertible Preferred held by
such Holders had such merger, consolidation, exchange of shares,
recapitalization or reorganization not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests
of the Holders of the 1996-Series A Convertible Preferred to the end that the
provisions hereof (including, without limitation, provisions for adjustment of
the number of shares issuable upon conversion of the 1996-Series A Convertible
Preferred) shall thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock or securities thereafter deliverable upon the
exercise hereof. The Company shall not effect any transaction described in
this subsection 5(c) unless the resulting successor or acquiring entity (if not
the Company) assumes by written instrument the obligation to deliver to the
Holders of the 1996-Series A Convertible Preferred such shares of stock and/or
securities as, in accordance with the foregoing provisions, the Holders of the
1996-Series A Convertible Preferred may be entitled to purchase.
(ii) If, any adjustment under this subsection 5(c) would create a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion shall be the next higher number of shares.
<PAGE> 9
SECTION 6. CASH REDEMPTION BY COMPANY.
(a) Right to Redeem. Commencing 45 days after the Closing Date, the Company
shall have the right, in its sole discretion, to redeem in whole or in part,
any shares of 1996-Series A Convertible Preferred Stock. If the Company elects
to redeem some, but not all, of the 1996-Series A Convertible Preferred Stock,
the Company shall redeem from among the shares a pro-rata amount from each
shareholder.
(b) Mechanics of Redemption. The Company shall effect each such redemption by
giving notice of its election to redeem by facsimile to the Holder of shares of
1996-Series A Convertible Preferred at the address and facsimile number of such
holder appearing in the Company's register for the 1996-Series A Convertible
Preferred. Such redemption notice shall indicate whether the Company will
redeem all or part of the shares of 1996-Series A Convertible Preferred and the
applicable redemption price. The Company shall not be entitled to send any
notice of redemption and begin the redemption procedure unless it has the full
amount of the redemption price, in cash or liquid assets, available in a demand
or other immediately available account in a bank or similar financial
institution on the date the redemption notice is sent to shareholders.
The Redemption Price per shares of 1996-Series A Convertible Preferred Stock
shall be calculated in accordance with the following formula:
$5,000.00 per share of 1996-Series A Convertible Preferred Stock
The Redemption Price shall be paid to the Holder of shares of 1996-Series A
Convertible Preferred immediately; provided, however, that the Company shall
not be obligated to deliver any portion of such redemption price unless either
the certificates evidencing the shares of 1996-Series A Convertible Preferred
redeemed are delivered to the Company or its transfer agent as provided in
Section 5.
SECTION 7. VOTING RIGHTS.
Except as otherwise provided by Delaware Law, the Holders of the 1996-Series A
Convertible Preferred shall have no voting power whatsoever, and no holder of
1996-Series A Convertible Preferred shall vote or otherwise participate in any
proceeding in which actions shall be taken by the Company or the shareholders
thereof or be entitled to notification as to any meeting of the Board of
Directors or the shareholders.
To the extent that under Delaware Law the vote of the Holders of the 1996-
Series A Convertible Preferred, voting separately as a class, is required to
authorize a given action of the Company, the affirmative vote or consent of the
holders of at least a majority of the outstanding shares of the 1996-Series A
Convertible Preferred shall constitute the approval of such action by the
class. To the extent that under Delaware Law the holders of the 1996-Series A
Convertible Preferred are entitled to vote on a matter with holders of Common
Stock, voting together as one class, each share of 1996-Series A Convertible
Preferred shall be entitled to a number of votes equal to the number of shares
of Common Stock into which it is then convertible using the record date for the
taking of such vote of stockholders as the date as of which the Conversion
Price is calculated. Holders of the 1996-Series A Convertible Preferred shall
be entitled to notice of all shareholder meetings or written consents with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Company's by-laws and applicable statutes.
<PAGE> 10
SECTION 8. PROTECTIVE PROVISIONS.
So long as any shares of 1996-Series A Convertible Preferred are outstanding,
the Company shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of 1996-Series A Convertible Preferred
(a) alter or change the rights, preferences or privileges of the shares of
1996-Series A Convertible Preferred or any Senior Securities so as to affect
adversely the 1996-Series A Convertible Preferred;
(b) create any new class or series of stock having a preference over the 1996-
Series A Convertible Preferred with respect to Distributions (as defined in
Section 2 above); or
(c) do any act or thing not authorized or contemplated by this Certificate of
Designation which would result in taxation of the holders of shares of the
1996-Series A Convertible Preferred under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
SECTION 9. STATUS OF REDEEMED OR CONVERTED STOCK.
In the event any shares of 1996-Series A Convertible Preferred shall be
converted or redeemed pursuant to Section 5 or Section 6 hereof, the shares so
converted or redeemed shall be cancelled, shall return to the status of
authorized, but unissued preferred stock of no designated series, and shall not
be issuable by the Company as 1996-Series A Convertible Preferred.
SECTION 10. PREFERENCE RIGHTS.
Nothing contained herein shall be construed to prevent the Board of Directors
of the Company from issuing one or more series of preferred stock with dividend
and/or liquidation preferences equal to the dividend and liquidation
preferences of the 1996-Series A Convertible Preferred.
FURTHER RESOLVED, that the statements contained in the foregoing resolutions
creating and designating the said 1996-Series A Convertible Preferred and
fixing the number, powers, preferences and relative, optional, participating,
and other special rights and the qualifications, limitations, restrictions, and
other distinguishing characteristics hereof shall, upon the effective date of
said series, be deemed to be included in and be a part of the certificate of
incorporation of the Company pursuant to the provisions of Delaware law.
Signed on 29 of April 1996.
______________________Chairman of the Board and CEO
Paul A. Brown, MD
______________________President and COO
Stephen J. Hansborough
<PAGE> 11
NOTICE OF CONVERSION
(To be executed by the Registered Holder
in order to Convert the 1996-Series A Convertible Preferred Stock)
The undersigned hereby irrevocably elects to convert _____ shares of 1996-
Series A Convertible Preferred Stock, represented by stock certificate No(s).
_____ (the "Convertible Preferred Certificates") into shares of common stock
("Common Stock") of HEARx, Ltd. (the "Company") pursuant to the conditions of
the Certificate of Designation of 1996-Series A Convertible Preferred, as of
the date written below. If shares are to be issued in the name of a person
other than undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates. No fee will
be charged to the Holder for any conversion, except for transfer taxes, if any.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the 1996-Series A Convertible Preferred shall be made in
compliance with Regulation S, pursuant to registration of the Common Stock
under the Act or pursuant to an exemption from registration under the Act.
Conversion Calculations:
_________________________________________
Date of Conversion
_________________________________________
Applicable Conversion Price
_________________________________________
Signature
_________________________________________
Name
_________________________________________
Address
_________________________________________
_________________________________________
<PAGE> 12
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
1996 SERIES B-1 CONVERTIBLE PREFERRED STOCK
of
HEARx LTD.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
HEARx Ltd., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies
that the following resolutions were adopted by the Board of Directors of the
Corporation pursuant to authority of the Board of Directors as required by
Section 151 of the Delaware General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation (the "Board of Directors" or the "Board") in
accordance with the provisions of its Amended and Restated Certificate of
Incorporation, the Board of Directors hereby authorizes a series of the
Corporation's previously authorized Preferred Stock, par value $1.00 per share
(the "Preferred Stock"), and hereby states the designation and number of
shares, and fixes the relative rights, preferences, privileges, powers and
restrictions thereof as follows:
1996 Series B-1 Convertible Preferred Stock:
I. Designation and Amount
----------------------
The designation of this series, which consists of 15,000 shares of
Preferred Stock, is 1996 Series B-1 Convertible Preferred Stock (the "Series B-
1 Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "Stated Value").
II. Rank
----
All Series B-1 Preferred Stock shall rank (i) prior to the Corporation's
Common Stock, par value $.10 per share (the "Common Stock"); (ii) prior to any
class or series of capital stock of the Corporation hereafter created (unless,
with the consent of the holders of Series B-1 Preferred Stock and the Series B-
2 Preferred Stock (as defined below), voting together as a single class,
obtained in accordance with Article IX hereof, such class or series of capital
stock specifically, by its terms, ranks senior to or pari passu with the Series
B-1 Preferred Stock) (collectively, with the Common Stock, "Junior
Securities"); (iii) pari passu with (x) the Corporation's 1996 Series B-2
Convertible Preferred Stock (the "Series B-2 Preferred Stock"), (y) the
Corporation's 1996 Series A Convertible Preferred Stock (the "Series A
Preferred Stock") and (z) any class or series of capital stock of the
Corporation hereafter created (with the consent of the holders of Series B-1
Preferred Stock and Series B-2 Preferred Stock (voting together as a single
<PAGE> 13
class) obtained in accordance with Article IX hereof) specifically ranking, by
its terms, on parity with the Series B-1 Preferred Stock (collectively, with
the Series B-2 Preferred Stock and the Series A Preferred Stock, the "Pari
Passu Securities"); and (iv) junior to the Corporation's 1996 Senior Preferred
Stock (the "Senior Preferred Stock") and any class or series of capital stock
of the Corporation hereafter created (with the consent of the holders of Series
B-1 Preferred Stock and Series B-2 Preferred Stock (voting together as a single
class) obtained in accordance with Article IX hereof) specifically ranking, by
its terms, senior to the Series B-1 Preferred Stock (collectively, with the
Senior Preferred Stock, "Senior Securities"), in each case as to distribution
of assets upon liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary.
III. No Dividends
------------
The Series B-1 Preferred Stock will bear no dividends, and the holders of
the Series B-1 Preferred Stock shall not be entitled to receive dividends on
the Series B-1 Preferred Stock.
IV. Liquidation Preference
----------------------
A. If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or State bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of sixty (60) consecutive days and, on account of any such event (a
"Liquidation Event"), the Corporation shall liquidate, dissolve or wind up, or
if the Corporation shall otherwise liquidate, dissolve or wind up, no
distribution shall be made to the holders of any shares of capital stock of the
Corporation (other than Senior Securities) upon liquidation, dissolution or
winding up unless prior thereto, the holders of shares of Series B-1 Preferred
Stock, subject to Article VI, shall have received the Liquidation Preference
(as defined in Article IV.C) with respect to each share. If upon the
occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series B-1 Preferred Stock and holders of
Pari Passu Securities shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire assets and
funds of the Corporation legally available for distribution to the Series B-1
Preferred Stock and the Pari Passu Securities shall be distributed ratably
among such shares in proportion to the ratio that the Liquidation Preference
payable on each such share bears to the aggregate Liquidation Preference
payable on all such shares.
<PAGE> 14
B. At the option of any holder of Series B-1 Preferred Stock, the
sale, conveyance or disposition of all or substantially all of the assets of
the Corporation, the effectuation by the Corporation of a transaction or series
of related transactions in which more than 50% of the voting power of the
Corporation is disposed of, or the consolidation, merger or other business
combination of the Corporation with or into any other Person (as defined below)
or Persons when the Corporation is not the survivor shall either: (i) be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of this Article IV; or (ii) be treated pursuant to Article VI.C hereof.
"Person" shall mean any individual, corporation, limited liability company,
partnership, association, trust or other entity or organization.
C. For purposes hereof, the "Liquidation Preference" with respect to
a share of the Series B-1 Preferred Stock shall mean an amount equal to the sum
of (i) the Stated Value thereof plus (ii) an amount equal to eight percent (8%)
per annum of such Stated Value for the period beginning on the date of issuance
of such share and ending on the date of final distribution to the holder
thereof.
V.
Cash Redemption of Premium by Corporation; No Redemption of
Series B-1 Preferred Stock.
-----------------------------------------------------------
A. (a) The Corporation shall have the right, in its sole discretion,
upon receipt of a Notice of Conversion pursuant to Article VI.D. or in the
event of a Mandatory Conversion effected in accordance with Article VII hereof,
to redeem any portion of the Premium (as defined in Article VI. A. below)
subject to such conversion for a sum of cash equal to the amount of the Premium
being so redeemed. All cash redemption payments hereunder shall be paid in
lawful money of the United States of America at such address for the holder as
appears on the record books of the Corporation (or at such other address as
such holder shall hereafter give to the Corporation by written notice). In the
event the Corporation elects, pursuant to this Article V.A., to redeem all or
any portion of the Premium in cash and fails to pay such holder the applicable
redemption amount to which such holder is entitled by depositing a check in the
U.S. Mail to such holder within three (3) business days of receipt by the
Corporation of a Conversion Notice (in the case of a redemption in connection
with an Optional Conversion) or April 30, 1999 (in the case of a redemption in
connection with an Optional Conversion), the Corporation shall thereafter
forfeit its right to redeem such Premium in cash and such Premium shall
thereafter be converted into shares of Common Stock and Warrants in accordance
with Article VI hereof.
(b) Each holder of Series B-1 Preferred Stock shall have the right
to require the Corporation to provide advance notice to such holder stating
whether the Corporation will elect to redeem all or any portion of the Premium
in cash pursuant to the Corporation's redemption rights discussed in
subparagraph (a) of this Article V.A as set forth herein. A holder may
exercise such right from time to time by sending notice (an "Election Notice")
to the Corporation, by facsimile, requesting that the Corporation disclose to
such holder whether the Corporation would elect to redeem any portion of the
Premium for cash in lieu of issuing Common Stock and Warrants in accordance
with Article VI hereof if such holder were to exercise his, her or its right of
conversion pursuant to Article VI. The Corporation shall, no later than the
close of business on the next business day following receipt of an Election
Notice, disclose to such holder whether the Corporation would elect to redeem
any portion of a Premium in connection with a conversion pursuant to a
<PAGE> 15
Conversion Notice delivered over the subsequent five (5) business day period.
If the Corporation does not respond to such holder within such one (1) business
day period via facsimile, the Corporation shall, with respect to any conversion
pursuant to a Conversion Notice delivered within the subsequent five (5)
business day period, forfeit its right to redeem such Premium in accordance
with subparagraph (a) of this Article V.A. and shall be required to convert
such Premium into shares of Common Stock and Warrants in accordance with
Article VI hereof.
B. The Series B-1 Preferred Stock is not subject to mandatory
redemption. The Corporation shall have no right to redeem any shares of Series
B-1 Preferred Stock for cash, whether upon conversion pursuant to Article VI or
otherwise.
VI. Conversion at the Option of the Holder
--------------------------------------
A. Each holder of shares of Series B-1 Preferred Stock may, at its
option at any time and from time to time, upon surrender of the certificates
therefor, convert any or all of its shares of Series B-1 Preferred Stock into
Common Stock as follows (an "Optional Conversion"). Each share of Series B-1
Preferred Stock shall be convertible into (i) such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing (x) the sum
of (I) the Stated Value thereof, plus (II) unless the Corporation has timely
redeemed such Premium in cash in accordance with Article V.A, an amount equal
to eight percent (8%) per annum of such Stated Value for the period beginning
on the date of issuance of such share and ending on the Conversion Date (the
"Premium"), by (y) the then effective Conversion Price (as defined below); and
(ii) warrants (the "Warrants") in the form attached as Exhibit A to the
Securities Purchase Agreement, dated on or about April 30, 1996, by and between
the Corporation and the other signatories thereto (the "Purchase Agreement"),
to acquire a number of shares of Common Stock equal to the number of shares of
Common Stock issuable pursuant to clause (i) above; provided, however, that in
no event shall the Corporation issue any Warrants upon conversion of any share
of Series B-1 Preferred Stock to the extent that the number of shares of Common
Stock initially issuable upon exercise of such Warrants exceeds the quotient
obtained by dividing the Stated Value for such share of Series B-1 Preferred
Stock by 80% of the Fixed Conversion Price (as defined below) then in effect
and provided, further, that in no event shall holders of shares of Series B-1
Preferred Stock be entitled to convert any such shares in excess of that number
of shares upon conversion of which the sum of (x) the number of shares of
Common Stock beneficially owned by the holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the shares of Series B-1 Preferred
Stock and the unexercised portion of the Warrants (including any Warrants
issuable upon conversion of the shares of Series B-1 Preferred Stock with
respect to which the determination of this proviso is being made)) and (y) the
number of shares of Common Stock issuable upon the conversion of the shares of
Series B-1 Preferred Stock with respect to which the determination of this
proviso is being made would result in beneficial ownership by the holder and
its affiliates of more than 4.9% of the outstanding shares of Common Stock.
For purposes of the second proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, and Regulation 13 D-G
thereunder, except as otherwise provided in clause (x) of such proviso.
<PAGE> 16
B. (a) Subject to subparagraph (b) below, the "Conversion Price"
shall be the lesser of (i) the Applicable Percentage (as hereinafter defined)
of the average of the closing bid prices for the Common Stock on the American
Stock Exchange ("AMEX"), or on the principal securities exchange or other
securities market on which the Common Stock is then being traded, for the ten
(10) consecutive Trading Days (as defined below) ending one Trading Day prior
to the date (the "Conversion Date") the Conversion Notice is sent by a holder
to the Corporation via facsimile (the "Variable Conversion Price"), and (ii)
$5.00 (the "Fixed Conversion Price") (subject to equitable adjustments from
time to time pursuant to the antidilution provisions of Article VI.C below).
"Trading Day" shall mean any day on which the Common Stock is traded for any
period on AMEX, or on the principal securities exchange or other securities
market on which the Common Stock is then being traded. Applicable Percentage
means (i) 100%, if the Conversion Date is within sixty (60) days after the date
of the First Closing under the Purchase Agreement (the "First Closing Date"),
(ii) 85%, if the Conversion Date is within one hundred eighty (180) days, but
more than sixty (60) days, after the First Closing Date, (iii) 80%, if the
Conversion Date is within three hundred sixty (360) days, but more than one
hundred eighty (180) days, after the First Closing Date, and (iv) 75%, if the
Conversion Date is more than three hundred sixty (360) days after the First
Closing Date.
(b) Notwithstanding anything contained in subparagraph (a) of this
Paragraph B to the contrary, in the event the Corporation (i) makes a public
announcement that it intends to consolidate or merge with any other
corporation (other than a merger in which the Corporation is the surviving or
continuing corporation and its capital stock is unchanged) or sell or transfer
all or substantially all of the assets of the Corporation or (ii) any person,
group or entity (including the Corporation) publicly announces a tender offer
to purchase 50% or more of the Corporation's Common Stock (the date of the
announcement referred to in clause (i) or (ii) is hereinafter referred to as
the "Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal to the Conversion Price which
would have been applicable for an Optional Conversion occurring on the
Announcement Date. From and after the Adjusted Conversion Price Termination
Date, the Conversion Price shall be determined as set forth in subparagraph (a)
of this Paragraph VI B. For purposes hereof, "Adjusted Conversion Price
Termination Date" shall mean, with respect to any proposed transaction or
tender offer for which a public announcement as contemplated by this
subparagraph (b) has been made, the date upon which the Corporation (in the
case of clause (i) above) or the person, group or entity (in the case of clause
(ii) above) publicly announces the termination or abandonment of the proposed
transaction or tender offer which caused this subparagraph (b) to become
operative.
C. The Conversion Price shall be subject to adjustment from time to
time as follows:
(a) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If at any time when the Series B-1 Preferred Stock is issued
and outstanding, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, or other similar event, the Fixed Conversion
Price shall be proportionately reduced, or if the number of outstanding shares
of Common Stock is decreased by a reverse stock split, combination or
reclassification of shares, or other similar event, the Fixed Conversion Price
shall be proportionately increased. In such event the Corporation shall notify
the Transfer Agent of such change on or before the effective date thereof.
<PAGE> 17
(b) Adjustment to Variable Conversion Price. If at any time when
Series B-1 Preferred Stock is issued and outstanding, the number of outstanding
shares of Common Stock is increased or decreased by a stock split, stock
dividend, combination, reclassification or other similar event, which event
shall have taken place during the reference period for determination of the
Conversion Price for any Optional Conversion or Mandatory Conversion of the
Series B-1 Preferred Stock, then the Variable Conversion Price shall be
calculated giving appropriate effect to the stock split, stock dividend,
combination, reclassification or other similar event for all ten (10) Trading
Days immediately preceding the Conversion Date.
(c) Adjustment Due to Merger, Consolidation, Etc. If, at any time
when Series B-1 Preferred Stock is issued and outstanding and prior to the
conversion of all Series B-1 Preferred Stock, there shall be (i) any
reclassification or change of the outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), (ii) any
consolidation or merger of the Corporation with any other corporation (other
than a merger in which the Corporation is the surviving or continuing
corporation and its capital stock is unchanged), (iii) any sale or transfer of
all or substantially all of the assets of the Corporation or (iv) any share
exchange pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property, then the holders of Series B-1
Preferred Stock shall, upon being given at least thirty (30) days prior written
notice of such transaction, thereafter have the right to purchase and receive
upon conversion of Series B-1 Preferred Stock, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
and Warrants immediately theretofore issuable upon conversion, such shares of
stock and/or securities or other property as may be issued or payable with
respect to or in exchange for the number of shares of Common Stock and Warrants
immediately theretofore purchasable and receivable upon the conversion of
Series B-1 Preferred Stock held by such holders had such merger, consolidation,
exchange of shares, recapitalization, reorganization or other similar event not
taken place (but utilizing the Conversion Price determined in accordance with
Paragraph B(b) of this Article VI, if applicable), and in any such case
appropriate provisions shall be made with respect to the rights and interests
of the holders of the Series B-1 Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares and Warrants issuable upon
conversion of the Series B-1 Preferred Stock) shall thereafter be applicable,
as nearly as may be practicable in relation to any shares of stock or
securities thereafter deliverable upon the conversion thereof. The Corporation
shall not effect any transaction described in this subsection (c) unless (i)
each holder of Series B-1 Preferred Stock has received written notice of such
transaction at least thirty (30) days prior thereto and in no event later than
ten (10) days prior to the record date for the determination of shareholders
entitled to vote with respect thereto, and (ii) the provisions of this
paragraph have been complied with. The above provisions shall similarly apply
to successive reclassifications, consolidations, mergers, sales, transfers or
share exchanges.
(d) No Fractional Shares. If any adjustment under this Article
VI.C. would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded
and the number of shares of Common Stock issuable upon conversion shall be the
next higher number of shares.
<PAGE> 18
D. In order to convert Series B-1 Preferred Stock into full shares of
Common Stock, a holder shall: (i) fax a copy of the fully executed notice of
conversion in the form attached hereto ("Notice of Conversion") to the
Corporation at the office of the Corporation or its designated Transfer Agent,
if any, for the Series B-1 Preferred Stock that the holder elects to convert
the same, which notice shall specify the number of shares of Series B-1
Preferred Stock to be converted, the applicable Conversion Price and a
calculation of the number of shares of Common Stock and Warrants issuable upon
such conversion (together with a copy of the first page of each certificate to
be converted) prior to Midnight, New York City time (the "Conversion Notice
Deadline") on the date of conversion specified on the Notice of Conversion; and
(ii) surrender the original certificates representing the Series B-1 Preferred
Stock being converted (the "Preferred Stock Certificates"), duly endorsed,
along with a copy of the Notice of Conversion as soon as practicable thereafter
to the office of the Corporation or the Transfer Agent, if any, for the Series
B-1 Preferred Stock; provided, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion, or Warrants to acquire shares of Common Stock issuable
upon such conversion, unless either the Preferred Stock Certificates are
delivered to the Corporation or its Transfer Agent as provided above, or the
holder notifies the Corporation or its Transfer Agent that such certificates
have been lost, stolen or destroyed (subject to the requirements of
subparagraph (a) below). In the case of a dispute as to the calculation of the
Conversion Price, the Corporation shall promptly issue such number of shares of
Common Stock and Warrants to purchase shares of Common Stock that are not
disputed in accordance with subparagraph (b) below. The Corporation shall
submit the disputed calculations to its outside accountant via facsimile within
two (2) business days of receipt of the Notice of Conversion. The accountant
shall audit the calculations and notify the Corporation and the holder of the
results no later than 48 hours from the time it receives the disputed
calculations. The accountant's calculation shall be deemed conclusive absent
manifest error.
(a) Lost or Stolen Certificates. Upon receipt by the Corporation
of evidence of the loss, theft, destruction or mutilation of any Preferred
Stock Certificates representing shares of Series B-1 Preferred Stock, and (in
the case of loss, theft or destruction) of indemnity or security reasonably
satisfactory to the Corporation, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Corporation shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date. However,
the Corporation shall not be obligated to reissue such lost or stolen Preferred
Stock Certificate(s) if the holder contemporaneously requests the Corporation
to convert such Series B-1 Preferred Stock.
(b) Delivery of Common Stock and Warrants Upon Conversion. Upon
the surrender of certificates as described above from a holder of Series B-1
Preferred Stock accompanied by a Notice of Conversion, the Corporation shall
issue and, within two (2) business days (the "Delivery Period") after such
surrender (or, in the case of lost, stolen or destroyed certificates, after
provision of agreement and indemnification pursuant to subparagraph (a) above),
deliver to or upon the order of the holder (i) that number of shares of Common
Stock and Warrants for the portion of the shares of Series B-1 Preferred Stock
converted as shall be determined in accordance herewith and (ii) a certificate
representing the balance of the shares of Series B-1 Preferred Stock not
converted, if any. In addition to any other remedies available to the holder,
including actual damages and/or equitable relief, the Corporation shall pay to
a holder $250 in cash for the first day beyond such Delivery Period that the
Corporation fails to deliver Common Stock and Warrants issuable upon surrender
<PAGE> 19
of shares of Series B-1 Preferred Stock with a Notice of Conversion and $500
per day in cash for each day thereafter until such time as the earlier of the
date that the Corporation has delivered all such Common Stock and Warrants and
the tenth day beyond such Delivery Period. Such cash amount shall be paid to
such holder by the fifth day of the month following the month in which it has
accrued. In the event the Corporation fails to deliver such Common Stock and
Warrants prior to the expiration of the ten (10) business day period after the
Delivery Period for any reason (whether due to a requirement of law or a stock
exchange or otherwise), such holder shall be entitled to (in addition to any
other remedies available to the holder) Conversion Default Payments in
accordance with Article VI.E. hereof beginning on the expiration of such ten
(10) business day period.
(c) No Fractional Shares. If any conversion of Series B-1
Preferred Stock would result in a fractional share of Common Stock or the right
to acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion,
and the number of shares which may be acquired upon exercise of any Warrant
issuable upon conversion, of the Series B-1 Preferred Stock shall be the next
higher number of shares.
(d) Conversion Date. The "Conversion Date" shall be the date
specified in the Notice of Conversion, provided (i) that the advance copy of
the Notice of Conversion is faxed to the Corporation before Midnight, New York
City time, on the Conversion Date, and (ii) that the original Preferred Stock
Certificate(s), duly endorsed, are surrendered along with a copy of the Notice
of Conversion as soon as practicable thereafter to the office of the
Corporation or the Transfer Agent for the Series B-1 Preferred Stock. The
person or persons entitled to receive the shares of Common Stock and Warrants
issuable upon conversion shall be treated for all purposes as the record holder
or holders of such securities as of the Conversion Date and all rights with
respect to the shares of Series B-1 Preferred Stock surrendered shall forthwith
terminate except the right to receive the shares of Common Stock and Warrants
or other securities or property issuable on such conversion.
E. A number of shares of the authorized but unissued Common Stock
sufficient to provide for (i) the conversion of the Series B-1 Preferred Stock
outstanding at the then current Conversion Price and (ii) the exercise of
Warrants issuable upon such conversion, if applicable, shall at all times be
reserved by the Corporation, free from preemptive rights, for such conversion
or exercise. If the Corporation shall issue any securities or make any change
in its capital structure which would change the number of shares of Common
Stock into which each share of the Series B-1 Preferred Stock shall be
convertible at the then current Conversion Price or the number of Warrants
issuable upon such conversion, if applicable, the Corporation shall at the same
time also make proper provision so that thereafter there shall be a sufficient
number of shares of Common Stock authorized and reserved, free from preemptive
rights, for conversion of the outstanding Series B-1 Preferred Stock on the new
basis and exercise of the Warrants, if applicable. If, at any time a holder of
shares of Series B-1 Preferred Stock submits a Conversion Notice, the
Corporation does not have sufficient authorized but unissued shares of Common
Stock available to effect such conversion (and exercise of the Warrants) in
accordance with the provisions of this Article VI (a "Conversion Default"), the
Corporation shall issue to the holder all of the shares of Common Stock which
are available to effect such conversion (including, with the Holder's written
consent, any shares underlying Warrants issued or then issuable ("Borrowed
Shares")). The number of shares of Series B-1 Preferred Stock included in the
Notice of Conversion which exceeds the amount which is then convertible into
<PAGE> 20
available shares of Common Stock (including Borrowed Shares, if any) and
Warrants exercisable for Common Stock (the "Excess Amount") shall,
notwithstanding anything to the contrary contained herein, not be convertible
into Common Stock and Warrants in accordance with the terms hereof until (and
at the holder's option at any time after) the date additional shares of Common
Stock are authorized by the Corporation to permit such conversion, at which
time the Conversion Price in respect thereof shall be the lesser of (i) the
Conversion Price on the Conversion Date Default (as defined below) and (ii) the
Conversion Price on the Conversion Date elected by the holder in respect
thereof. The Corporation shall pay to the holder payments ("Conversion Default
Payments") for a Conversion Default in the amount of (N/365), multiplied by the
sum of the Stated Value with respect to each share of Series B-1 Preferred
Stock, multiplied by the Default Amount (as defined below) on the first day of
the Conversion Default (the "Conversion Default Date"), multiplied by .36,
where (i) N = the number of days from the Conversion Default Date to the date
(the "Authorization Date") that the Corporation authorizes a sufficient number
of shares of Common Stock to effect conversion of the full number of shares of
Series B-1 Preferred Stock and the Warrants and (ii) "Default Amount" means the
Excess Amount plus the number of shares of Series B-1 Preferred Stock that
would not be convertible as a result of this Section VI.E but for the Borrowed
Shares. The Corporation shall send notice to the holder of the authorization
of additional shares of Common Stock, the Authorization Date and the amount of
holder's accrued Conversion Default Payments. The accrued Conversion Default
Payments for each calendar month shall be paid in cash or shall be convertible
into Common Stock and Warrants at the Conversion Price, at the holder's option,
as follows:
(a) In the event holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth day of the month following the
month in which it has accrued; and
(b) In the event holder elects to take such payment in Common
Stock and Warrants, the holder may convert such payment amount into Common
Stock and Warrants at the Conversion Price (as in effect at the time of
Conversion) at any time after the fifth day of the month following the month in
which it has accrued in accordance with the terms of this Article VI.
Nothing herein shall limit the holder's right to pursue actual damages for the
Corporation's failure to maintain a sufficient number of authorized shares of
Common Stock, and each holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance
and/or injunctive relief).
F. Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Article VI, the Corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series B-1 Preferred
Stock a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
B-1 Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the
Conversion Price at the time in effect and (iii) the number of shares of Common
Stock and the amount, if any, of other securities or property which at the time
would be received upon conversion of a share of Series B-1 Preferred Stock.
<PAGE> 21
VII. Mandatory Conversion
--------------------
Each share of Series B-1 Preferred Stock issued and outstanding on April
30, 1999, automatically shall be converted into shares of Common Stock and
Warrants on such date at the then effective Conversion Price in accordance with
the provisions of Article VI hereof (the "Mandatory Conversion").
VIII. Voting Rights
-------------
The holders of the Series B-1 Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation
Law ("DGCL"), and in this Article VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide each holder of
Series B-1 Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of
its shareholders for the purpose of determining shareholders who are entitled
to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Corporation, or any proposed liquidation, dissolution or winding up of the
Corporation, the Corporation shall mail a notice to each holder, at least ten
(10) days prior to the record date specified therein (or 30 days prior to the
consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the
extent known at such time.
To the extent that under the DGCL the vote of the holders of the Series B-1
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote
or consent of the holders of at least a majority of the shares of the Series B-
1 Preferred Stock represented at a duly held meeting at which a quorum is
present or by written consent of a majority of the shares of Series B-1
Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL holders of the Series B-1 Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share
of Series B-1 Preferred Stock shall be entitled to a number of votes equal to
the number of shares of Common Stock into which it is then convertible using
the record date for the taking of such vote of shareholders as the date as of
which the Conversion Price is calculated. Holders of the Series B-1 Preferred
Stock shall be entitled to notice of (and copies of proxy materials and other
information sent to shareholders) all shareholder meetings or written consents
with respect to which they would be entitled to vote, which notice would be
provided pursuant to the Corporation's by-laws and the DGCL.
<PAGE> 22
IX. Protection Provision
--------------------
So long as shares of Series B-1 Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the holders of at least a majority of the
then outstanding shares of Series B-1 Preferred Stock and Series B-2 Preferred
Stock (voting together as a single class):
(a) alter or change the rights, preferences or privileges of the
Series B-1 Preferred Stock or any Senior Securities so as to affect adversely
the Series B-1 Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series B-1 Preferred Stock as to dividends and as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation (as previously defined in Article II hereof, "Senior Securities");
(c) create any new class or series of capital stock ranking pari
passu with the Series B-1 Preferred Stock as to dividends and as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation (as previously defined in Article II hereof, "Pari Passu
Securities");
(d) increase the authorized number of shares of Series B-1
Preferred Stock.
(e) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series B-1 Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended); or
(f) issue after April 30, 1996 any Senior Securities or Pari Passu
Securities other than (i) Series B-1 Preferred Stock and 1996 Series B-2
Convertible Preferred Stock issuable pursuant to the Purchase Agreement and
(ii) up to 10,000 shares of 1996-Series A Preferred Stock.
In the event holders of at least a majority of the then outstanding shares
of Series B-1 Preferred Stock and Series B-2 Preferred Stock (voting together
as a single class) agree to allow the Corporation to alter or change the
rights, preferences or privileges of the shares of Series B-1 Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series B-1 Preferred
Stock, then the Corporation will deliver notice of such approved change to the
holders of the Series B-1 Preferred Stock that did not agree to such alteration
or change (the "Dissenting Holders") and Dissenting Holders shall have the
right for a period of thirty (30) days to convert pursuant to the terms of this
Certificate of Designation as they exist prior to such alteration or change or
continue to hold their shares of Series B-1 Preferred Stock.
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation this ___ day of April, 1996.
HEARx LTD.
By:
---------------------------------
<PAGE> 23
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series B-1 Preferred Stock)
The undersigned hereby irrevocably elects to convert shares of Series B-1
Preferred Stock, represented by stock certificate Nos(s). (the "Preferred Stock
Certificates") into shares of common stock ("Common Stock") and warrants to
acquire Common Stock of HEARx Ltd. (the "Corporation") according to the
conditions of the Certificate of Designation of Series B-1 Preferred Stock, as
of the date written below. If securities are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates. No
fee will be charged to the Holder for any conversion, except for transfer
taxes, if any. A copy of each Preferred Stock Certificate is attached hereto
(or evidence of loss, theft or destruction thereof).
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of
the Series B-1 Preferred Stock shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "Act"), or
pursuant to an exemption from registration under the Act.
Date of Conversion: _________________________
Applicable Conversion Price:_________________
Number of Shares of
Common Stock to be Issued:___________________
Number of Warrants to
be Issued:___________________________________
Signature:___________________________________
Name:________________________________________
Address:_____________________________________
* The Corporation is not required to issue shares of Common Stock or warrants
until the original Series B-1 Preferred Stock Certificate(s) (or evidence of
loss, theft or destruction thereof) to be converted are received by the
Corporation or its Transfer Agent. The Corporation shall issue and deliver
shares of Common Stock and warrants to an overnight courier not later than two
(2) business days following receipt of the original Preferred Stock
Certificate(s) to be converted, and shall make payments pursuant to the
Certificate of Designation for the number of business days such issuance and
delivery is late.
<PAGE> 24
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
1996 SERIES B-2 CONVERTIBLE PREFERRED STOCK
of
HEARx LTD.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
HEARx Ltd., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies
that the following resolutions were adopted by the Board of Directors of the
Corporation pursuant to authority of the Board of Directors as required by
Section 151 of the Delaware General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation (the "Board of Directors" or the "Board") in
accordance with the provisions of its Amended and Restated Certificate of
Incorporation, the Board of Directors hereby authorizes a series of the
Corporation's previously authorized Preferred Stock, par value $1.00 per share
(the "Preferred Stock"), and hereby states the designation and number of
shares, and fixes the relative rights, preferences, privileges, powers and
restrictions thereof as follows:
1996 Series B-2 Convertible Preferred Stock:
I. Designation and Amount
----------------------
The designation of this series, which consists of 10,000 shares of
Preferred Stock, is 1996 Series B-2 Convertible Preferred Stock (the
"Series B-2 Preferred Stock") and the stated value shall be One Thousand
Dollars ($1,000.00) per share (the "Stated Value").
II. Rank
----
All Series B-2 Preferred Stock shall rank (i) prior to the Corporation's
Common Stock, par value $.10 per share (the "Common Stock"); (ii) prior to any
class or series of capital stock of the Corporation hereafter created (unless,
with the consent of the holders of Series B-2 Preferred Stock and the
Series B-1 Preferred Stock (as defined below), voting together as a single
class, obtained in accordance with Article IX hereof, such class or series of
capital stock specifically, by its terms, ranks senior to or pari passu with
the Series B-2 Preferred Stock) (collectively, with the Common Stock, "Junior
Securities"); (iii) pari passu with (x) the Corporation's 1996 Series B-1
Convertible Preferred Stock (the "Series B-1 Preferred Stock"), (y) the
Corporation's 1996 Series A Convertible Preferred Stock (the "Series A
Preferred Stock") and (z) any class or series of capital stock of the
Corporation hereafter created (with the consent of the holders of Series B-2
Preferred Stock and Series B-1 Preferred Stock (voting together as a single
<PAGE> 25
class) obtained in accordance with Article IX hereof) specifically ranking, by
its terms, on parity with the Series B-2 Preferred Stock (collectively, with
the Series B-1 Preferred Stock and Series A Preferred Stock, the "Pari Passu
Securities"); and (iv) junior to the Corporation's 1996 Senior Preferred Stock
(the "Senior Preferred Stock") and any class or series of capital stock of the
Corporation hereafter created (with the consent of the holders of Series B-1
Preferred Stock and Series B-2 Preferred Stock (voting together as a single
class) obtained in accordance with Article IX hereof) specifically ranking, by
its terms, senior to the Series B-2 Preferred Stock (collectively, with the
Senior Preferred Stock, the "Senior Securities"), in each case as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
III. No Dividends
------------
The Series B-2 Preferred Stock will bear no dividends, and the holders of
the Series B-2 Preferred Stock shall not be entitled to receive dividends on
the Series B-2 Preferred Stock.
IV. Liquidation Preference
----------------------
A. If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or State bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of sixty (60) consecutive days and, on account of any such event (a
"Liquidation Event"), the Corporation shall liquidate, dissolve or wind up, or
if the Corporation shall otherwise liquidate, dissolve or wind up, no
distribution shall be made to the holders of any shares of capital stock of the
Corporation (other than Senior Securities) upon liquidation, dissolution or
winding up unless prior thereto, the holders of shares of Series B-2 Preferred
Stock, subject to Article VI, shall have received the Liquidation Preference
(as defined in Article IV.C) with respect to each share. If upon the
occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series B-2 Preferred Stock and holders of
Pari Passu Securities shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire assets and
funds of the Corporation legally available for distribution to the Series B-2
Preferred Stock and the Pari Passu Securities shall be distributed ratably
among such shares in proportion to the ratio that the Liquidation Preference
payable on each such share bears to the aggregate Liquidation Preference
payable on all such shares.
<PAGE> 26
B. At the option of any holder of Series B-2 Preferred Stock, the
sale, conveyance or disposition of all or substantially all of the assets of
the Corporation, the effectuation by the Corporation of a transaction or series
of related transactions in which more than 50% of the voting power of the
Corporation is disposed of, or the consolidation, merger or other business
combination of the Corporation with or into any other Person (as defined below)
or Persons when the Corporation is not the survivor shall either: (i) be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of this Article IV; or (ii) be treated pursuant to Article VI.C hereof.
"Person" shall mean any individual, corporation, limited liability company,
partnership, association, trust or other entity or organization.
C. For purposes hereof, the "Liquidation Preference" with respect to
a share of the Series B-2 Preferred Stock shall mean an amount equal to the sum
of (i) the Stated Value thereof plus (ii) an amount equal to eight percent (8%)
per annum of such Stated Value for the period beginning on the date of issuance
of such share and ending on the final date of distribution to the holder
thereof.
V.
Cash Redemption of Premium by Corporation; No Redemption of
Series B-2 Preferred Stock
-----------------------------------------------------------
A. (a) The Corporation shall have the right, in its sole discretion,
upon receipt of a Notice of Conversion pursuant to Article VI.D. or in the
event of a Mandatory Conversion effected in accordance with Article VII hereof,
to redeem any portion of the Premium (as defined in Article VI. A. below)
subject to such conversion for a sum of cash equal to the amount of the Premium
being so redeemed. All cash redemption payments hereunder shall be paid in
lawful money of the United States of America at such address for the holder as
appears on the record books of the Corporation (or at such other address as
such holder shall hereafter give to the Corporation by written notice). In the
event the Corporation elects, pursuant to this Article V.A., to redeem all or
any portion of the Premium in cash and fails to pay such holder the applicable
redemption amount to which such holder is entitled by depositing a check in the
U.S. Mail to such holder within three (3) business days of receipt by the
Corporation of a Conversion Notice (in the case of a redemption in connection
with an Optional Conversion) or April 30, 1999 (in the case of a redemption in
connection with an Optional Conversion), the Corporation shall thereafter
forfeit its right to redeem such Premium in cash and such Premium shall
thereafter be converted into shares of Common Stock in accordance with
Article VI hereof.
(b) Each holder of Series B-2 Preferred Stock shall have the right
to require the Corporation to provide advance notice to such holder stating
whether the Corporation will elect to redeem all or any portion of the Premium
in cash pursuant to the Corporation's redemption rights discussed in
subparagraph (a) of this Article V.A as set forth herein. A holder may
exercise such right from time to time by sending notice (an "Election Notice")
to the Corporation, by facsimile, requesting that the Corporation disclose to
such holder whether the Corporation would elect to redeem any portion of the
Premium for cash in lieu of issuing Common Stock in accordance with Article VI
hereof if such holder were to exercise his, her or its right of conversion
pursuant to Article VI. The Corporation shall, no later than the close of
business on the next business day following receipt of an Election Notice,
disclose to such holder whether the Corporation would elect to redeem any
<PAGE> 27
portion of a Premium in connection with a conversion pursuant to a Conversion
Notice delivered over the subsequent five (5) business day period. If the
Corporation does not respond to such holder within such one (1) business day
period via facsimile, the Corporation shall, with respect to any conversion
pursuant to a Conversion Notice delivered within the subsequent five (5)
business day period, forfeit its right to redeem such Premium in accordance
with subparagraph (a) of this Article V.A. and shall be required to convert
such Premium into shares of Common Stock in accordance with Article VI hereof.
B. The Series B-2 Preferred Stock is not subject to mandatory
redemption. The Corporation shall have no right to redeem any shares of Series
B-2 Preferred Stock for cash, whether upon conversion pursuant to Article IV or
otherwise.
VI. Conversion at the Option of the Holder
--------------------------------------
A. Each holder of shares of Series B-2 Preferred Stock may, at its
option at any time and from time to time, upon surrender of the certificates
therefor, convert any or all of its shares of Series B-2 Preferred Stock into
Common Stock as follows (an "Optional Conversion"). Each share of Series B-2
Preferred Stock shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing (x) the sum
of (I) the Stated Value thereof, plus (II) unless the Corporation has timely
redeemed such Premium in cash in accordance with Article V.A., an amount equal
to eight percent (8%) per annum of such Stated Value for the period beginning
on the date of issuance of such share and ending on the Conversion Date (the
"Premium"), by (y) the then effective Conversion Price (as defined below);
provided, however, that in no event shall holders of shares of Series B-2
Preferred Stock be entitled to convert any such shares in excess of that number
of shares upon conversion of which the sum of (x) the number of shares of
Common Stock beneficially owned by the holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the shares of Series B-2 Preferred
Stock) and (y) the number of shares of Common Stock issuable upon the
conversion of the shares of Series B-2 Preferred Stock with respect to which
the determination of this proviso is being made would result in beneficial
ownership by the holder and its affiliates of more than 4.9% of the outstanding
shares of Common Stock. For purposes of the second proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13 D-G thereunder, except as otherwise provided in clause (x) of
such proviso.
B. (a) Subject to subparagraph (b) below, the "Conversion Price"
shall be the lesser of (i) the Applicable Percentage (as hereinafter defined)
of the average of the closing bid prices for the Common Stock on the American
Stock Exchange ("AMEX"), or on the principal securities exchange or other
securities market on which the Common Stock is then being traded, for the ten
(10) consecutive Trading Days (as defined below) ending one Trading Day prior
to the date (the "Conversion Date") the Conversion Notice is sent by a holder
to the Corporation via facsimile (the "Variable Conversion Price"), and (ii)
$5.00 (the "Fixed Conversion Price") (subject to equitable adjustments from
time to time pursuant to the antidilution provisions of Article VI.C below).
"Trading Day" shall mean any day on which the Common Stock is traded for any
period on AMEX, or on the principal securities exchange or other securities
market on which the Common Stock is then being traded. Applicable Percentage
means (i) 100%, if the Conversion Date is within sixty (60) days after the date
<PAGE> 28
of the First Closing under the Securities Purchase Agreement, dated on or about
April 30, 1996 (the "Purchase Agreement"), in respect of which the Series B-2
Preferred Stock is issued and sold (the "First Closing Date"), (ii) 85%, if the
Conversion Date is within one hundred eighty (180) days, but more than sixty
(60) days, after the First Closing Date, (iii) 80%, if the Conversion Date is
within three hundred sixty (360) days, but more than one hundred eighty (180)
days, after the First Closing Date, and (iv) 75%, if the Conversion Date is
more than three hundred sixty (360) days after the First Closing Date.
(b) Notwithstanding anything contained in subparagraph (a) of this
Paragraph B to the contrary, in the event the Corporation (i) makes a public
announcement that it intends to consolidate or merge with any other
corporation (other than a merger in which the Corporation is the surviving or
continuing corporation and its capital stock is unchanged) or sell or transfer
all or substantially all of the assets of the Corporation or (ii) any person,
group or entity (including the Corporation) publicly announces a tender offer
to purchase 50% or more of the Corporation's Common Stock (the date of the
announcement referred to in clause (i) or (ii) is hereinafter referred to as
the "Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal to the Conversion Price which
would have been applicable for an Optional Conversion occurring on the
Announcement Date. From and after the Adjusted Conversion Price Termination
Date, the Conversion Price shall be determined as set forth in subparagraph (a)
of this Paragraph VI B. For purposes hereof, "Adjusted Conversion Price
Termination Date" shall mean, with respect to any proposed transaction or
tender offer for which a public announcement as contemplated by this
subparagraph (b) has been made, the date upon which the Corporation (in the
case of clause (i) above) or the person, group or entity (in the case of clause
(ii) above) publicly announces the termination or abandonment of the proposed
transaction or tender offer which caused this subparagraph (b) to become
operative.
C. The Conversion Price shall be subject to adjustment from time to
time as follows:
(a) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If at any time when the Series B-2 Preferred Stock is issued
and outstanding, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, or other similar event, the Fixed Conversion
Price shall be proportionately reduced, or if the number of outstanding shares
of Common Stock is decreased by a reverse stock split, combination or
reclassification of shares, or other similar event, the Fixed Conversion Price
shall be proportionately increased. In such event the Corporation shall notify
the Transfer Agent of such change on or before the effective date thereof.
(b) Adjustment to Variable Conversion Price. If at any time when
Series B-2 Preferred Stock is issued and outstanding, the number of outstanding
shares of Common Stock is increased or decreased by a stock split, stock
dividend, combination, reclassification or other similar event, which event
shall have taken place during the reference period for determination of the
Conversion Price for any Optional Conversion or Mandatory Conversion of the
Series B-2 Preferred Stock, then the Variable Conversion Price shall be
calculated giving appropriate effect to the stock split, stock dividend,
combination, reclassification or other similar event for all ten (10) Trading
Days immediately preceding the Conversion Date.
<PAGE> 29
(c) Adjustment Due to Merger, Consolidation, Etc. If, at any time
when Series B-2 Preferred Stock is issued and outstanding and prior to the
conversion of all Series B-2 Preferred Stock, there shall be (i) any
reclassification or change of the outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), (ii) any
consolidation or merger of the Corporation with any other corporation (other
than a merger in which the Corporation is the surviving or continuing
corporation and its capital stock is unchanged), (iii) any sale or transfer of
all or substantially all of the assets of the Corporation or (iv) any share
exchange pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property, then the holders of Series B-2
Preferred Stock shall, upon being given at least thirty (30) days prior written
notice of such transaction, thereafter have the right to purchase and receive
upon conversion of Series B-2 Preferred Stock, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities or other property as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the conversion of Series B-2 Preferred Stock
held by such holders had such merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event not taken place (but
utilizing the Conversion Price determined in accordance with Paragraph B(b) of
this Article VI, if applicable), and in any such case appropriate provisions
shall be made with respect to the rights and interests of the holders of the
Series B-2 Preferred Stock to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Conversion Price and of
the number of shares issuable upon conversion of the Series B-2 Preferred
Stock) shall thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock or securities thereafter deliverable upon the
conversion thereof. The Corporation shall not effect any transaction described
in this subsection (c) unless (i) each holder of Series B-2 Preferred Stock has
received written notice of such transaction at least thirty (30) days prior
thereto and in no event later than ten (10) days prior to the record date for
the determination of shareholders entitled to vote with respect thereto, and
(ii) the provisions of this paragraph have been complied with. The above
provisions shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
(d) No Fractional Shares. If any adjustment under this Article
VI.C. would create a fractional share of Common Stock, such fractional share
shall be disregarded and the number of shares of Common Stock issuable upon
conversion shall be the next higher number of shares.
D. In order to convert Series B-2 Preferred Stock into full shares of
Common Stock, a holder shall: (i) fax a copy of the fully executed notice of
conversion in the form attached hereto ("Notice of Conversion") to the
Corporation at the office of the Corporation or its designated Transfer Agent,
if any, for the Series B-2 Preferred Stock that the holder elects to convert
the same, which notice shall specify the number of shares of Series B-2
Preferred Stock to be converted, the applicable Conversion Price and a
calculation of the number of shares of Common Stock issuable upon such
conversion (together with a copy of the first page of each certificate to be
converted) prior to Midnight, New York City time (the "Conversion Notice
Deadline") on the date of conversion specified on the Notice of Conversion; and
(ii) surrender the original certificates representing the Series B-2 Preferred
Stock being converted (the "Preferred Stock Certificates"), duly endorsed,
along with a copy of the Notice of Conversion as soon as practicable thereafter
<PAGE> 30
to the office of the Corporation or the Transfer Agent, if any, for the Series
B-2 Preferred Stock; provided, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless either the Preferred Stock Certificates are
delivered to the Corporation or its Transfer Agent as provided above, or the
holder notifies the Corporation or its Transfer Agent that such certificates
have been lost, stolen or destroyed (subject to the requirements of
subparagraph (a) below). In the case of a dispute as to the calculation of the
Conversion Price, the Corporation shall promptly issue such number of shares of
Common Stock to purchase shares of Common Stock that are not disputed in
accordance with subparagraph (b) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall
audit the calculations and notify the Corporation and the holder of the results
no later than 48 hours from the time it receives the disputed calculations.
The accountant's calculation shall be deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt by the Corporation
of evidence of the loss, theft, destruction or mutilation of any Preferred
Stock Certificates representing shares of Series B-2 Preferred Stock, and (in
the case of loss, theft or destruction) of indemnity or security reasonably
satisfactory to the Corporation, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Corporation shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date. However,
the Corporation shall not be obligated to reissue such lost or stolen Preferred
Stock Certificate(s) if the holder contemporaneously requests the Corporation
to convert such Series B-2 Preferred Stock.
(b) Delivery of Common Stock Upon Conversion. Upon the surrender
of certificates as described above from a holder of Series B-2 Preferred Stock
accompanied by a Notice of Conversion, the Corporation shall issue and, within
two (2) business days (the "Delivery Period") after such surrender (or, in the
case of lost, stolen or destroyed certificates, after provision of agreement
and indemnification pursuant to subparagraph (a) above), deliver to or upon the
order of the holder (i) that number of shares of Common Stock for the portion
of the shares of Series B-2 Preferred Stock converted as shall be determined in
accordance herewith and (ii) a certificate representing the balance of the
shares of Series B-2 Preferred Stock not converted, if any. In addition to any
other remedies available to the holder, including actual damages and/or
equitable relief, the Corporation shall pay to a holder $250 in cash for the
first day beyond such Delivery Period that the Corporation fails to deliver
Common Stock issuable upon surrender of shares of Series B-2 Preferred Stock
with a Notice of Conversion and $500 per day in cash for each day thereafter
until such time as the earlier of the date that the Corporation has delivered
all such Common Stock and the tenth business day beyond such Delivery Period.
Such cash amount shall be paid to such holder by the fifth day of the month
following the month in which it has accrued. In the event the Corporation
fails to deliver such Common Stock prior to the expiration of the ten (10)
business day period after the Delivery Period for any reason (whether due to a
requirement of law or a stock exchange or otherwise), such holder shall be
entitled to (in addition to any other remedies available to the holder),
Conversion Default Payments (as defined herein) in accordance with Article
VI.E. hereof beginning on the expiration of such ten (10) business day period.
(c) No Fractional Shares. If any conversion of Series B-2
Preferred Stock would result in a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
<PAGE> 31
issuable upon conversion of the Series B-2 Preferred Stock shall be the next
higher number of shares.
(d) Conversion Date. The "Conversion Date" shall be the date
specified in the Notice of Conversion, provided (i) that the advance copy of
the Notice of Conversion is faxed to the Corporation before Midnight, New York
City time, on the Conversion Date, and (ii) that the original Preferred Stock
Certificate(s), duly endorsed, are surrendered along with a copy of the Notice
of Conversion as soon as practicable thereafter to the office of the
Corporation or the Transfer Agent for the Series B-2 Preferred Stock. The
person or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such securities as of the Conversion Date and all rights with respect to the
shares of Series B-2 Preferred Stock surrendered shall forthwith terminate
except the right to receive the shares of Common Stock or other securities or
property issuable on such conversion.
E. A number of shares of the authorized but unissued Common Stock
sufficient to provide for the conversion of the Series B-2 Preferred Stock
outstanding at the then current Conversion Price shall at all times be reserved
by the Corporation, free from preemptive rights, for such conversion or
exercise. If the Corporation shall issue any securities or make any change in
its capital structure which would change the number of shares of Common Stock
into which each share of the Series B-2 Preferred Stock shall be convertible at
the then current Conversion Price the Corporation shall at the same time also
make proper provision so that thereafter there shall be a sufficient number of
shares of Common Stock authorized and reserved, free from preemptive rights,
for conversion of the outstanding Series B-2 Preferred Stock on the new basis.
If, at any time a holder of shares of Series B-2 Preferred Stock submits a
Conversion Notice, the Corporation does not have sufficient authorized but
unissued shares of Common Stock available to effect such conversion in
accordance with the provisions of this Article VI (a "Conversion Default"), the
Corporation shall issue to the holder all of the shares of Common Stock which
are available to effect such conversion. The number of shares of Series B-2
Preferred Stock included in the Notice of Conversion which exceeds the amount
which is then convertible into available shares of Common Stock (the "Excess
Amount") shall, notwithstanding anything to the contrary contained herein, not
be convertible into Common Stock in accordance with the terms hereof until (and
at the holder's option at any time after) the date additional shares of Common
Stock are authorized by the Corporation to permit such conversion, at which
time the Conversion Price in respect thereof shall be the lesser of (i) the
Conversion Price on the Conversion Date Default (as defined below) and (ii) the
Conversion Price on the Conversion Date elected by the holder in respect
thereof. The Corporation shall pay to the holder payments ("Conversion Default
Payments") for a Conversion Default in the amount of (N/365), multiplied by the
sum of the Stated Value with respect to each share of Series B-2 Preferred
Stock, multiplied by the Excess Amount on the first day of the Conversion
Default (the "Conversion Default Date"), multiplied by .36, where N = the
number of days from the Conversion Default Date to the date (the "Authorization
Date") that the Corporation authorizes a sufficient number of shares of Common
Stock to effect conversion of the full number of shares of Series B-2 Preferred
Stock. The Corporation shall send notice to the holder of the authorization of
additional shares of Common Stock, the Authorization Date and the amount of
holder's accrued Conversion Default Payments. The accrued Conversion Default
Payments for each calendar month shall be paid in cash or shall be convertible
into Common Stock at the Conversion Price, at the holder's option, as follows:
<PAGE> 32
(a) In the event holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth day of the month following the
month in which it has accrued; and
(b) In the event holder elects to take such payment in Common
Stock, the holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of Conversion) at any time after the
fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article VI.
Nothing herein shall limit the holder's right to pursue actual damages for the
Corporation's failure to maintain a sufficient number of authorized shares of
Common Stock and each holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance
and/or injunctive relief).
F. Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Article VI, the Corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series B-2 Preferred
Stock a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
B-2 Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the
Conversion Price at the time in effect and (iii) the number of shares of Common
Stock and the amount, if any, of other securities or property which at the time
would be received upon conversion of a share of Series B-2 Preferred Stock.
VII. Mandatory Conversion
--------------------
Each share of Series B-2 Preferred Stock issued and outstanding on
April 30, 1999, automatically shall be converted into shares of Common Stock on
such date at the then effective Conversion Price in accordance with the
provisions of Article VI hereof (the "Mandatory Conversion").
VIII. Voting Rights
-------------
The holders of the Series B-2 Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation
Law ("DGCL"), and in this Article VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide each holder of
Series B-2 Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of
its shareholders for the purpose of determining shareholders who are entitled
to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Corporation, or any proposed liquidation, dissolution or winding up of the
<PAGE> 33
Corporation, the Corporation shall mail a notice to each holder, at least ten
(10) days prior to the record date specified therein (or 30 days prior to the
consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the
extent known at such time.
To the extent that under the DGCL the vote of the holders of the Series B-2
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote
or consent of the holders of at least a majority of the shares of the Series B-
2 Preferred Stock represented at a duly held meeting at which a quorum is
present or by written consent of a majority of the shares of Series B-2
Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL holders of the Series B-2 Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share
of Series B-2 Preferred Stock shall be entitled to a number of votes equal to
the number of shares of Common Stock into which it is then convertible using
the record date for the taking of such vote of shareholders as the date as of
which the Conversion Price is calculated. Holders of the Series B-2 Preferred
Stock shall be entitled to notice of (and copies of proxy materials and other
information sent to shareholders) all shareholder meetings or written consents
with respect to which they would be entitled to vote, which notice would be
provided pursuant to the Corporation's by-laws and the DGCL.
IX. Protection Provision
--------------------
So long as shares of Series B-2 Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the holders of at least a majority of the
then outstanding shares of Series B-2 Preferred Stock and Series B-1 Preferred
Stock (voting together as a single class):
(a) alter or change the rights, preferences or privileges of the
Series B-2 Preferred Stock or any Senior Securities so as to affect adversely
the Series B-2 Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series B-2 Preferred Stock as to dividends and as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation (as previously defined in Article II hereof, "Senior Securities");
(c) create any new class or series of capital stock ranking pari
passu with the Series B-2 Preferred Stock as to dividends and as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation (as previously defined in Article II hereof, "Pari Passu
Securities");
(d) increase the authorized number of shares of Series B-2
Preferred Stock;
(e) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series B-2 Preferred Stock under Section 305 of the Internal
<PAGE> 34
Revenue Code of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended); or
(f) issue after April 30, 1996 any Senior Securities or Pari Passu
Securities other than (i) Series B-2 Preferred Stock and 1996 Series B-1
Convertible Preferred Stock pursuant to the Purchase Agreement and (ii) up to
10,000 shares of 1996-Series A Preferred Stock.
In the event holders of at least a majority of the then outstanding shares
of Series B-2 Preferred Stock and Series B-1 Preferred Stock (voting together
as a single class) agree to allow the Corporation to alter or change the
rights, preferences or privileges of the shares of Series B-2 Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series B-2 Preferred
Stock, then the Corporation will deliver notice of such approved change to the
holders of the Series B-2 Preferred Stock that did not agree to such alteration
or change (the "Dissenting Holders") and Dissenting Holders shall have the
right for a period of thirty (30) days to convert pursuant to the terms of this
Certificate of Designation as they exist prior to such alteration or change or
continue to hold their shares of Series B-2 Preferred Stock.
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation this ___ day of April, 1996.
HEARx LTD.
By:
-------------------------------------
<PAGE> 35
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series B-2 Preferred Stock)
The undersigned hereby irrevocably elects to convert shares of Series B-2
Preferred Stock, represented by stock certificate Nos(s). (the "Preferred Stock
Certificates") into shares of common stock ("Common Stock") of HEARx Ltd. (the
"Corporation") according to the conditions of the Certificate of Designation of
Series B-2 Preferred Stock, as of the date written below. If shares are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is delivering herewith
such certificates. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any. A copy of each Preferred Stock Certificate
is attached hereto (or evidence of loss, theft or destruction thereof).
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Series B-2 Preferred Stock shall be made pursuant to
registration of the Common Stock under the Securities Act of 1933, as amended
(the "Act"), or pursuant to an exemption from registration under the Act.
Date of Conversion:__________________________
Applicable Conversion Price:_________________
Number of Shares of
Common Stock to be Issued:___________________
Signature:___________________________________
Name:________________________________________
Address:_____________________________________
* The Corporation is not required to issue shares of Common Stock until the
original Series B-2 Preferred Stock Certificate(s) (or evidence of loss, theft
or destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Designation for the number of business
days such issuance and delivery is late.
<PAGE> 1
EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of May 3, 1996
by and among HEARx LTD., a Delaware corporation, with headquarters located at
471 Spencer Drive, West Palm Beach, Florida 33049 (the "Company"), and each of
the purchasers set forth on the signature pages hereto (the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule
506 under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "1933 Act");
B. The Company has authorized two new series of preferred stock: (i) its
1996 Series B-1 Convertible Preferred Stock, par value $1.00 per share (the
"Series B-1 Preferred Stock"), convertible into (x) shares of Common Stock, par
value $.10 per share, of the Company (the "Common Stock") and (y) warrants (the
"Warrants"), in the form attached hereto as Exhibit "A", to acquire a number of
shares of Common Stock equal to the number of shares of Common Stock issuable
upon conversion of such Series B-1 Preferred Stock, upon the terms and subject
to the limitations and conditions set forth in the Certificate of Designations,
Preferences and Rights attached hereto as Exhibit "B-1" (the "Series B-1
Certificate of Designation") and (ii) its 1996 Series B-2 Convertible Preferred
Stock, par value $1.00 per share (the "Series B-2 Preferred Stock" and together
with the Series B-1 Preferred Stock, the "Preferred Stock"), convertible into
shares of Common Stock upon the terms and subject to the limitations and
conditions set forth in the Certificate of Designations, Preferences and Rights
attached hereto as Exhibit "B-2" (the "Series B-2 Certificate of Designation"
and together with the Series B-1 Certificate of Designation, the "Certificates
of Designation").
C. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, such number of shares of Series B-1 Preferred Stock or Series
B-2 Preferred Stock as is set forth on the signature page hereto executed by
Buyer; and
D. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit "C" (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws;
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
--------------------------------------
a. Purchase of Preferred Shares. The Company shall issue and sell to
each Buyer and each Buyer severally agrees to purchase from the Company such
number of shares of Series B-1 Preferred Stock or Series B-2 Preferred Stock
as is set forth on the signature page hereto executed by Buyer (collectively,
together with any Preferred Stock issued in replacement thereof or as a
dividend thereon or otherwise with respect thereto in accordance with the terms
<PAGE> 2
thereof, the "Preferred Shares") at a price per share equal to One Thousand
Dollars ($1,000.00), the stated value thereof (the "Per Share Purchase Price").
The issuance, sale and purchase of the Preferred Shares shall take place in two
(2) separate closings, the first of which is hereinafter referred to as the
"First Closing" and the second of which is hereinafter referred to as the
"Second Closing." Subject to the satisfaction (or waiver) of the conditions
thereto set forth in Section 6 and Section 7 below (i) at the First Closing,
the Company shall issue and sell to each Buyer and each Buyer shall purchase
from the Company one-half of the aggregate number of Preferred Shares which
such Buyer is purchasing hereunder for a price per Preferred Share equal to the
Per Share Purchase Price and (ii) at the Second Closing, the Company shall
issue and sell to the Buyer and the Buyer shall purchase from the Company the
remainder of the Preferred Shares which such Buyer is purchasing hereunder for
a price per Preferred Share equal to the Per Share Purchase Price.
b. Form of Payment. On each Closing Date (as defined below), (i) each
Buyer shall pay the purchase price for the Preferred Shares to be issued and
sold at the applicable closing (the "Purchase Price") by wire transfer to the
Company, in accordance with the Company's written wiring instructions, against
delivery of a duly executed certificate(s) representing such number of
Preferred Shares which such Buyer is then purchasing, and (ii) the Company
shall deliver such certificate(s) against delivery of such Purchase Price.
c. Closing Dates. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Preferred Shares pursuant to this
Agreement (the "Closing Dates") shall be (i) in the case of the First Closing,
12:00 noon Eastern Standard Time on May 3, 1996 and (ii) in the case of the
Second Closing, 12:00 noon Eastern Standard Time, three business days following
notification of satisfaction (or waiver) of the conditions to such closing set
forth in Section 7(b) below (subject, in each case, to a two (2) business day
grace period at either party's option), or, in each case, such other mutually
agreed upon time. The closings shall occur on the Closing Dates at the offices
of Klehr, Harrison, Harvey, Branzburg & Ellers, 1401 Walnut Street,
Philadelphia, Pennsylvania 19102.
2. BUYER'S REPRESENTATIONS AND WARRANTIES
--------------------------------------
Each Buyer severally represents and warrants to the Company that:
a. Investment Purpose. The Buyer is purchasing the Preferred Shares, the
shares of Common Stock issuable upon conversion thereof (the "Conversion
Shares"), and, if applicable, the Warrants and the shares of Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares") (collectively,
the "Securities") for its own account, not as nominee or agent, for investment
only and not with a present view towards the public sale or distribution
thereof, except pursuant to sales registered under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Buyer understands that the Preferred
Shares are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state
<PAGE> 3
securities laws and that the Company is relying 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 Preferred Shares.
d. Information. The Buyer and its advisors, if any, have 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 or its advisors. The Buyer and its advisors,
if any, have been afforded the opportunity to ask questions of the Company and
have received what the Buyer believes to be satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify,
amend or affect Buyer's right to rely on the Company's representations and
warranties contained in Section 3 below. The Buyer understands that its
investment in the Securities involves a high degree of risk.
e. Governmental Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. The Buyer understands that (i) except as provided
in the Registration Rights Agreement, the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not
be transferred unless (a) subsequently registered thereunder, or (b) the Buyer
shall have delivered to the Company an opinion of counsel, in form, substance
and scope reasonably acceptable to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration or (c) sold pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule); (ii) any sale of such Securities made
in reliance on Rule 144 may be made only in accordance with the terms of said
Rule and further, if said Rule is not applicable, any resale of such 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 (in each case, other than pursuant to
the Registration Rights Agreement).
g. Legends. The Buyer understands that the Preferred Shares, Warrants
and, until such time as the Conversion Shares and Warrant Shares have been
registered under the 1933 Act, as contemplated by the Registration Rights
Agreement, the certificates for the Conversion Shares and Warrant Shares, may
bear a restrictive legend in substantially the following form (and a stop-
transfer order may be placed against transfer of the certificates for such
Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be sold,
transferred or assigned in the absence of an effective registration
statement for the securities under said Act, or an opinion of counsel,
in form, substance and scope reasonably acceptable to the Company,
that registration is not required under said Act or unless sold
pursuant to Rule 144 under said Act."
<PAGE> 4
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the sale
of such Security is registered under the 1933 Act, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope reasonably
acceptable to the Company, to the effect that a public sale or transfer of such
Security may be made without registration under the 1933 Act or (c) such holder
provides the Company with reasonable assurances that such Security can be sold
pursuant to Rule 144 under the 1933 Act (or a successor rule thereto) without
any restriction as to the number of Securities acquired as of a particular date
that can then be immediately sold. The Buyer agrees to sell all Securities,
including those represented by a certificate(s) from which the legend has been
removed, in compliance with applicable securities law.
h. Organization; Authorization; Enforcement. Buyer is duly organized and
existing under the laws of its organization and has all requisite corporate or
partnership (as the case may be) power and authority to purchase the Preferred
Shares pursuant to this Agreement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of the Buyer and are valid and binding agreements of the Buyer
enforceable in accordance with their terms.
i. Residency. The Buyer is a resident of the jurisdiction set forth
under such Buyer's name on the signature page hereto executed by such Buyer.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
----------------------------------------------
The Company represents and warrants to each Buyer that:
a. Organization and Qualification; Subsidiaries. The Company is a
corporation duly organized and existing in good standing under the laws of the
State of Delaware, and has the requisite corporate power to own its properties
and to carry on its business as now being conducted. The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted by it makes
such qualification necessary and where the failure so to qualify would have a
Material Adverse Effect. "Material Adverse Effect" means any material adverse
effect on the operations, properties, financial condition or prospects of the
Company or on the transactions contemplated hereby. None of the Company's
subsidiaries are engaged in any activities which are material to the operations
of the Company and its subsidiaries taken as a whole.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement and the Warrants, and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery
of this Agreement, the Registration Rights Agreement and the Warrants by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including without limitation the issuance of the Preferred Shares and
the Warrants and the issuance and reservation for issuance of the Conversion
Shares and Warrant Shares issuable upon conversion or exercise thereof) have
been duly authorized by the Company's Board of Directors and no further consent
or authorization of the Company, its Board or Directors, or its stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement constitutes, and upon execution and delivery
by the Company of the Registration Rights Agreement and the Warrants, each of
<PAGE> 5
such instruments will constitute, a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
c. Capitalization. As of March 31, 1996, the authorized capital stock of
the Company consisted of (i) 100,000,000 shares of Common Stock of which
65,909,183 shares were issued and outstanding, 4,421,950 shares were reserved
for issuance pursuant to the Company's stock option plans, and 23,650,340
shares were reserved for issuance pursuant to securities exercisable for, or
convertible into or exchangeable for any shares of Common Stock; and (ii)
2,000,000 shares of preferred stock, of which 6,000 shares of 1996 Senior
Preferred Stock are issued and outstanding, and 5,100 shares of 1996-Series A
Convertible Preferred Stock are the subject of a pending offering to be
undertaken pursuant to Regulation S under the 1933 Act (the "Regulation S
Offering"). All of such outstanding shares of capital stock have been validly
issued, fully paid and nonassessable. As of the date hereof, 5,823,839 shares
of Common Stock are reserved for issuance upon conversion of the Preferred
Shares to be issued hereunder and the 1996-Series A Convertible Preferred Stock
to be issued in the Regulation S Offering and exercise of the Warrants issuable
upon conversion of the Preferred Shares (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(h) below) and 5,152,536 of such
shares of Common Stock are reserved for issuance upon conversion of the
Preferred Shares to be issued hereunder and exercise of the Warrants issuable
upon conversion of the Preferred Shares (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(h) below). As of the date hereof,
15,000 shares of Series B-1 Preferred Stock and 10,000 shares of Series B-2
Preferred Stock are duly authorized for issuance by the Company. Except as
disclosed in Schedule 3(c), no shares of capital stock of the Company are
subject to preemptive rights or any other similar rights of the stockholders of
the Company or, to the Company's knowledge, any liens or encumbrances. Except
as disclosed in Schedule 3(c), as of the date of this Agreement, (i) 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 or exchangeable for any shares of capital stock of the
Company or any of its subsidiaries, 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, and (ii) there are no
agreements or arrangements under which the Company or any of its subsidiaries
is obligated to register the sale of any of its or their securities under the
1933 Act (except the Registration Rights Agreement). The Company has furnished
to the Buyer true and correct copies of the Company's Amended and Restated
Certificate of Incorporation as in effect on the date hereof ("Certificate of
Incorporation") and the Company's By-laws, as in effect on the date hereof (the
"By-laws"). The Company shall provide the Buyer with a written update of this
representation signed by the Company's Chief Executive or Chief Financial
Officer on behalf of the Company as of each Closing Date.
d. Issuance of Shares. The Preferred Shares, Conversion Shares and
Warrant Shares are duly authorized and, upon issuance in accordance with the
terms of this Agreement, upon conversion of the Preferred Shares and upon
exercise of the Warrants, as applicable, the Securities shall be validly
issued, fully paid and non-assessable, and free from all taxes, liens and
charges with respect to the issue thereof and shall not be subject to
preemptive rights or other similar rights of stockholders of the Company. The
term Conversion Shares includes the shares of Common Stock issuable upon
conversion of the Preferred Shares, including without limitation, such
additional shares, if any, as are issuable as a result of the events described
in Section 2(c) of the Registration Rights Agreement and Article VI.E. of the
Certificates of Designation.
<PAGE> 6
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Warrants by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby (including without limitation, the issuance and reservation for
issuance of the Preferred Shares, Conversion Shares and Warrant Shares) will
not (i) result in a violation of the Certificate of Incorporation or 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
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) 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 for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in
the aggregate, have a Material Adverse Effect). The Company is not in
violation of its Certificate of Incorporation or By-laws and is not in default
(and no event has occurred which with notice or lapse of time of both would put
the Company in default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, except
for possible defaults as would not, individually or in the aggregate, have a
Material Adverse Effect. The businesses of the Company and its subsidiaries are
not being conducted, and shall not be conducted so long as a Buyer owns any of
the Securities, in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations which either singly or in
the aggregate do not have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and any
applicable state securities laws, 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 this
Agreement, the Registration Rights Agreement or the Warrants in accordance with
the terms hereof or thereof.
f. SEC Documents, Financial Statements. Since December 31, 1994, 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 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 (other than exhibits)
incorporated by reference therein, being hereinafter referred to herein as the
"SEC Documents"). The Company has delivered to each Buyer true and complete
copies of the SEC Documents, except for such exhibits, schedules and
incorporated 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
<PAGE> 7
otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the consolidated financial position of the Company and
its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in the financial statements of the Company included in the
SEC documents, the Company has no liabilities, contingent or otherwise, other
than (i) liabilities incurred in the ordinary course of business subsequent to
December 29, 1995 and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition
or operating results of the Company.
g. Absence of Certain Changes. Since December 29, 1995 there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company.
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.
i. Disclosure. All information relating to or concerning the Company set
forth in this Agreement and provided to the Buyers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein
or therein, in light of the circumstances under which they were made, not
misleading.
j. Acknowledgment Regarding Buyers' Purchase of Preferred Shares. The
Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by any Buyer or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to the Buyers' purchase
of the Preferred Shares. The Company further represents to each Buyer that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
4. COVENANTS.
----------
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
<PAGE> 8
before each Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to the Buyers at the applicable 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
each Buyer on or prior to such Closing Date.
c. Reporting Status. So long as any Buyer beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would permit such termination.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Preferred Shares for the Company's internal working capital purposes,
including the opening of new centers, and up to $4,000,000 of such proceeds for
the redemption of certain outstanding shares of the Company's preferred stock.
The Company shall not, directly or indirectly, use such proceeds for any loan
to or investment in any other corporation, partnership, enterprise or other
person.
e. Additional Equity Capital; Right of First Refusal. The Company agrees
that during the period beginning on the date hereof and ending one hundred
eighty (180) days following the Closing Date in respect of the Second Closing
(or, if the Second Closing never occurs, ending on the later of (i) one hundred
eighty (180) days after the Closing Date in respect of the First Closing and
(ii) the date the Second Closing is abandoned) (the "Lock-Up Period") pursuant
to this Agreement, the Company will not, without the prior written consent of
each of the Buyers of the Series B-1 Preferred Stock hereunder (the "B-1
Buyers") and Buyers holding a majority of the Preferred Shares then
outstanding, negotiate or contract with any party to obtain additional equity
financing (including debt financing with an equity component) in any form
("Future Offerings"). In addition, the Company will not conduct any Future
Offering during the period beginning on the date hereof and ending one (1) year
after the Closing Date in respect of the First Closing unless it shall have
first delivered to each Buyer, at least ten (10) business days prior to the
closing of such Future Offering, written notice describing the proposed Future
Offering, including the terms and conditions thereof, and providing each Buyer
an option during such ten (10) day period to purchase its Aggregate Percentage
(as defined below), as of the date of such written notice of the securities
being offered in the Future Offering on the same terms as contemplated by such
Future Offering (the limitations referred to in this and the immediately
preceding sentence are collectively referred to as the "Capital Raising
Limitation"). For purposes of this Section 4(e), "Aggregate Percentage" at any
time with respect to any Buyer shall mean the percentage obtained by dividing
(x) the aggregate number of Conversion Shares and Warrant Shares then owned by,
or issuable upon conversion of Preferred Shares or upon exercise of Warrants
then owned or issuable upon conversion of Preferred Shares to, such Buyer by
(y) the aggregate number of Conversion Shares and Warrant Shares then
outstanding or issuable to all Buyers (determined as set forth in clause (x) of
this sentence). The Capital Raising Limitation shall not apply to any
transaction involving the Company's commercial banking arrangements or
issuances of securities in connection with a merger, consolidation or sale of
assets, or in connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital), or in connection with
the disposition or acquisition of a business, product or license by the Company
or exercise of options by employees, consultants or directors. The Capital
Raising Limitation also shall not apply to the issuance of securities pursuant
<PAGE> 9
to an underwritten public offering or upon exercise or conversion of the
Company's options, warrants or other convertible securities outstanding as of
the date hereof or to the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or restricted
stock plan for the benefit of the Company's employees, directors or consultants
or the issuance of up to $15,000,000 aggregate purchase price of 1996-Series A
Convertible Preferred Stock in a pending offering to be undertaken pursuant to
Regulation S under the 1933 Act.
f. Expenses. Except as otherwise provided in Section 5 of the
Registration Rights Agreement, each party hereto shall be responsible for the
payment of its own expenses incurred in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the
other agreements to be executed in connection herewith.
g. Financial Information. The Company agrees to send the following
reports to each Buyer until such Buyer transfers, assigns, or sells all of the
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K; and (ii) within one (1) day after release, copies
of all press releases issued by the Company or any of its subsidiaries.
h. Reservation of Shares. Upon redemption of the 1996 Senior Preferred
Stock in accordance with Section 4(k) hereof, the Company shall increase by
4,000,000 the number of shares of Common Stock reserved for issuance upon
conversion of the Preferred Shares issued or issuable hereunder and the 1996-
Series A Convertible Preferred Stock to be issued in the Regulation S Offering
and exercise of the Warrants issuable upon conversion of the Preferred Shares.
The Company shall at all times , after the earlier of the date of the
Company's next meeting of stockholders and the Second Closing, have authorized,
and reserved for the purpose of issuance, a sufficient number of shares of
Common Stock to provide for the full conversion of the outstanding Preferred
Shares and issuance of the Conversion Shares in connection therewith and the
full exercise of the Warrants issuable upon conversion thereof and the issuance
of the Warrant Shares in connection therewith. In that regard, a "sufficient
number of shares" shall be deemed to be equal to such number of conversion
shares issuable upon conversion of the Preferred Shares issued or issuable
hereunder and such number of Warrant Shares issuable upon exercise of all
Warrants issued or issuable upon conversion of such Preferred Shares, in each
case calculated based on the Conversion Price which would be in effect at such
time if the Variable Conversion Price (as defined in the Certificates of
Designation) were fifty percent (50%) of the Variable Conversion Price then in
effect.
i. Listing. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable upon conversion of the Preferred
Shares and Warrant Shares issuable upon exercise of the Warrants.
j. Corporate Existence. So long as a Buyer beneficially owns any
Preferred Shares or Warrants, the Company shall maintain its corporate
existence, except in the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, as long as the surviving or
successor entity in such transaction (i) assumes the Company's obligations
hereunder and under the agreements and instruments entered into in connection
<PAGE> 10
herewith and (ii) is a publicly traded corporation whose Common Stock is listed
for trading on the American Stock Exchange ("AMEX"), the New York Stock
Exchange or the NASDAQ National Market System.
k. Redemption of Senior Preferred Stock; Payment of Legal Fees. As soon
as practicable after the First Closing, the Company shall redeem all of the
Company's outstanding 1996 Senior Preferred Stock in accordance with the
Certificate of Designations, Preferences and Rights of the 1996 Senior
Preferred Stock filed with the Secretary of State of Delaware on January 26,
1996 and the Company shall pay all unpaid legal fees of Morgan, Lewis & Bockius
LLP pursuant to Section 8.6 of the Stock Purchase Agreement dated January 26,
1996 between the Company and the Investors named therein and in connection with
their review and preparation of documentation and consents related to the
transactions contemplated hereby.
l. Issuance of Preferred Shares and 1996-Series A Convertible Preferred
Stock. The Company shall not issue more than $30,000,000 aggregated stated
value of Preferred Shares and 1996-Series A Convertible Preferred Stock.
5. TRANSFER AGENT INSTRUCTIONS.
----------------------------
The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Buyer or its nominee, for the Conversion Shares
and Warrant Shares in such amounts as specified from time to time by each Buyer
to the Company upon conversion of the Preferred Shares or exercise of the
Warrants. Prior to registration of the Conversion Shares and Warrant Shares
under the 1933 Act, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than such instructions referred to in this Section 5, and
stop transfer instructions to give effect to Section 2(f) hereof, in the case
of the Conversion Shares and Warrant Shares, prior to registration of the
Conversion Shares and Warrant Shares under the 1933 Act, will be given by the
Company to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section shall affect in any way the Buyer's obligations and agreement set
forth in Section 2(g) hereof to comply with all applicable securities laws
upon resale of the Securities. If a Buyer provides the Company with an opinion
of counsel, reasonably satisfactory to the Company in form, substance and
scope, that registration of a resale by such Buyer of any of the Securities is
not required under the 1933 Act, the Company shall permit the transfer, and, in
the case of the Conversion Shares and Warrant Shares promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
-----------------------------------------------
The obligation of the Company hereunder to issue and sell the Preferred
Shares to a Buyer at each of the First Closing and the Second Closing, as
applicable, is subject to the satisfaction, at or before the Closing Date in
respect of such closing, of each of the following conditions thereto, 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. The obligation of the Company
to issue and sell the Preferred Shares to any Buyer hereunder is distinct and
<PAGE> 11
separate from its obligation to issue and sell Preferred Shares to any other
Buyer hereunder and any failure by one or more Buyers to fulfill the conditions
set forth herein or to consummate the purchase of Preferred Shares hereunder
will not relieve the Company of its obligations with respect to any other
Buyer.
With respect to the First Closing and the Second Closing:
(i) The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Company.
(ii) The applicable Buyer shall have delivered the Purchase Price
in accordance with Section 1(b) above.
(iii) The Certificates of Designation shall have been accepted for
filing with the Secretary of State of the State of Delaware.
(iv) The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and the applicable 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 applicable Buyer at or prior to
the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
--------------------------------------------------
The obligation of each Buyer hereunder to purchase the Preferred Shares at
each of the First Closing and Second Closing, as applicable, is subject to the
satisfaction, at or before the Closing Date in respect of such Closing, of each
of the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
a. With respect to the First Closing:
(i) The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
(ii) The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Delaware, and a copy thereof
certified by such Secretary of State shall have been delivered to such Buyer.
(iii) The Company shall have delivered duly executed certificates
(in such denominations as such Buyer shall request) representing the Preferred
Shares being so purchased to such Buyer in accordance with Section 1(b) above.
(iv) The Common Stock shall be authorized for quotation on AMEX,
and trading in the Common Stock (or on AMEX generally) shall not have been
suspended by the SEC or AMEX.
(v) The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of
the date of the First Closing as though made at that time (except for
representations and warranties that speak as of a specific date) and the
<PAGE> 12
Company 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 Company at or prior to the date of
the First Closing. Such Buyer shall have received a certificate, executed by
the chief executive officer of the Company, dated as of the date of the First
Closing, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer.
(vi) Such Buyer shall have received an opinion of the Company's
counsel, dated as of the date of the First Closing, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially the same
form as Exhibit "D-1" attached hereto.
(vii) Such Buyer shall have received the officer's certificate
described in Section 3(c) above, dated as of the date of the First Closing.
(viii) The Company shall have delivered evidence reasonably
satisfactory to Buyer's counsel that no approval of the Company's stockholders
is required under the rules of the AMEX in order to issue any of the Preferred
Shares at the First Closing and the Second Closing hereunder, to issue the
Conversion Shares and Warrants issuable upon conversion thereof or to issue the
Warrant Shares upon exercise of such Warrants.
(ix) The Company shall have delivered evidence reasonably
satisfactory to the Buyer's counsel that the holders of the Company's 1996
Senior Preferred Stock have consented to the issuance of the Preferred Shares
hereunder in accordance with the Certificate of Designation for such 1996
Senior Preferred Stock.
b. With respect to the Second Closing:
(i) The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
(ii) The Company shall have delivered duly executed certificates
(in such denominations as such Buyer shall request) representing the Preferred
Shares being so purchased to such Buyer in accordance with Section 1(b) above.
(iii) The Common Stock shall be authorized for quotation on AMEX,
and trading in the Common Stock (or on AMEX generally) shall not have been
suspended by the SEC or AMEX and all of the Conversion Shares issuable upon
conversion of the Preferred Shares sold at the First Closing and to be sold at
the Second Closing and all of the Warrant Shares issuable upon exercise of the
Warrants issuable upon conversion of such Preferred Shares shall be listed upon
AMEX (subject to official notice of issuance).
(iv) The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of
the date of the Second Closing 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 in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the date of
the Second Closing. Such Buyer shall have received a certificate, executed by
the chief executive officer of the Company, dated as of the date of the Second
Closing, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer.
<PAGE> 13
(v) Such Buyer shall have received an opinion of the Company's
counsel, dated as of the date of the Second Closing, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially the same
form as Exhibit "D-2" attached hereto.
(vi) Such Buyer shall have received the officer's certificate
described in Section 3(c) above, dated as of the date of the Second Closing.
(vii) The registration statement(s) filed by the Company pursuant to
Section 2(a) of the Registration Rights Agreement covering the resale of the
Registrable Securities (as defined in the Registration Rights Agreement)
underlying (i) the Preferred Shares issued or issuable at the First Closing and
the Second Closing and (ii) the Warrants issued or issuable upon conversion of
such Preferred Shares, shall be effective (within one hundred twenty (120) days
of the Closing Date in respect of the First Closing) and no stop order shall
have been issued in respect thereof.
8. GOVERNING LAW; MISCELLANEOUS.
-----------------------------
a. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the Delaware without regard to the principles of
conflict of laws. The parties hereto hereby submit to the exclusive
jurisdiction of the United States Federal Courts located in Philadelphia,
Pennsylvania with respect to any dispute arising under this Agreement, the
agreements entered into in connection herewith or the transactions contemplated
hereby or thereby.
b. Counterparts. This Agreement may be executed in two or more
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.
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 or
the validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of this Agreement may be waived or amended other than by an instrument in
writing signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier and shall be effective
five days after being placed in the mail, if mailed, or upon receipt or refusal
of receipt, if delivered personally or by courier, in each case addressed to a
party. The addresses for such communications shall be:
<PAGE> 14
If to the Company:
HEARx LTD.
471 Spencer Drive
West Palm Beach, FL 33049
Attention: Paul A. Brown, M.D.
Chairman of the Board
With copy to:
Bryan Cave LLP
700 13th Street, N.W.
Suite 700
Washington, DC 20005
Attention: LaDawn Naegle, Esquire
If to Capital Ventures International:
Capital Ventures International
c/o Bala International, Inc.
1900 Market Street
Philadelphia, PA 19102
Telecopy: (215) 963-3379
Attention: Steve B. Katznelson
With copy to:
Gary S. Kaminsky, Esq.
c/o Bala International, Inc.
1900 Market Street
Philadelphia, PA 19102
Telecopy: (215) 656-8758
And:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telecopy: (215) 568-6603
Attention: Wayne D. Bloch, Esq.
If to any other Buyer, to such address set forth under such Buyer's name on
the signature page hereto executed by such Buyer.
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, any Buyer may assign its rights hereunder to any
of its "affiliates," as that term is defined under the 1934 Act, without the
consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns,
<PAGE> 15
and is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
i. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
closings for a period of three (3) years notwithstanding any due diligence
investigation conducted by or on behalf of the Buyers. The Company agrees to
indemnify and hold harmless each of the Buyers for loss or damage arising as a
result of or related to any breach or alleged breach by the Company of any of
its representations set forth in Section 3 hereof or the Company's agreement
set forth in Section 8(m) below, including advancement of expenses as they are
incurred.
j. Publicity. The Company and each of the B-1 Buyers, shall have the
right to approve before issuance any press releases, SEC, AMEX or NASD filings,
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 each of the B-1 Buyers, to make any press release or SEC,
AMEX or NASD filings with respect to such transactions as is required by
applicable law and regulations (although each of the B-1 Buyers shall be
consulted by the Company in connection with any such press release prior to its
release and shall be provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the First Closing shall not have
occurred on or before fifteen (15) business days from the date hereof, unless
the parties agree otherwise, this Agreement shall terminate at the close of
business on such date.
m. Finders. The Company acknowledges that it has engaged a finder in
connection with the sale of the Preferred Shares, which finder may have
formally or informally engaged other finders or agents on its behalf. The
Company shall be responsible for the payment of any finder's or placement
agreement's fees relating to or arising out of the transactions contemplated
hereby.
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this
Agreement to be duly executed as of the date first above written.
HEARX LTD.
By:
-------------------------------------
Name:
-------------------------------------
Its:
-------------------------------------
<PAGE> 16
CAPITAL VENTURES INTERNATIONAL
By: Bala International, Inc., as authorized agent
By:
--------------------------------------
Name:
--------------------------------------
Its:
--------------------------------------
RESIDENCE: Cayman Islands
ADDRESS:
c/o Bala International, Inc.
1900 Market Street
Philadelphia, PA 19102
Telecopy: (215) 963-3379
Attention: Steve B. Katznelson
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Shares of 1996 Series B-1 Convertible Preferred Stock: 9,000
----------
Aggregate Purchase Price: $9,000,000
----------
[Signatures Continued on Next Page]
[Signatures Continued From Prior Page]
<PAGE> 17
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this
Agreement to be duly executed as of the date first above written.
HEARX LTD.
By:
----------------------------------------
Name:
----------------------------------------
Its:
----------------------------------------
OLYMPUS SECURITIES, LTD.
By:
----------------------------------------
Name:
---------------------------------
Title:
---------------------------------
RESIDENCE: Bermuda
ADDRESS:
c/o Leeds Management Services, Ltd.
129 Front Street
Hamilton HM12
Attention: John D. Ziegelman
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Shares of 1996 Series B-1 Convertible Preferred Stock: 2,500
----------
Aggregate Purchase Price: $2,500,000
----------
[Signatures Continued on Next Page]
[Signatures Continued From Prior Page]
<PAGE> 18
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this
Agreement to be duly executed as of the date first above written.
HEARX LTD.
By:
----------------------------------------
Name:
----------------------------------------
Its:
----------------------------------------
NELSON PARTNERS
By: CITADEL INVESTMENT MANAGEMENT, L.P.,
General Partner
By:
----------------------------------------
Name:
---------------------------------
Title:
---------------------------------
RESIDENCE: Cayman Islands
ADDRESS:
c/o Leeds Management Services, Ltd.
129 Front Street
Hamilton HM12
Attention: John D. Ziegelman
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Shares of 1996 Series B-1 Convertible Preferred Stock: 3,500
----------
Aggregate Purchase Price: $3,500,000
----------
<PAGE> 19
[Signatures Continued From Prior Page]
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this
Agreement to be duly executed as of the date first above written.
HEARX LTD.
By:
----------------------------------------
Name:
----------------------------------------
Its:
----------------------------------------
BUYER:
HALIFAX FUND L.P.
By: The Palladin Group, L.P., as attorney-in-fact
By:
----------------------------------------
Andrew Kaplan, Authorized Representative
ADDRESS:
c/o Palladin Group
40 West 57th Street, 15th Floor
New York, New York 10019
Attention: Andrew Kaplan
RESIDENCE: Cayman Islands
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Shares of 1996 Series B-2 Convertible Preferred Stock: 2,000
----------
Aggregate Purchase Price: $2,000,000
----------
<PAGE> 20
[Signatures Continued From Prior Page]
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this
Agreement to be duly executed as of the date first above written.
HEARX LTD.
By:
----------------------------------------
Name:
----------------------------------------
Its:
----------------------------------------
BUYER (Name and Signature):
ADDRESS:
RESIDENCE:
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Shares of 1996 Series B-2 Convertible Preferred Stock:
----------
Aggregate Purchase Price: $
----------
<PAGE> 21
EXHIBIT A
to
Securities
Purchase
Agreement
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE
AGREEMENT DATED AS OF MAY 3, 1996, NEITHER THIS WARRANT NOR ANY OF
SUCH SHARES MAY BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SUCH ACT OR
AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT
OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT. ANY SUCH SALE,
ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH APPLICABLE STATE
SECURITIES LAWS.
Right to
Purchase
----------------
Shares of
Common Stock,
par value $.10
per share
HEARx LTD.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _________________________ or its
registered assigns, is entitled to purchase from HEARx LTD., a Delaware
corporation (the "Company"), at any time or from time to time during the period
specified in Paragraph 2 hereof, ____________________ (_______) fully paid and
nonassessable shares of the Company's Common Stock, par value $.10 per share
(the "Common Stock"), at an exercise price equal to the lower of (a) $8.00 per
share and (b) two hundred percent (200%) of the average of the closing bid
prices for the Common Stock on the American Stock Exchange ("AMEX"), or on the
principal securities exchange or other securities market on which the Common
Stock is being traded, for the twenty (20) consecutive trading days beginning
on the first trading day following the date the registration statement with
respect to up to 3,000,000 Registrable Securities (as defined in the Amended
Registration Rights Agreement referred to in that certain consent executed by
the Company, Browns Creek, Inc. and the other signatories thereto in connection
with the transactions contemplated by the Securities Purchase Agreement (as
defined below)) is declared effective by the Securities and Exchange Commission
(subject to equitable adjustments for stock splits, stock dividends,
combinations, reclassifications, recapitalizations, and similar events prior to
the expiration of such twenty (20) trading day period) (the lower of (a) and
(b) is hereinafter referred to as the "Exercise Price"). The term "Warrant
Shares", as used herein, refers to the shares of Common Stock purchasable
hereunder. The Warrant Shares and the Exercise Price are subject to adjustment
as provided in Paragraph 4 hereof. The term Warrants means this Warrant and
the other warrants of the Company issued upon conversion of the 1996 Series B-1
Convertible Preferred Stock (the "Preferred Stock") issued pursuant to that
certain Securities Purchase Agreement dated as of May 3, 1996, by and among the
Company and the Buyers listed on the execution page thereof (the "Securities
Purchase Agreement").
<PAGE> 22
This Warrant is subject to the following terms, provisions, and conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of
the Company as it may designate by notice to the holder hereof), and upon
(i) payment to the Company in cash, by certified or official bank check or by
wire transfer for the account of the Company of the Exercise Price for the
Warrant Shares specified in the Exercise Agreement or (ii) if the resale of the
Warrant Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election
to effect a "Cashless Exercise" (as defined in Section 11(c) below) for the
Warrant Shares specified in the Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or such holder's
designee, as the record owner of such shares, as of the close of business on
the date on which this Warrant shall have been surrendered (or evidence of
loss, theft or destruction thereof), the completed Exercise Agreement shall
have been delivered, and payment shall have been made for such shares as set
forth above. Certificates for the Warrant Shares so purchased, representing
the aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding two (2)
business days, after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be requested by
the holder hereof and shall be registered in the name of such holder or such
other name as shall be designated by such holder. If this Warrant shall have
been exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of such certificates, deliver to
the holder a new Warrant representing the number of shares with respect to
which this Warrant shall not then have been exercised.
Notwithstanding anything in this Warrant to the contrary, in no event
shall the Holder of this Warrant be entitled to exercise a number of Warrants
(or portions thereof) in excess of the number of Warrants (or portions thereof)
upon exercise of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of
the unexercised Warrants and the unconverted portion of the Preferred Stock)
and (ii) the number of shares of Common Stock issuable upon exercise of the
Warrants (or portions thereof) with respect to which the determination
described herein is being made, would result in beneficial ownership by the
Holder and its affiliates of more than 4.9% of the outstanding shares of Common
Stock. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder
(collectively, "Section 13(d)"), except as otherwise provided in clause (i)
thereof.
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date on which this Warrant is issued and before
5:00 p.m., New York City time on the fifth (5th) anniversary of the date of
issuance (the "Exercise Period").
<PAGE> 23
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly
issued, fully paid, and nonassessable and free from all taxes, liens,
and charges with respect to the issue thereof.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the
purpose of issuance upon exercise of this Warrant, a sufficient number
of shares of Common Stock to provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of the Warrant upon each
national securities exchange or automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to official
notice of issuance upon exercise of this Warrant) and shall maintain,
so long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon
the exercise of this Warrant; and the Company shall so list on each
national securities exchange or automated quotation system, as the
case may be, and shall maintain such listing of, any other shares of
capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed
on such national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed by it hereunder, but will at all times in good faith assist
in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder
of this Warrant in order to protect the exercise privilege of the
holder of this Warrant against dilution or other impairment,
consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not
increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect,
and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this
Warrant.
(e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all the Company's assets.
4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up to the
nearest cent.
<PAGE> 24
(a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. Except as otherwise provided in Paragraphs
4(c) and 4(e) hereof, if and whenever on or after May 3, 1996, the
Company issues or sells, or in accordance with Paragraph 4(b) hereof
is deemed to have issued or sold, any shares of Common Stock for no
consideration or for a consideration per share (before deduction of
reasonable expenses or commissions or underwriting discounts or
allowances in connection therewith) less than the Market Price (as
hereinafter defined) on the date of issuance (a "Dilutive Issuance"),
then effective immediately upon the Dilutive Issuance, the Exercise
Price will be reduced to a price determined by multiplying the
Exercise Price in effect immediately prior to the Dilutive Issuance by
a fraction, (i) the numerator of which is an amount equal to the sum
of (x) the number of shares of Common Stock Deemed Outstanding (as
hereinafter defined) immediately prior to the Dilutive Issuance, plus
(y) the aggregate consideration, calculated as set forth in Section
4(b) hereof, received by the Company upon such Dilutive Issuance,
divided by the Market Price in effect immediately prior to the
Dilutive Issuance, and (ii) the denominator of which is the total
number of shares of Common Stock Deemed Outstanding immediately after
the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Paragraph 4(a) hereof,
the following will be applicable:
(i) Issuance of Rights or Options. If the Company in any
manner issues or grants any warrants, rights or options, whether
or not immediately exercisable, to subscribe for or to purchase
Common Stock or other securities convertible into or exchangeable
for Common Stock ("Convertible Securities") (such warrants, rights
and options to purchase Common Stock or Convertible Securities are
hereinafter referred to as "Options") and the price per share for
which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance, then the
maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance
or grant of such Options, be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. For
purposes of the preceding sentence, the "price per share for which
Common Stock is issuable upon the exercise of such Options" is
determined by dividing (i) the total amount, if any, received or
receivable by the Company as consideration for the issuance or
granting of all such Options, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
exercise of all such Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Options, the minimum
aggregate amount of additional consideration payable upon the
conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock issuable upon the
exercise of all such Options (assuming full conversion of
Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such
Common Stock upon the exercise of such Options or upon the
conversion or exchange of Convertible Securities issuable upon
exercise of such Options.
<PAGE> 25
(ii) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities, whether or
not immediately convertible (other than where the same are
issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such conversion or exchange is
less than the Market Price on the date of issuance, then the
maximum total number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities will, as
of the date of the issuance of such Convertible Securities, be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of the
preceding sentence, the "price per share for which Common Stock is
issuable upon such conversion or exchange" is determined by
dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities. No
further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon conversion or exchange
of such Convertible Securities.
(iii) Change in Option Price or Conversion Rate. If there
is a change at any time in (i) the amount of additional
consideration payable to the Company upon the exercise of any
Options; (ii) the amount of additional consideration, if any,
payable to the Company upon the conversion or exchange of any
Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect
against dilution), the Exercise Price in effect at the time of
such change will be readjusted to the Exercise Price which would
have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. If, in any case, the total number of
shares of Common Stock issuable upon exercise of any Option or
upon conversion or exchange of any Convertible Securities is not,
in fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have expired
or terminated, the Exercise Price then in effect will be
readjusted to the Exercise Price which would have been in effect
at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise
or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued, granted or
sold for cash, the consideration received therefor for purposes of
this Warrant will be the amount received by the Company therefor,
<PAGE> 26
before deduction of reasonable commissions, underwriting discounts or
allowances or other reasonable expenses paid or incurred by the
Company in connection with such issuance, grant or sale. In case any
Common Stock, Options or Convertible Securities are issued or sold for
a consideration part or all of which shall be other than cash, the
amount of the consideration other than cash received by the Company
will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Company will be the Market Price thereof
as of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued in connection with any merger or
consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value
of such portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined in good
faith by the Board of Directors of the Company.
(vi) Exceptions to Adjustment of Exercise Price. No
adjustment to the Exercise Price will be made (i) upon the
exercise of any warrants, options or convertible securities issued
and outstanding on May 3, 1996; (ii) upon the grant or exercise of
any stock or options which may hereafter be granted or exercised
under any employee benefit plan of the Company now existing or to
be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the independent
members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established
for such purpose; or (iii) upon the exercise of the Warrants or
issuance or conversion of the Preferred Stock, the Company's 1996
Series B-2 Convertible Preferred Stock or up to [15,000] shares of
the Company's 1996-Series A Convertible Preferred Stock.
(c) Subdivision or Combination of Common Stock. If the Company at
any time subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) the
shares of Common Stock acquirable hereunder into a greater number of
shares, then, after the date of record for effecting such subdivision,
the Exercise Price in effect immediately prior to such subdivision
will be proportionately reduced. If the Company at any time combines
(by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable
hereunder into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect
immediately prior to such combination will be proportionately
increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Paragraph 4, the
number of shares of Common Stock issuable upon exercise of this
Warrant shall be adjusted by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the
number of shares of Common Stock issuable upon exercise of this
Warrant immediately prior to such adjustment and dividing the product
so obtained by the adjusted Exercise Price.
<PAGE> 27
(e) Consolidation, Merger or Sale. In case of any consolidation
of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or
substantially all of the assets of the Company other than in
connection with a plan of complete liquidation of the Company, then as
a condition of such consolidation, merger or sale or conveyance,
adequate provision will be made whereby the holder of this Warrant
will have the right to acquire and receive upon exercise of this
Warrant in lieu of the shares of Common Stock immediately theretofore
acquirable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon exercise of this Warrant
had such consolidation, merger or sale or conveyance not taken place.
In any such case, the Company will make appropriate provision to
insure that the provisions of this Paragraph 4 hereof will thereafter
be applicable as nearly as may be in relation to any shares of stock
or securities thereafter deliverable upon the exercise of this
Warrant. The Company will not effect any consolidation, merger or
sale or conveyance unless prior to the consummation thereof, the
successor corporation (if other than the Company) assumes by written
instrument the obligations under this Paragraph 4 and the obligations
to deliver to the holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions,
the holder may be entitled to acquire.
(f) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets to holders of Common Stock as a
partial liquidating dividend, by way of return of capital or
otherwise, then, after the date of record for determining stockholders
entitled to such distribution, but prior to the date of distribution,
the holder of this Warrant shall be entitled upon exercise of this
Warrant for the purchase of any or all of the shares of Common Stock
subject hereto, to receive the amount of such assets which would have
been payable to the holder had such holder been the holder of such
shares of Common Stock on the record date for the determination of
stockholders entitled to such distribution.
(g) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this
Warrant, which notice shall state the Exercise Price resulting from
such adjustment and the increase or decrease in the number of Warrant
Shares purchasable at such price upon exercise, setting forth in
reasonable detail the method of calculation and the facts upon which
such calculation is based. Such calculation shall be certified by the
chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the
Exercise Price in effect at the time such adjustment is otherwise
required to be made, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustments so carried
forward, shall amount to not less than 1% of such Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company
<PAGE> 28
shall pay a cash adjustment in respect of any fractional share which would
otherwise be issuable in an amount equal to the same fraction of the Market
Price of a share of Common Stock on the date of such exercise.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other
distribution (other than dividends or distributions payable in
cash out of retained earnings) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation
or merger of the Company with or into, or sale of all or substan-
tially all its assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a
record shall be taken for determining the holders of Common Stock entitled to
receive any such dividend, distribution, or subscription rights or for
determining the holders of Common Stock entitled to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, notice of the date (or, if not then known, a reasonable
approximation thereof by the Company) when the same shall take place. Such
notice shall also specify the date on which the holders of Common Stock shall
be entitled to receive such dividend, distribution, or subscription rights or
to exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding-up, as the case may be. Such notice
shall be given at least 30 days prior to the record date or the date on which
the Company's books are closed in respect thereto. Failure to give any such
notice or any defect therein shall not affect the validity of the proceedings
referred to in clauses (i), (ii), (iii) and (iv) above.
(k) Certain Events. If any event occurs of the type contemplated by
the adjustment provisions of this Paragraph 4 but not expressly provided
for by such provisions, the Company will give notice of such event as
provided in Paragraph 4(g) hereof, and the Company's Board of Directors
will make an appropriate adjustment in the Exercise Price and the number of
shares of Common Stock acquirable upon exercise of this Warrant so that the
rights of the Holder shall be neither enhanced nor diminished by such
event.
(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the
number of shares of Common Stock actually outstanding (not
including shares of Common Stock held in the treasury of the
Company), plus (x) the number of shares of Common Stock issuable
<PAGE> 29
upon exercise or conversion of all Options and Convertible Securities
outstanding at such time and which were outstanding as of May 3, 1996,
plus (y) in the case of Paragraph 4(b)(i) hereof, the maximum total
number of shares of Common Stock issuable upon the exercise of the
Options issued in the transaction for which the adjustment is required
under this Section 4, calculated as of the date of such issuance or
grant of such Options, if any, and (z) in the case of Paragraph
4(b)(ii) hereof, the maximum total number of shares of Common Stock
issuable upon conversion or exchange of the Convertible Securities
issued in the transaction for which the adjustment is required under
this Section 4, calculated, as of the date of issuance of such
Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means the average
of the last reported sale prices for the shares of Common Stock as
reported by AMEX for the ten (10) trading days immediately
preceding such date, or (ii) if AMEX is not the principal trading
market for the shares of Common Stock, the average of the last
reported sale prices on the principal trading market for the
Common Stock during the same period, or (iii) if market value
cannot be calculated as of such date on any of the foregoing
bases, the Market Price shall be the average fair market value as
reasonably determined in good faith by the Board of Directors of
the Company. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply
with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Paragraph 4,
includes the Common Stock, par value $.10 per share, and any
additional class of stock of the Company having no preference as
to dividends or distributions on liquidation, provided that the
shares purchasable pursuant to this Warrant shall include only
shares of Common Stock, par value $.10 per share, in respect of
which this Warrant is exercisable, or shares resulting from any
subdivision or combination of such Common Stock, or in the case of
any reorganization, reclassification, consolidation, merger, or
sale of the character referred to in Paragraph 4(e) hereof, the
stock or other securities or property provided for in such
Paragraph.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
<PAGE> 30
7. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights granted
to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed
assignment in the form attached hereto, at the office or agency of the
Company referred to in Paragraph 7(e) below, provided, however, that
any transfer or assignment shall be subject to the conditions set
forth in Paragraph 7(f) hereof and to the applicable provisions of the
Securities Purchase Agreement. Until due presentment for registration
of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all
purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein,
the registration rights described in Paragraph 8 are assignable only
in accordance with the provisions of that certain Registration Rights
Agreement, dated as of May 3, 1996, by and among the Company and the
other signatories thereto (the "Registration Rights Agreement").
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder
hereof at the office or agency of the Company referred to in Paragraph
7(e) below, for new Warrants of like tenor representing in the
aggregate the right to purchase the number of shares of Common Stock
which may be purchased hereunder, each of such new Warrants to
represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft,
or destruction, upon delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company, or, in the case of any
such mutilation, upon surrender and cancellation of this Warrant, the
Company, at its expense, will execute and deliver, in lieu thereof, a
new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement
as provided in this Paragraph 7, this Warrant shall be promptly
canceled by the Company. The Company shall pay all taxes (other than
securities transfer taxes) and all other expenses (other than legal
expenses, if any, incurred by the Holder or transferees) and charges
payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Paragraph 7.
(e) Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this
Warrant, in which the Company shall record the name and address of the
person in whose name this Warrant has been issued, as well as the name
and address of each transferee and each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time
of the surrender of this Warrant in connection with any exercise,
transfer, or exchange of this Warrant, this Warrant (or, in the case
of any exercise, the Warrant Shares issuable hereunder), shall not be
registered under the Securities Act and under applicable state
<PAGE> 31
securities or blue sky laws, the Company may require, as a condition of
allowing such exercise, transfer, or exchange, (i) that the holder or
transferee of this Warrant, as the case may be, furnish to the Company a
written opinion of counsel, which opinion and counsel are reasonably
acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under
applicable state securities or blue sky laws, (ii) that the holder or
transferee execute and deliver to the Company an investment letter in form
and substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the
Securities Act; provided that no such opinion, letter or status as an
"accredited investor" shall be required in connection with a transfer
pursuant to Rule 144 under the Securities Act; provided further, however,
that no "Subject Holder" (as defined below) may sell or otherwise transfer
the Warrants, except (i) to the Company or to a stockholder or a group of
stockholders who immediately prior to the sale control a majority of the
Company's voting shares (a "Controlling Stockholder" or "Controlling
Group", as applicable); (ii) to an affiliate of such Holder; (iii) in
connection with any merger, consolidation, reorganization or sale of more
than 50% of the outstanding Common Stock of the Company (a
"Reorganization"); (iv) in a registered public offering or a public sale
pursuant to Rule 144 or other applicable exemption from the registration
requirements of the Securities Act (or any successor rule or regulation);
or (v) in a private sale (otherwise than to the Company, to a Controlling
Stockholder or a Controlling Group, to an affiliate of such Holder, or in a
Reorganization), provided that the Holder shall not sell or otherwise
transfer during any ninety (90) day period a portion(s) of the Warrants
which, if converted into Common Stock, would represent, at the time of the
transfer, in the aggregate (together with any other shares of Common Stock
the beneficial ownership of which is transferred), beneficial ownership by
the transferee(s) of more than 4.9% percent of the Common Stock then
outstanding. Subject Holder means any Holder who, but for the provisions
contained in the last paragraph of Section 1, would beneficially own 5% or
more of the outstanding Common Stock of the Borrower. The first holder of
this Warrant, by taking and holding the same, represents to the Company
that such holder is acquiring this Warrant for investment and not with a
view to the distribution thereof. For the purposes of this paragraph,
beneficial ownership shall be determined in accordance with Section 13(d).
8. Registration Rights.
The initial holder of this Warrant (and certain assignees thereof) is
entitled to the benefit of such registration rights in respect of the Warrant
Shares as are set forth in Section 2 of the Registration Rights Agreement
(including, without limitation, Section 2(c) thereof).
9. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant
shall be in writing, and shall be personally delivered, or shall be sent by
certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to such holder at the address shown for such holder on
the books of the Company, or at such other address as shall have been furnished
to the Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be
sent by certified or registered mail or by recognized overnight mail courier,
postage prepaid and addressed, to the office of the Company at 471 Spencer
Drive, West Palm Beach, FL 33409, Attention: Paul A. Brown, M.D., Chairman, or
<PAGE> 32
at such other address as shall have been furnished to the holder of this
Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by facsimile, but shall in such case be subsequently
confirmed by a writing personally delivered or sent by certified or registered
mail or by recognized overnight mail courier as provided above. All notices,
requests, and other communications shall be deemed to have been given either at
the time of the receipt thereof by the person entitled to receive such notice
(or upon such person's refusal to accept such notice) at the address of such
person for purposes of this Paragraph 9, or, if mailed by registered or
certified mail or with a recognized overnight mail courier upon deposit with
the United States Post Office or such overnight mail courier, if postage is
prepaid and the mailing is properly addressed, as the case may be.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW. THE PARTIES HERETO
HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS
LOCATED IN PHILADELPHIA, PENNSYLVANIA WITH RESPECT TO ANY DISPUTE ARISING UNDER
THIS WARRANT.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the
holder hereof.
(b) Descriptive Headings. The descriptive headings of the
several paragraphs of this Warrant are inserted for purposes of
reference only, and shall not affect the meaning or construction of
any of the provisions hereof.
(c) Cashless Exercise. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act, this Warrant may be
exercised by presentation and surrender of this Warrant to the Company
at its principal executive offices with a written notice of the
holder's intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued upon
such exercise in accordance with the terms hereof (a "Cashless
Exercise"). In the event of a Cashless Exercise, in lieu of paying
the Exercise Price in cash, the holder shall surrender this Warrant
for that number of shares of Common Stock determined by multiplying
the number of Warrant Shares to which it would otherwise be entitled
by a fraction, the numerator of which shall be the difference between
the then current Market Price per share of the Common Stock and the
Exercise Price, and the denominator of which shall be the then
current Market Price per share of Common Stock.
<PAGE> 33
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
HEARx LTD
By:
---------------------------------
Name:
-------------------------
Title:
-------------------------
Agreed to and Accepted
By:
------------------------------
, Initial Holder
Dated as of , 199
-------------- --
<PAGE> 34
FORM OF EXERCISE AGREEMENT
Dated: , .
---------------- ----
To:
-------------------------
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per
share provided by such Warrant in cash or by certified or official bank check
in the amount of, or, if the resale of such Common Stock by the undersigned is
not currently registered pursuant to an effective registration statement under
the Securities Act of 1933, as amended, by surrender of securities issued by
the Company (including a portion of the Warrant) having a market value (in the
case of a portion of this Warrant, determined in accordance with Section 11(c)
of the Warrant) equal to $_________. Please issue a certificate or certifi-
cates for such shares of Common Stock in the name of and pay any cash for any
fractional share to:
Name:________________________________
Signature:___________________________
Address:_____________________________
_____________________________
Note: The above signature should
correspond exactly with the
name on the face of the
within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE> 35
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No. of Shares
- ------------------------- ------------------------- -------------------------
, and hereby irrevocably constitutes and appoints _-________________________ as
agent and attorney-in-fact to transfer said Warrant on the books of the within-
named corporation, with full power of substitution in the premises.
Dated: , ____.
--------------------- ----
In the presence of
- ----------------------------------
Name:
---------------------------------------
Signature:
----------------------------------
Title of Signing Officer or Agent (if any):
---------------------------------------------
Address:
-----------------------------------
-----------------------------------
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May 3, 1996
by and among HEARx, LTD., a Delaware corporation, with headquarters located at
471 Spencer Drive, West Palm Beach, Florida 33049 (the "Company"), and each of
the undersigned (together with their respective affiliates and any assignee or
transferee of all of their respective rights hereunder, the "Initial
Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties of even date herewith (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors shares of its 1996 Series
B-1 Convertible Preferred Stock (the "Series B-1 Preferred Stock") and shares
of its 1996 Series B-2 Convertible Preferred Stock (collectively, the
"Preferred Stock") that is convertible into (i) shares (the "Conversion
Shares") of the Company's common stock (the "Common Stock") and (ii) in the
case of the Series B-1 Preferred Stock, warrants (the "Warrants") to acquire a
number of shares of Common Stock (the "Warrant Shares") equal to the number of
Conversion Shares issuable upon conversion of the Series B-1 Preferred Stock,
upon the terms and subject to the limitations and conditions set forth in the
Certificates of Designations, Preferences and Rights with respect to such
Preferred Stock (the "Certificates of Designation"); and
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Initial Investors hereby agree as follows:
1. DEFINITIONS.
------------
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investors" means the Initial Investors and any transferees or
assignees who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
<PAGE> 2
(iii) "Registrable Securities" means the Conversion Shares and
the Warrant Shares issued or issuable and any shares of capital stock issued or
issuable as a dividend on or in exchange for or otherwise with respect to any
of the foregoing.
(iv) "Registration Statement" means a registration statement of
the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
-------------
a. Mandatory Registration. The Company shall prepare, and, on or
prior to the date which is fifteen (15) days after the date of the Closing Date
with respect to the First Closing under the Securities Purchase Agreement (the
"Closing Date"), file with the SEC a Registration Statement on Form S-3 (or, if
Form S-3 is not then available, on such form of Registration Statement as is
then available to effect a registration of the Registrable Securities, subject
to the consent of the Initial Investors (as determined pursuant to Section
11(j) hereof), which consent will not be unreasonably withheld) covering the
resale of the Registrable Securities (including the Registrable Securities
underlying the Preferred Stock issued or issuable at the First Closing and the
Second Closing), which Registration Statement, to the extent allowable under
the 1933 Act and the Rules promulgated thereunder (including Rule 416), shall
state that such Registration Statement also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon conversion of the
Preferred Stock (i) to prevent dilution resulting from stock splits, stock
dividends or similar transactions or (ii) by reason of changes in the
Conversion Price of the Preferred Stock or the Exercise Price of the Warrants
in accordance with the terms thereof. The Registration Statement (and each
amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided to (and subject to the approval of)
the Initial Investors, each of the B-1 Buyers (as defined in the Securities
Purchase Agreement) and their counsel prior to its filing or other submission.
If the SEC will not allow the Registrable Securities underlying the Preferred
Stock to be issued at the Second Closing under the Securities Purchase
Agreement (the "Second Closing") to be included in the Registration Statement
initially filed pursuant to this Section 2(a), the Company shall amend such
Registration Statement to include such Registrable Securities (if such
Registration Statement is not yet effective by the time of the Second Closing)
or shall file a new Registration Statement (on the short form available
therefore, if applicable) registering such Registrable Securities, in each
case, as soon as practicable, but in any event within fifteen (15) days after
the Second Closing. The provisions of Section 2(c) shall be applicable with
respect to each Registration Statement filed pursuant to this Section 2(a).
The Company shall not permit any Disqualifying Holder (as defined herein) to
include any securities on any Registration Statement filed pursuant to this
Section 2(a).
b. Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering,
the Investors who hold a majority in interest of the Registrable Securities
subject to such underwritten offering, with the consent of each of the B-1
Buyers, shall have the right to select one legal counsel and an investment
<PAGE> 3
banker or bankers and manager or managers to administer the offering, which
investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company.
c. Payments by the Company. The Company shall use its best efforts
to obtain effectiveness of the Registration Statement as soon as practicable.
If (i) the Registration Statement(s) covering the Registrable Securities
required to be filed by the Company pursuant to Section 2(a) hereof is not
declared effective by the SEC within one hundred twenty (120) days after the
Closing Date (other than by reason of any act or failure to act by the
Investors) or if, after the Registration Statement has been declared effective
by the SEC, sales cannot be made pursuant to the Registration Statement (by
reason of stop order, or the Company's failure to update the Registration
Statement), or (ii) the Common Stock is not listed or included for quotation on
the NASDAQ National Market System (the "NASDAQ-NMS"), the New York Stock
Exchange (the "NYSE") or the American Stock Exchange (the "AMEX"), then the
Company will make payments to the Investors in such amounts and at such times
as shall be determined pursuant to this Section 2(c) as partial relief for the
damages to the Investors by reason of any such delay in or reduction of their
ability to sell the Registrable Securities (which remedy shall not be exclusive
of any other remedies available at law or in equity). The Company shall pay to
each holder of Registerable Securities an amount equal to the aggregate
"Purchase Price" (as defined below) of the Preferred Stock held by such
Investors (including, without limitation, Preferred Stock that has been
converted into Conversion Shares and Warrants (including Warrant Shares) then
held by such Investors) (the "Aggregate Share Price") multiplied by two and
one-half hundredths (.025) times the sum of: (i) the number of months (prorated
for partial months) after the end of such 120-day period and prior to the date
the Registration Statement is declared effective by the SEC, provided, however,
that there shall be excluded from such period any delays which are solely
attributable to changes required by the Investors in the Registration Statement
with respect to information relating to the Investors, including, without
limitation, changes to the plan of distribution, or to the failure of the
Investors to conduct their review of the registration statement pursuant to
Section 2(a) above in a reasonably prompt manner; (ii) the number of months
(prorated for partial months) that sales cannot be made pursuant to the
Registration Statement after the Registration Statement has been declared
effective; and (iii) the number of months (prorated for partial months) that
the Common Stock is not listed or included for quotation on the NASDAQ-NMS,
NYSE or AMEX after the Registration Statement has been declared effective.
(For example, if the Registration Statement becomes effective one (1) month
after the end of such 120-day period, the Company would pay $25,000 for each
$1,000,000 of Aggregate Share Price and would continue to pay $25,000 for each
$1,000,000 of Aggregate Share Price until the Registration Statement becomes
effective.) Such amounts shall be paid in cash or, at each Investor's option,
may be convertible into Common Stock at the "Conversion Price" (as defined in
the Certificates of Designation). Any shares of Common Stock issued upon
conversion of such amounts shall be Registrable Securities. If the Investor
desires to convert the amounts due hereunder into Registrable Securities, it
shall so notify the Company in writing within two (2) business days of the date
on which such amounts are first payable in cash and such amounts shall be so
convertible (pursuant to the mechanics set forth under Article VI of the
applicable Certificate of Designation), beginning on the last day upon which
the cash amount would otherwise be due in accordance with the following
sentence. Payments of cash pursuant hereto shall be made within five (5) days
after the end of each period that gives rise to such obligation, provided that,
if any such period extends for more than thirty (30) days, interim payments
shall be made for each such thirty (30) day period. The term "Purchase Price"
<PAGE> 4
means the purchase price paid by the Investors for the Preferred Stock.
d. Piggy-Back Registrations. If at any time prior to the expiration
of the Registration Period (as hereinafter defined) the Company shall file with
the SEC a Registration Statement relating to an offering for its own account or
the account of others under the 1933 Act of any of its equity securities (other
than on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with stock option or
other employee benefit plans and other than pursuant to the exercise of demand
registration rights by a holder (a "Disqualifying Holder") which elects to
prohibit the Investors from including Registrable Securities on such
Registration Statement pursuant to rights in effect as of the date hereof) the
Company shall send to each Investor who is entitled to registration rights
under this Section 2(d) written notice of such determination and, if within
fifteen (15) days after the effective date of such notice, such Investor shall
so request in writing, the Company shall include in such Registration Statement
all or any part of the Registrable Securities such Investor requests to be
registered, except that if, in connection with any underwritten public offering
for the account of the Company the managing underwriter(s) thereof shall impose
a limitation on the number of shares of Common Stock which may be included in
the Registration Statement because, in such underwriter(s)' judgment, marketing
or other factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which such Investor has requested inclusion hereunder as the
underwriter shall permit. Any exclusion of Registrable Securities shall be made
pro rata among (i) the Investors seeking to include Registrable Securities and
(ii) holders ("Other Holders") of other securities entitled to include such
securities in such Registration Statement pursuant to registration rights in
existence as of the date hereof, in proportion to the number of Registrable
Securities sought to be included by such Investors and Other Holders; provided,
however, that the Company shall not exclude any Registrable Securities unless
the Company has first excluded all outstanding securities, the holders of which
are not entitled to inclusion of such securities in such Registration Statement
or are not entitled to pro rata inclusion with the Registrable Securities; and
provided, further, however, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the right to include such
securities in the Registration Statement other than holders of securities
entitled to inclusion of their securities in such Registration Statement by
reason of demand registration rights. No right to registration of Registrable
Securities under this Section 2(d) shall be construed to limit any registration
required under Section 2(a) hereof. If an offering in connection with which an
Investor is entitled to registration under this Section 2(d) is an underwritten
offering, then each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed by the Company, offer and
sell such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement,
on the same terms and conditions as other shares of Common Stock included in
such underwritten offering.
e. Eligibility for Form S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of the
sale by the Buyer and any other Investor of the Registrable Securities and the
Company shall file all reports required to be filed by the Company with the SEC
in a timely manner so as to maintain such eligibility for the use of Form S-3.
<PAGE> 5
3. OBLIGATIONS OF THE COMPANY.
---------------------------
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC not
later than fifteen (15) days after the Closing Date, a Registration Statement
with respect to the number of Registrable Securities provided in Section 2(a),
and thereafter use its best efforts to cause such Registration Statement
relating to Registrable Securities to become effective as soon as possible
after such filing, and keep the Registration Statement effective pursuant to
Rule 415 at all times until such date as is the earlier of (i) the date on
which all of the Registrable Securities have been sold and (ii) the date on
which the Registrable Securities (in the opinion of counsel to the Initial
Investors and the B-1 Buyers) may be immediately sold without registration (the
"Registration Period"), which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein not
misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration Statement until such time
as all of such Registrable Securities have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof as set
forth in the Registration Statement. In the event the number of shares
available under a Registration Statement filed pursuant to this Agreement is
insufficient to cover all of the Registrable Securities issued or issuable upon
conversion of the Preferred Stock and exercise of the Warrants, the Company
shall amend the Registration Statement, or file a new Registration Statement
(on the short form available therefore, if applicable), or both, so as to cover
all of the Registrable Securities, in each case, as soon as practicable, but in
any event within fifteen (15) days after the necessity therefor arises (based
on the market price of the Common Stock and other relevant factors on which the
Company reasonably elects to rely). The Company shall use its best efforts to
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof. The provisions of Section
2(c) above shall be applicable with respect to such obligation, with the one
hundred twenty (120) days running from the day after the date on which the
Company reasonably first determines (or reasonably should have determined) the
need therefor.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each
amendment or supplement thereto, and, in the case of the Registration Statement
referred to in Section 2(a), each letter written by or on behalf of the Company
to the SEC or the staff of the SEC, and each item of correspondence from the
SEC or the staff of the SEC, in each case relating to such Registration
Statement (other than any portion of any thereof which contains information for
<PAGE> 6
which the Company has sought confidential treatment), and (ii) such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as such Investor may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as the Investors who hold a majority in interest of the Registrable
Securities being offered reasonably request, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its
charter or bylaws, which in each case the Board of Directors of the Company
determines to be contrary to the best interests of the Company and its
stockholders.
e. In the event Investors who hold a majority in interest of the
Registrable Securities being offered in the offering (with the approval of the
B-1 Buyers) select underwriters for the offering, the Company shall enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification and
contribution obligations, with the underwriters of such offering.
f. As promptly as practicable after becoming aware of such event, the
Company shall notify each Investor of the happening of any event, of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and use its
best efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration
Statement, and, if such an order is issued, to obtain the withdrawal of such
order at the earliest possible moment and to notify each Investor who holds
Registrable Securities being sold (or, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof.
h. The Company shall permit a single firm of counsel designated by
the B-1 Buyers to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time prior to their filing with the
<PAGE> 7
SEC, and not file any document in a form to which such counsel reasonably
objects.
i. The Company shall make generally available to its security holders
as soon as practical, but not later than ninety (90) days after the close of
the period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish, on the
date that Registrable Securities are delivered to an underwriter, if any, for
sale in connection with the Registration Statement or, if such securities are
not being sold by an underwriter, on the date of effectiveness thereof (i) an
opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investors and (ii) a letter, dated such date,
from the Company's independent certified public accountants in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the B-1 Buyers, (iv) one firm of attorneys and one
firm of accountants or other agents retained by all other Investors, and (v)
one firm of attorneys retained by all such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent
corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably deemed necessary by each Inspector to enable
each Inspector to exercise its due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information which any
Inspector may reasonably request for purposes of such due diligence; provided,
however, that each Inspector shall hold in confidence and shall not make any
disclosure (except to an Investor) of any Record or other information which the
Company determines in good faith to be confidential, and of which determination
the Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered
into confidentiality agreements (in form and substance satisfactory to the
Company) with the Company with respect thereto, substantially in the form of
this Section 3(k). Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, the Records
deemed confidential. Nothing herein shall be deemed to limit the Investor's
ability to sell Registrable Securities in a manner which is otherwise
consistent with applicable laws and regulations.
<PAGE> 8
l. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees
that it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall use its best efforts either to (i) cause all the
Registrable Securities covered by the Registration Statement to be listed on
the AMEX or another national securities exchange and on each additional
national securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure the designation and quotation, of all the Registrable Securities
covered by the Registration Statement on the NASDAQ-NMS or, if not eligible for
the NASDAQ-NMS on the NASDAQ Small Cap and, without limiting the generality of
the foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and
shall cause legal counsel selected by the Company to deliver, to the transfer
agent for the Registrable Securities (with copies to the Investors whose
Registrable Securities are included in such Registration Statement) an
instruction in the form attached hereto as Exhibit 1 and an opinion of such
counsel in the form attached hereto as Exhibit 2.
p. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to the Registration Statement.
<PAGE> 9
4. OBLIGATIONS OF THE INVESTORS.
-----------------------------
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. At
least three (3) business days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor if such Investor
elects to have any of such Investor's Registrable Securities included in the
Registration Statement.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
c. In the event Investors holding a majority in interest of the
Registrable Securities being registered (with the approval of the B-1 Buyers)
determine to engage the services of an underwriter, each Investor agrees to
enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation,
customary indemnification and contribution obligations, with the managing
underwriter of such offering and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of the Registrable
Securities, unless such Investor has notified the Company in writing of such
Investor's election to exclude all of such Investor's Registrable Securities
from the Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
<PAGE> 10
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
-------------------------
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant
to Sections 2 and 3, including, without limitation, all registration, listing
and qualifications fees, printers and accounting fees, the fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel selected by the B-1 Buyers pursuant to Section
2(b) hereof shall be borne by the Company.
6. INDEMNIFICATION.
----------------
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities,
(ii) the directors, officers, partners, employees, agents and each person who
controls any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), if any, and (iii) any
underwriter (as defined in the 1933 Act) for the Investors; and the directors,
officers, partners, employees and each person who controls any such underwriter
within the meaning of the 1933 Act or the 1934 Act, if any, (each, an
"Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective
date of such Registration Statement, or contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made therein, in
light of the circumstances under which the statements therein were made, not
misleading, or (iii) any violation or alleged violation by the Company of the
1933 Act, the 1934 Act, any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the offer or
sale of the Registrable Securities (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). Subject to the restrictions
set forth in Section 6(c) with respect to the number of legal counsel, the
Company shall reimburse the Investors and each such underwriter or controlling
person, promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim arising out of
or based upon a Violation which occurs in reliance upon and in conformity with
<PAGE> 11
information furnished in writing to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not be unreasonably
withheld; and (iii) with respect to any preliminary prospectus, shall not inure
to the benefit of any Indemnified Person if the untrue statement or omission of
material fact contained in the preliminary prospectus was corrected on a timely
basis in the prospectus, as then amended or supplemented, such corrected
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof, and the Indemnified Person was promptly advised in writing not to use
the incorrect prospectus prior to the use giving rise to a Violation and such
Indemnified Person, notwithstanding such advise, used it. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees severally and not jointly to
indemnify, hold harmless and defend, to the same extent and in the same manner
set forth in Section 6(a), the Company, each of its directors, each of its
officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim
arises out of or is based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject
to Section 6(c) such Investor will reimburse any legal or other expenses
(promptly as such expenses are incurred and are due and payable) reasonably
incurred by them in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section 6(b)
shall not apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of such Investor, which consent
shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
<PAGE> 12
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the
Registration Statement to which the Claim relates (with the approval of CVI if
it holds Registrable Securities included in such Registration Statement), if
the Investors are entitled to indemnification hereunder, or the Company, if the
Company is entitled to indemnification hereunder, as applicable. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party
of any liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is actually
prejudiced in its ability to defend such action. The indemnification required
by this Section 6 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as such expense, loss,
damage or liability is incurred and is due and payable.
7. CONTRIBUTION.
-------------
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under
Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any seller of Registrable Securities who was
not guilty of such fraudulent misrepresentation, and (iii) contribution
(together with any indemnification or other obligations under this Agreement)
by any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
8. REPORTS UNDER THE 1934 ACT.
---------------------------
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the investors to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees to:
<PAGE> 13
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long
as the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the 1933 Act and
the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the Investors
to sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
----------------------------------
The rights to have the Company register Registrable Securities pursuant to
this Agreement shall be automatically assignable by the Investors to any
transferee of all or any portion of Registrable Securities if: (i) the Investor
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment, (ii) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned, (iii)
following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "accredited investor" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
---------------------------------
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, each
of the B-1 Buyers (to the extent such B-1 Buyer still owns Registrable
Securities) and Investors who hold a majority interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section
10 shall be binding upon each Investor and the Company.
<PAGE> 14
11. MISCELLANEOUS.
--------------
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission or other means)
or which receipt is refused if delivered by hand or by courier or sent by
certified mail, return receipt requested, properly addressed and with proper
postage pre-paid,
if to the Company:
HEARx Ltd.
471 Spencer Drive
West Palm Beach, FL 33049
Attention: Paul A. Brown, M.D.
Chairman of the Board
with copy to:
Bryan Cave LLP
700 13th Street N.W.
Suite 700
Washington DC 20005
Attention: LaDawn Naegle, Esq.
if to Capital Ventures International,
Capital Ventures International
c/o Bala International, Inc.
1900 Market Street
Philadelphia, PA 19102
Telecopy: (215) 963-3379
Attention: Steve Katznelson
with copy to:
Gary Kaminsky, Esq.
c/o Bala International, Inc.
1900 Market Street
Philadelphia, PA 19102
Telecopy: (215) 656-8758
and:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telecopy: (215) 568-6603
Attention: Wayne D. Bloch, Esq.
<PAGE> 15
and if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b), and shall be
effective, when personally delivered, upon receipt and, when so sent by
certified mail, four days after deposit with the United States Postal Service.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof. The parties hereto hereby submit to the
exclusive jurisdiction of the United States Federal Courts located in
Philadelphia, Pennsylvania with respect to any dispute arising under this
Agreement or the transactions contemplated hereby.
e. This Agreement and the Securities Purchase Agreement (including
all schedules and exhibits thereto) constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There
are no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the Securities
Purchase Agreement supersede all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish
the purposes of this Agreement and the consummation of the transactions
contemplated hereby.
j. All consents and other determinations to be made by the Initial
Investors or the Investors pursuant to this Agreement shall be made by Initial
Investors or Investors, as the case may be, holding a majority of the
Registrable Securities (determined as if all shares of Preferred Stock and
Warrants then outstanding or, in the case of the Warrants, issuable upon
conversion of the then outstanding Preferred Stock had been converted into or
exercised for Registrable Securities).
<PAGE> 16
IN WITNESS WHEREOF, the Company and the undersigned Initial Investor have
caused this Agreement to be duly executed as of the date first above written.
HEARx LTD.
By:
----------------------------------
Name:
----------------------------------
Its:
----------------------------------
CAPITAL VENTURES INTERNATIONAL
By: Bala International, Inc., as authorized agent
By:
----------------------------------
Name:
----------------------------------
Its:
----------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE> 17
[SIGNATURES CONTINUED FROM PRIOR PAGE]
IN WITNESS WHEREOF, the Company and the undersigned Initial Investor have
caused this Agreement to be duly executed as of the date first above written.
HEARx LTD.
By:
----------------------------------
Name:
----------------------------------
Its:
----------------------------------
OLYMPUS SECURITIES, LTD.
By:
----------------------------------
Name:
Title:
NELSON PARTNERS
By: CITADEL INVESTMENT MANAGEMENT, L.P.,
General Partner
By:
----------------------------------
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
[SIGNATURES CONTINUED FROM PRIOR PAGE]
<PAGE> 18
IN WITNESS WHEREOF, the Company and the undersigned Initial Investor have
caused this Agreement to be duly executed as of the date first above written.
HEARx LTD.
By:
----------------------------------
Name:
----------------------------------
Its:
----------------------------------
INITIAL INVESTOR:
HALIFAX FUND L.P.
By: The Palladin Group, L.P., as attorney-in-fact
By:
----------------------------------------
Andrew Kaplan, Authorized Representative
<PAGE> 19
[SIGNATURES CONTINUED FROM PRIOR PAGE]
IN WITNESS WHEREOF, the Company and the undersigned Initial Investor have
caused this Agreement to be duly executed as of the date first above written.
HEARx LTD.
By:
----------------------------------
Name:
----------------------------------
Its:
----------------------------------
INITIAL INVESTOR (Name and Signature):
<PAGE> 1
EXHIBIT 4.3
- HEARx Ltd. -
Securities Subscription Agreement
1996-Series A Convertible Preferred Stock
THE 1996-SERIES A CONVERTIBLE PREFERRED STOCK BEING SUBSCRIBED FOR HEREIN AND
THE COMMON STOCK ISSUABLE UPON CONVERSION OF THE SERIES A CONVERTIBLE PREFERRED
STOCK HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT"), OR
THE SECURITIES COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES LAW. THEY
ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION
S ("REGULATION S") PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS
(AS SUCH TERM IS DEFINED IN REGULATION S) UNLESS THE SECURITIES ARE REGISTERED
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND
TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION OR SAFE HARBOR FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY BY OR TO
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. INVESTMENT IN SUCH SECURITIES INVOLVES A HIGH DEGREE OF RISK. IN
MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND THE RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED, APPROVED OR DISAPPROVED
BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT REVIEWED, PASSED UPON,
CONFIRMED OR DETERMINED THE ACCURACY OR ADEQUACY OF THIS DOCUMENT OR ANY
INFORMATION PROVIDED BY THE COMPANY TO POTENTIAL INVESTORS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Regulation S Securities Subscription Agreement (the "Agreement") is
executed by the undersigned (the "Subscriber") in connection with the offer and
subscription by the undersigned for 1996-Series A Convertible Preferred Stock
$1.00 par value (the "1996-Series A Convertible Preferred Stock") of HEARx
Ltd., a Delaware corporation (the "Company"). The 1996-Series A Convertible
Preferred Stock is being offered at a purchase price of $1,000 per share. The
maximum number of shares to be sold by the Company is 15,000 shares of 1996-
Series A Convertible Preferred Stock for an aggregate maximum of $15,000,000
(the "Offering"). The terms of the 1996-Series A Convertible Preferred Stock,
including the terms on which the 1996-Series A Convertible Preferred Stock may
be converted or redeemed into common stock, $0.10 par value per share of the
Company (the "Common Stock"), are set forth in the Certificate of Designation,
attached hereto as Exhibit A. The solicitation of this Subscription and, if
accepted by the Company, the offer and sale of 1996-Series A Convertible
Preferred Stock, are being made in reliance upon the provisions of Regulation S
promulgated under the Act. The 1996-Series A Convertible Preferred Stock, and
the Common Stock issuable upon conversion thereof (the "Shares"), are sometimes
referred to herein collectively as the "Securities." The Subscriber wishes to
subscribe for 1996-Series A Convertible Preferred Stock in the amount set forth
in Section 15 in accordance with the terms and conditions of the form of
Certificate of Designation and this Agreement. It is agreed as follows:
<PAGE> 2
1. OFFER TO SUBSCRIBE; PURCHASE PRICE AND CLOSING; AND PLACEMENT AGENT FEE
1.1 The Subscriber hereby offers to subscribe for and purchase 1996-Series
A Convertible Preferred Stock, for the aggregate purchase price set out in
Section 16 of this Agreement. The closing as to each Subscriber (the
"Closing") shall be deemed to occur when this Agreement has been executed by
the Subscriber and accepted and executed by the Company and payment shall have
been made by the Subscriber.
1.2 Form of Payment. The Purchaser shall pay the purchase price for the
Preferred Shares by delivering good funds in United States Dollars to the
escrow agent identified in the Joint Escrow Instructions attached hereto as
Annex II (the "Escrow Agent"), by wire transfer of immediately available funds
as follows:
First Union National Bank
ABA # 053-000219
a/c 465946
Attn: Claire Moore, tel 1-404-827-7335
Cust a/c: 3072233032
Credit: Zanett Capital Escrow Account for HEARx, Ltd.
Ref: (Subscriber's Name)
Swift Code: FUNBUS33 (for international transfers)
The Company shall determine whether to accept such subscriptions and, if so
accepted, shall deliver one or more certificates for the 1996-Series A
Convertible Preferred to the Escrow Agent. Delivery of such funds to the
Company by the Escrow Agent shall be made against delivery by the Company of
one or more certificates for the 1996-Series A Convertible Preferred in
accordance with this Agreement. By signing this Agreement, the Purchaser and
the Company each agrees to all of the terms and conditions of, and becomes a
party to, the Joint Escrow Instructions attached hereto as Annex II, all of the
provisions of which are incorporated herein by this reference as if set forth
in full.
1.3 Placement Agent Fee. The Subscriber acknowledges that Zanett Capital,
Inc. is acting as a placement agent for this Offering and will be compensated
by the Company in connection herewith. Such compensation shall be paid in cash
out of the Offering proceeds.
2. REPRESENTATIONS; ACCESS TO INFORMATION; INDEPENDENT INFORMATION;
INDEPENDENT INVESTIGATION; AND COVENANTS
2.1 Offshore Transaction. The Subscriber represents and warrants to the
Company on the date hereof and as of the Closing Date that (a) the Subscriber
is not a "U.S. person" as that term is defined in Rule 902(o) of Regulation S
(a copy of which definition is attached as Exhibit B) including, without
limitation if a business organisation, such as a corporation or partnership,
(i) it is organised under the laws of jurisdiction other than the United States
and (ii) if organised by a "U.S. Person" principally for the purpose of
investing in securities not registered under the Act, it was organised and is
owned by accredited investors (as defined in Rule 501(a) of Regulation D under
the Act, a copy of which is annexed hereto as Exhibit C) who are not natural
persons, estates or trusts; (b) the shares of 1996-Series A Convertible
Preferred were not offered to the Subscriber in the United States and at the
time of execution of this Subscription Agreement, the Subscriber was physically
outside the United States; (c) the Subscriber is purchasing the Securities for
<PAGE> 3
its own account and not on behalf of or for the benefit of any U.S. person and
the sale and resale of the Securities have not been prearranged with any buyer
in the United States; (d) all subsequent offers and sales of the Securities by
the Subscriber shall be made in compliance with Regulation S; (e) all offers
and sales of the Securities prior to the expiration of a period commencing on
the Closing of all 1996-Series A Convertible Preferred Stock offered and ending
sixty days thereafter (the "Restricted Period") shall not be made to U.S.
persons or for the account or benefit of U.S. persons and shall otherwise be
made in compliance with the provisions of Regulation S; and (f) Subscriber has
not been engaged and will not act as a distributor, dealer or underwriter with
respect to the offering.
2.2 No Directed Selling Efforts in Regard to this Transaction. To the
best of the knowledge of the Subscriber, neither the Company nor any
distributor participating in the Offering, nor any person acting for the
Company or any such distributor, has conducted any "directed selling efforts"
in the United States as the term "directed selling efforts" is defined in
Rule 902 of Regulation S, which in general, means any activity undertaken for
the purpose of, or that could reasonably be expected to have the effect of,
conditioning the market in the United States for any of the Securities being
offered. Such activity includes, without limitation, the mailing of printed
material to investors residing in the United States, the holding of promotional
seminars in the United States, and the placement of advertisements with radio
or television stations broadcasting in the United States or in publications
with a general circulation in the United States, which discuss the Offering or
the Securities.
2.3 Subscriber's Independent Investigation. The Subscriber, in offering
to subscribe for the Securities hereunder, has relied solely upon an
independent investigation made by it and its representatives, if any, and has,
prior to the date hereof, been given access to and the opportunity to examine
all publicly available books and records of the Company, and all publicly
available material contracts and documents of the Company. In making its
investment decision to purchase the 1996-Series A Convertible Preferred Stock,
the Subscriber is not relying on any oral or written representations or
assurances from the Company or any other person or any representation of the
Company or any other person other than as set forth in this Agreement, or on
any information other than contained in the Company's Annual Report on Form 10-
K for the year ended December 29, 1995. The Subscriber has such experience in
business and financial matters that it is capable of evaluating the risk of its
investment and determining the suitability of its investment. The Subscriber
is a sophisticated investor, within the purview of Rule 506(b)(2)(ii) of
Regulation D under the Act, and qualifies as an accredited investor as defined
in Rule 501 of Regulation D under the Act, and qualifies as an accredited
investor as defined in Rule 501 of Regulation D, a copy of which definition is
attached hereto as Exhibit C.
2.4 Subscriber's Economic Risk. The Subscriber understands and
acknowledges that an investment in the Securities involves a high degree of
risk. The Subscriber represents that the Subscriber is able to bear the
economic risk of an investment in the Securities, which Subscriber acknowledges
are currently illiquid and may remain illiquid indefinitely, including a
possible total loss of investment. In making this statement the Subscriber
hereby represents and warrants to the Company that the Subscriber has adequate
means of providing for the Subscriber's current needs and contingencies; the
Subscriber is able to afford to hold the Securities for an indefinite period
and the Subscriber further represents that the Subscriber has such knowledge
and experience in financial and business matters that the Subscriber is capable
<PAGE> 4
of evaluating the merits and risks of the investment in the Securities to be
received by the Subscriber. Further, the Subscriber represents, as of the date
of signing this Agreement, that the Subscriber has no present need for
liquidity in the Securities and the Subscriber is willing to accept such
investment risks.
2.5 No Government Recommendation or Approval. The Subscriber understands
that no United States federal or state agency or similar agency of any other
country, has reviewed, approved, passed upon or made any recommendation or
endorsement of the Company, the Offering or the subscription for the
Securities.
2.6 Investment Intent (Including No Present Intent to Sell Securities at
any Pre-Determined Time). Subscriber is acquiring the 1996-Series A
Convertible Preferred Stock to be issued and sold hereunder (and the Shares
issuable upon conversion of the 1996-Series A Convertible Preferred Stock) for
his or its own account (or a trust account if such Subscriber is a trustee) for
investment and not as a nominee and not with a view to the distribution
thereof. Subscriber understands that Subscriber must bear the economic risk of
this investment indefinitely unless such 1996-Series A Convertible Preferred
Stock or such Shares are registered pursuant to the Act, or an exemption or
safe harbour from such registration is available, and that the Company has no
present intention of registering any such sale of the 1996-Series A Convertible
Preferred Stock or such Shares. Subscriber represents and warrants to the
Company, as of the date of this Agreement, that it intends to hold the 1996-
Series A Convertible Preferred Stock and the Shares indefinitely, and that the
Subscriber has no present plan or intention to sell the 1996-Series A
Convertible Preferred Stock or the Shares in the United States at any
predetermined time, and has made no predetermined arrangements to sell the
1996-Series A Convertible Preferred Stock or the Shares or other securities of
the Company. Subscriber covenants that neither Subscriber nor its affiliates
nor any person acting on its or their behalf has the intention of entering, or
will enter into any put option, short position or other similar instrument or
position in the United States with respect to the 1996-Series A Convertible
Preferred Stock or Common Stock of the Company ahead of or during the
Restricted Period as defined by Regulation S, and neither Subscriber nor any of
its affiliates nor any person acting on its or their behalf will at any time
use Shares acquired upon conversion of the 1996-Series A Convertible Preferred
Stock to settle/cover any put option, short position or other similar
instrument or position. Subscriber further represents he, she or it is not
engaged in a plan or scheme to evade the registration provisions of the Act.
2.7 Subscriber's Power and Authority. Subscriber has the full power and
authority to execute, deliver and perform this Agreement. This Agreement, when
executed and delivered by Subscriber, will constitute a valid and legally
binding obligation of Subscriber, enforceable in accordance with its terms.
2.8 Signatory's Representation. The signatory to this Subscription
Agreement hereby represents and warrants that he, she or it is:
(a) the Subscriber, who is not a U.S. Person (as defined in Regulation S), and
is not located in the U.S. at the time of signing this Subscription Agreement.
If the signatory to this agreement does not meet the requirement in sub-section
(a) herein, signatory represents he, she or it is;
(b) a professional fiduciary of Subscriber (as described in Section o(2)
through o(4) of Rule 902 of Regulation S), acting solely in his capacity as
<PAGE> 5
holder of such account, as a fiduciary, executor or trustee, has completed and
signed the accompanying Certificate and forwarded said Certificate to Zanett
Capital, Inc.
2.9 No Tax Advice From Company. Subscriber has reviewed with his, her or
its own tax advisors the foreign, U.S. federal, state and local tax
consequences of this investment, and the transactions contemplated by this
Agreement. Subscriber is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents and
understands that Subscriber (and not the Company) shall be responsible for the
Subscriber's own tax liability that may arise as a result of this investment or
the transactions contemplated by this Agreement.
2.10 No Legal Advice from Company. Subscriber acknowledges that he, she
or it has had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his, her or its own legal counsel.
Subscriber is relying solely on such counsel and not on any statements or
representations of the Company or any of its agents for legal advice with
respect to this investment or the transactions contemplated by this Agreement.
2.11 Securities Not Registered Under Securities Act. Subscriber
understands that the 1996-Series A Convertible Preferred Stock and the Common
Stock issuable upon conversion of the 1996-Series A Convertible Preferred Stock
have not been registered under the Act and are being offered and sold pursuant
to Regulation S. This Agreement is made by the Company in reliance upon
Subscriber's representations and covenants made herein which reliance by his,
her or its execution of this Agreement the Subscriber hereby confirms.
3. RESALES OF SECURITIES BY SUBSCRIBERS
Subscriber acknowledges, covenants and agrees that the Securities may and will
only be resold by it (a) in compliance with Regulation S (including the
transfer restrictions imposed during the Restricted Period); or (b) pursuant to
an exemption from registration under Act; or (c) pursuant to an effective and
current Registration Statement under the Act.
4. LEGENDS; SUBSEQUENT TRANSFER OF SECURITIES
4.1 Subscriber acknowledges that the certificates representing the 1996-
Series A Convertible Preferred Stock shall bear such legend or legends as
reasonably required to comply with the state, U.S. federal or foreign law,
including the following: "The 1996-Series A Convertible Preferred Stock
evidenced by this Certificate and the Common Stock issuable upon conversion of
such 1996-Series A Convertible Preferred Stock have not been registered with
the U.S. Securities and Exchange Commission under the Securities Act of 1933,
as amended (the "Act"), or the Securities Commission of any State Securities
Law. These Shares have been issued pursuant to Regulation S promulgated under
the Act. These Shares cannot be offered, sold or otherwise transferred in the
United States or to U.S. persons unless the Securities are registered under the
Act and applicable State Securities Laws, or such offers, sales or transfers
are made pursuant to an available exemption or safe harbor from the
registration requirements of those Laws."
4.2 At the Closing, the Company and its Transfer Agent shall execute and
deliver the Irrevocable Instructions to the Transfer Agent substantially in the
form annexed as Exhibit F hereto. In accordance therewith upon conversion of
the 1996-Series A Convertible Preferred Stock by Subscriber and sale of the
Shares obtained upon conversion, the Shares so obtained shall not bear any
<PAGE> 6
restrictive legend, nor shall any stop order be placed on the books of the
transfer agent in respect of those shares so long as the conversion is
accomplished in accordance with the terms and conditions of the Certificate of
Designation and Irrevocable Instructions.
5. NOTICE OF ISSUANCE OF SECURITIES
5.1 Capital Raising Limitation. For a period of 270 days after the
Closing, the Company will not issue any debt, equity, warrants, options or any
other type of security or securities pursuant to one or more offerings pursuant
to Regulation S (the "Capital Raising Limitation") without explicit written
permission from Zanett Capital, Inc. ("Zanett").
5.2 Exemptions. The Capital Raising Limitation shall not apply to any
transaction involving the Company's commercial banking arrangements or
issuances of securities in connection with a merger, consolidation, sale of
assets, joint ventures or other acquisition or disposition of a business, a
product or a license by the Company or exercise of options by employees,
consultants or directors. The Capital Raising Limitation also shall not apply
to the issuance of securities upon exercise or conversion of the Company's
options, warrants or other convertible securities outstanding as of March 27,
1996, to the grant of additional options or warrants, or the issuance of
additional securities, under any Company stock option or restricted stock plan
or the issuance of options or securities to employees outside of a plan.
6. REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Subscriber as follows:
6.1 Organization, Good Standing, and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all the requisite corporate power and
authority to carry on its business as now conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on the
business or properties of the Company and its subsidiaries taken as a whole.
The Company has registered its Common Stock pursuant to Section 12 of the
Exchange Act and the Common Stock trades on the American Stock Exchange (AMEX)
under the symbol "EAR". The Company warrants that no notice of the Company's
delisting or failure to meet the requirements for continued eligibility for
listing on AMEX, whether such notice was oral or written has been received by
the Company from the AMEX. The Company to its knowledge is not the subject of
any pending or threatened investigation or administrative or legal proceeding
by the Internal Revenue Service, the taxing authorities of any state or local
jurisdiction, the Securities and Exchange Commission or any governmental
authority which have not been disclosed in the reports referred to in
Subsection 2.3, above.
6.2 Corporate Condition. The Company's condition was, in all material
respects, as described in the Company's reports filed pursuant to the Exchange
Act and provided to Subscriber in accordance with Subsection 2.3 above as of
the respective dates of such reports. There have been no material adverse
changes in the Company's financial condition or business since the date of the
latest report, except as described in the Company's press releases, copies of
which have been provided to Subscriber if applicable, and as contemplated in
such reports.
<PAGE> 7
6.3 Authorization. All corporate action on the part of the Company, by
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance (or reservation for
issuance) and delivery of the 1996-Series A Convertible Preferred Stock being
sold hereunder and issuance of the Common Stock obtainable on conversation of
the 1996-Series A Convertible Preferred Stock (assuming the existence of
sufficient authorized Common Stock to effect such conversion on the applicable
conversion date) have been taken, and this Agreement constitutes the valid and
legally binding obligations of the Company, enforceable in accordance with
their terms, subject to bankruptcy, merger, reorganization, recapitalization or
other similar laws affecting creditors' rights generally or equitable remedies.
6.4 Valid Issuance of 1996-Series A Convertible Preferred Stock and Common
Stock. The 1996-Series A Convertible Preferred Stock, when issued, sold and
delivered in accordance with the terms hereof for the consideration expressed
herein, will be validly issued, fully paid and nonassessable and, assuming the
accuracy of the representations of the Subscriber in this Agreement, will be
issued in compliance with all applicable U.S. federal and state securities
laws. The Common Stock issuable upon conversion of the 1996-Series A
Convertible Preferred Stock when issued in accordance with the terms thereof
(assuming that the Conversion Rate of the 1996-Series A Convertible Preferred
Stock will at least equal the par value of the Common Stock), shall be duly and
validly issued and outstanding, fully paid and non assessable, and, assuming
the accuracy of representations and warranties of Subscriber and any
permissible transferee of the 1996-Series A Convertible Preferred Stock, will
be issued in compliance with applicable U.S. law.
6.5 Current Public Information. The Company represents and warrants to
the Subscriber that the Company is a "reporting issuer" as defined in Rule
902(l) of Regulation S and it has a class of securities registered under
Section 12(b) or 12(g) of the Exchange Act and has filed all the materials
required to be filed as reports pursuant to the Exchange Act for a period of at
least twelve months preceding the date hereof (or for such shorter period as
the Company was required by law to file such material), and all such filings
have been made on a timely basis.
6.6 No Securities Offered in U.S. or to any U.S. Person. The Company
represents that it has not offered the Securities to the Subscriber in the U.S.
or, to the best knowledge of the Company, to any person in the United States or
any U.S. Person (as defined in Regulation S).
6.7 Use of Proceeds. Company represents that it currently intends to use
the proceeds from this Offering (net of fees and expenses) for the following
purposes at the following estimated percentages: (1) opening new centers
(70%); (2) general working capital including up to $3,000,000 for the
redemption of outstanding redeemable preferred stock of the Company (30%).
6.8 Capitalization Structure of the Company. The capitalization of
Company, as of the date of the Closing, is as set forth in Exhibit D.
SUBSCRIBER HAS BEEN ADVISED THAT THE COMPANY IS CONCURRENTLY HEREWITH ENGAGED
IN AN OFFERING PURSUANT TO REGULATION D UNDER THE SECURITIES ACT OF SHARES OF
1996 SERIES B1 AND 1996 SERIES B2 CONVERTIBLE PREFERRED STOCK WITH A
LIQUIDATION PREFERENCE NOT TO EXCEED $25 MILLION TOGETHER WITH THE ISSUANCE OF
WARRANTS TO CERTAIN PURCHASERS THEREOF.
6.9 Termination Date of Offering. In no event shall the last Closing of a
sale of a Convertible Preferred Stock occur later than May 10, 1996.
<PAGE> 8
6.10 Filings. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Preferred Shares as required by
United States laws and regulations and the rules and regulations of the AMEX in
a timely fashion.
6.11 Non-Contravention. The execution and delivery of this Agreement and
the consummation of the issuance of the Preferred Shares, and the consummation
of the transactions contemplated by this Agreement by the Company do not and
will not conflict with or result in a breach by the Company of any of the terms
or provisions of, or constitute a default under, the Certificate of
Incorporation or by-laws of the Company, or any material indenture, mortgage,
deed of trust, or other material agreement or instrument to which the Company
is a party or by which it or any of its properties or assets are bound or
(assuming that the representations and warranties of the Subscriber in Section
2 hereof, and the representations and warranties of the distributor to Company
are true and correct), any existing applicable U.S. law, rule, or regulation or
any applicable decrees, judgement, or order of any U.S. court, federal or
state, regulatory body, administrative agency or other U.S. governmental body
having jurisdiction over the Company or any of its properties or assets, the
conflict, breach, violation or default of or under which would have a material
adverse effect on the Company's business or financial condition.
6.12 Absence of Certain Changes. Since December 31, 1995, there has been
no material adverse development in the assets, liabilities, business,
properties, operations, financial condition or results of operations of the
Company, except as disclosed (i) in the required Securities and Exchange
Commission (SEC) filings listed in Section 2.3 or (ii) otherwise disclosed in
the documents annexed hereto.
7. COVENANTS OF COMPANY
7.1 Independent Auditors. The Company shall for a period of at least four
years, or such shorter period as there are outstanding shares of 1996-Series A
Convertible Preferred Stock, maintain as its independent auditors an accounting
firm authorized to practice before the SEC.
7.2 Corporate Existence and Taxes. The Company shall for a period of at
least four years, or such shorter period as there are outstanding shares of
1996-Series A Convertible Preferred Stock, maintain its corporate existence in
good standing (provided, however, that the foregoing covenant shall not prevent
the Company from entering into any merger or corporate reorganization as long
as the surviving entity in such transaction, if not the Company, assumes the
Company's obligations with respect to the 1996-Series A Convertible Preferred
Stock) and shall pay all its taxes when due except for taxes which the Company
disputes.
7.3 Opinion of Counsel. Subscriber shall, upon purchase of the 1996-
Series A Convertible Preferred Stock, receive an opinion letter from outside
counsel to the Company in the form annexed as Annex III.
7.4 Notification of Final Closing Date and Restricted Period by Company.
Within three (3) business days after the final closing (the date of the final
Closing of this Offering), the Company shall notify the Subscriber in writing
that the final Closing has occurred, the date of the final Closing, and the
date upon which the 60 day Restricted Period will terminate with respect to the
Securities.
<PAGE> 9
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
Subscriber understands that Company's obligation to sell the 1996-Series A
Convertible Preferred Stock is conditioned upon:
a. Acceptance by Subscriber of an agreement for the purchase of the 1996-
Series A Convertible Preferred Stock, as indicated by Subscriber's
execution of this Agreement;
b. Delivery to the Escrow Agent by the Purchaser of good funds as payment in
full for the purchase of the 1996-Series A Convertible Preferred Stock as
provided in Section 1 above;
c. The accuracy on the Closing Date of the representations and warranties of
Subscriber contained in this Agreement and the performance by Subscriber on
or before the Closing Date of all covenants and agreements of Subscriber
required to be performed on or before the Closing Date; and
d. There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby, or requiring any consent
or approval which shall not have been obtained.
9. CONDITIONS TO SUBSCRIBER'S OBLIGATION TO PURCHASE.
The Company understands that Subscriber's obligation to purchase the Preferred
Shares is conditioned upon:
a. The receipt and acceptance by the Company of this Agreement as evidenced by
execution of this Agreement by the President or any Vice President of the
Company;
b. Delivery of certificates to Escrow Agent as provided in Section 1 above;
c. The accuracy on the Closing Date of the representations and warranties of
the Company contained in this Agreement and the performance by the Company
on or before the Closing Date of all the covenants and agreements of the
Company required to be performed on or before the Closing Date; and
d. Delivery of a Registration Rights Agreement and Irrevocable Instructions to
Transfer Agent in forms attached hereto as Exhibits E and F.
e. Delivery to the Escrow Agent of an opinion of counsel for the Company,
dated the Closing Date and addressed to Subscriber, in the form attached
hereto as Annex III.
10. REGISTRATION OF THE SECURITIES
The Company hereby agrees that in the event of the repeal of Regulation S by
the SEC or other action by the SEC which reasonably impairs the ability of the
Subscriber to resell the Securities without registration, then upon demand of a
majority in interest of holders of the Securities the Company will file, and
use its reasonable best efforts to cause to become effective a registration
statement on Form S-3 under the terms of the Registration Rights Agreement
annexed hereto as Exhibit E.
<PAGE> 10
11. GOVERNING LAW; BUSINESS DAY DEFINITION; NOTICES; WRITTEN WAIVER OF BREACH;
UNENFORCEABLE PROVISIONS
11.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, USA, applicable to
agreements made in and wholly to be performed in that jurisdiction, except for
matters arising under the Act or the Exchange Act which matters shall be
construed and interpreted in accordance with such laws. Any action brought to
enforce, or otherwise arising out of, this Agreement shall be heard and
determined only in either a Federal or State Court sitting in the County of
Manhattan in the State of NY, USA.
11.2 Business Day Definition. For purposes hereof, the term "business
day" shall mean any day on which banks are generally open for business in the
State of New York, USA and excluding any Saturday and Sunday.
11.3 Notices. Any notice or other communication required or permitted to
be given hereunder shall be given as provided herein or delivered against
receipt if to (i) the Company at 471 Spencer Drive, West Palm Beach, Florida
33409, Telephone No. (407) 478-8770, Facsimile No. (407) 478-9603 and (ii) the
Subscriber to its last address as shown on the 1996-Series A Preferred Stock
Register (or to such other address as the party shall have furnished in writing
as its new address to be entered on such Register (which address must include a
facsimile number) in accordance with the provisions of this Subsection 10.3).
Any notice or other communication shall be made by facsimile and delivery shall
be deemed given at the time of transmission of said facsimile.
11.4 Waiver of any Breach to be in Writing. Any waiver by the Company or
Subscriber of a breach of any provision of this Agreement shall not operate as
or be construed to be a waiver of any other breach of such provision or of any
breach of any other provision of this Agreement. The failure of the Company or
Subscriber to insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing.
11.5 Unenforceable Provisions. If any provision of this Agreement is
invalid, illegal or unenforceable, the balance of this Agreement shall remain
in effect, and if any provision is inapplicable to any person or circumstance,
it shall nevertheless remain applicable to all other persons and circumstances.
12. ENTIRE AGREEMENT; WRITTEN AMENDMENTS REQUIRED
This Agreement, the Certificate of Designation, and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth
herein or therein. Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waiver, discharged or terminated other than
by a written instrument signed by the party against whom enforcement of any
such amendment, waiver, discharge or termination is sought.
13. EXECUTION IN COUNTERPARTS PERMITTED
This Agreement may be executed in any number of counterparts in facsimile
copies, each of which shall be enforceable against the parties actually
<PAGE> 11
executing such counterparts, and all of which together shall constitute one
instrument.
14. TITLES AND SUBTITLES; GENDER
The titles and subtitles used in this Agreement are used for convenience only
and are not to be considered in construing or interpreting this Agreement. The
use in this Agreement of a masculine, feminine or neither pronoun shall be
deemed to include a reference to the others.
15. SUBSCRIBER TO FORWARD ORIGINAL SIGNED SUBSCRIPTION AGREEMENT TO COMPANY
Subscriber agrees to courier to Company his, her or its original inked signed
Agreement within 2 days of transmitting facsimile copy of said signed agreement
to the placement agent, Zanett Capital, Inc.
FIDUCIARY, EXECUTOR OR TRUSTEE CERTIFICATE
NATURE OF SIGNATORY.
The signatory to this Subscription Agreement hereby represents and warrants
that he, she or it is either:
(a) the Subscriber, who is not a U.S. Person (as defined in Regulation S) and
is not located in the U.S. at the time of signing this Subscription Agreement,
_______________________(signature)
OR
(b) a professional fiduciary of Subscriber (as described in Section o(2)
through o(4) of Rule 902 of Regulation S), acting solely in his capacity as
holder of such account, in which case:
(i) to the best knowledge of the undersigned, the Subscriber is not a U.S.
Person (as defined in Regulation S); and
(ii) either (initial the applicable choice):
(a) The account for which the Securities are being purchased by
Subscriber is a discretionary account which the undersigned manages
and holds for the benefit or account of Subscriber;
_______________________(signature)
OR
(b) The account for which the Securities are being purchased by
Subscriber is the account of an estate of which the undersigned acts
as executor, provided that an executor or administrator who is not a
U.S. person has sole or shared investment discretion with respect to
the assets of the estate, and the estate is governed by foreign law
and provided further that the Subscriber is not located in the U.S. at
the time of signing this Agreement;
_______________________(signature)
<PAGE> 12
OR
(c) The account for which the securities are being purchased by
Subscriber is the account of a trust of which the undersigned acts as
trustee, provided that a trustee who is not a U.S. Person (as defined
in Regulation S) has sole or shared investment discretion with respect
to the trust assets, and no beneficiary of the trust (and no settlor
if the trust is revocable) is a U.S. Person (as defined in Regulation
S) and provided further that the Subscriber is not located in the U.S.
at the time of signing this Agreement.
_______________________(signature)
_____________________________________ _________________________________
Printed Name Beneficiary Person or Entity
<PAGE> 13
SCHEDULE OF EXHIBITS AND ANNEXES
1. Exhibit A: Certificate of Designation and Form of 1996-Series A
Convertible Preferred Stock Certificate
2. Exhibit B: Form of Regulation S
3. Exhibit C: Form of Regulation D
4. Exhibit D: Capitalization Structure of HEARx Ltd.
5. Exhibit E: Registration Rights Agreement
6. Exhibit F: Irrevocable Instructions to Transfer Agent
7. Annex I: Use of Proceeds
8. Annex II: Joint Escrow Agreement
9. Annex III: Opinion of Company Counsel
<PAGE> 1
ANNEX IV
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of ______________, 1996
(this "Agreement"), is made by and between HEARX LTD., a Delaware corporation
(the "Company"), and the person named on the signature page hereto (the
"Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Offshore
Securities Subscription Agreement, dated as of ______________, 1996, between
the Initial Investor and the Company (the "Stock Purchase Agreement"), the
Company has agreed to issue and sell to the Initial Investor 1996 Series A
Convertible Preferred Stock of the Company (the "Preferred Stock") which will
be convertible into shares of the common stock, $.10 par value (the "Common
Stock"), of the Company (the "Conversion Shares") upon the terms and subject
to the conditions of such Preferred Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Stock Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agrees as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Initial Investor and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion Shares.
(iv) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(b) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Stock Purchase Agreement.
<PAGE> 2
2. Registration.
(a) Mandatory Registration. If (x) there shall occur any event
described in paragraph 10 of the Stock Purchase Agreement, or (y) the Transfer
Agent shall fail to issue unlegended certificates within five (5) days after
request as provided in Section 4.2 of the Securities Subscription Agreement,
the Company shall, within thirty (30) days following demand by (i) any holder
of Preferred Stock then outstanding, or (ii) Zanett Capital, Inc., prepare and
file with the SEC (the "Filing Date"), either a Registration Statement on Form
S-3 covering at least 2,133,891 shares of Common Stock as Registrable
Securities or an amendment to any pending Company Registration Statement on
Form S-3, and such Registration Statement or amended Registration Statement
shall state that, in accordance with Rule 416 under the Securities Act, it also
covers such indeterminate number of additional shares of Common Stock as may
become issuable upon conversion of the Preferred Stock to prevent dilution
resulting from stock splits, stock dividends, or similar transactions or by
reason of changes in the conversion price of the Preferred Stock in accordance
with the terms thereof. If at any time the number of shares of Common Stock
into which the Preferred Stock may be converted exceeds 2,133,891 shares of
Common Stock, the Company shall, within ten (10) business days after receipt of
a written notice from any Investor, either (i) amend the Registration Statement
filed by the Company pursuant to the preceding sentence, if such Registration
Statement has not been declared effective by the SEC at that time, to register
all shares of Common Stock into which the Preferred Stock may be converted, or
(ii) if such Registration Statement has been declared effective by the SEC at
that time, file with the SEC an additional Registration Statement on Form S-3
to register the shares of Common Stock into which the Preferred Stock may be
converted that exceed the 2,133,891 shares of Common Stock already registered.
(b) Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering shall have the right to select
one legal counsel and an investment banker or bankers and manager or managers
to administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company. The Investors who
hold the Registrable Securities to be included in such underwriting shall pay
all underwriting discounts and commissions and other fees and expenses of such
investment banker or bankers and manager or managers so selected in accordance
with this Section 2(b) (other than fees and expenses relating to registration
of Registrable Securities under federal or state securities laws, which are
payable by the Company pursuant to Section 5 hereof) with respect to their
Registrable Securities and the fees and expenses of such legal counsel so
selected by the Investors.
(c) Eligibility for Form S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of the
sale by the Initial Investor and any Investor of the Registrable Securities and
the Company shall file all reports required to be filed by the Company with the
SEC in a timely manner so as to maintain such eligibility for the use of Form
S-3.
3. Obligations of the Company. In connection with the registration
of the Registrable Securities, the Company shall do each of the following.
(a) Prepare promptly, and file with the SEC on or prior to the
Filing Date, a Registration Statement with respect to not less than the number
of Registrable Securities provided in Section 2(a), above, and thereafter use
<PAGE> 3
its best efforts to cause each Registration Statement relating to Registrable
Securities to become effective as soon as possible after such filing, and keep
the Registration Statement effective pursuant to Rule 415 at all times until
the earliest (the "Registration Period") of (i) the date that is three years
after the Closing Date (ii) the date when the Investors may sell all
Registrable Securities under Rule 144 or (iii) the date the Investors no longer
own any of the Registrable Securities, which Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading; and
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and
the prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) Furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel, (i) promptly
after the same is prepared and publicly distributed, filed with the SEC, or
received by the Company, one (1) copy of the Registration Statement, each
preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) Use reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such other
state securities or blue sky laws of such jurisdictions as the Investors who
hold a majority in interest of the Registrable Securities being offered
reasonably request and in which significant volumes of shares of Common Stock
are traded, (ii) prepare and file in those jurisdictions such amendments
(including post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all
times during the Registration Period, and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for
sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (A) qualify to do
business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d), (B) subject itself to general taxation in
any such jurisdiction, (C) file a general consent to service of process in any
such jurisdiction, (D) provide any undertakings that cause more than nominal
expense or burden to the Company or (E) make any change in its charter or
by-laws, which in each case the Board of Directors of the Company determines to
be contrary to the best interests of the Company and its stockholders;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
<PAGE> 4
Statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, and use its best efforts promptly to prepare a
supplement or amendment to the Registration Statement to correct such untrue
statement or omission, and deliver a number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance
by the SEC of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time;
(g) Provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(h) Cooperate with the Investors who hold Registrable Securities
being offered to facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legends) representing Registrable Securities to be
offered pursuant to the Registration Statement and enable such certificates to
be in such denominations or amounts as the case may be, as the Investors may
reasonably request and registered in such names as the Investors may request;
and, within three (3) business days after a Registration Statement which
includes Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel selected by the Company to
deliver, to the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) an appropriate instruction and opinion of such counsel; and
(i) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant
to the Registration Statement.
4. Obligations of the Investors. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the
Registrable Securities held by it, as shall be reasonably required to effect
the registration of such Registrable Securities and shall execute such
documents in connection with such registration as the Company may reasonably
request. At least five (5) days prior to the first anticipated filing date of
the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's
Registrable Securities included in the Registration Statement. If at least one
(1) business day prior to the filing date the Company has not received the
Requested Information from an Investor (a "Non-Responsive Investor"), then the
Company may file the Registration Statement without including Registrable
Securities of such Non- Responsive Investor;
<PAGE> 5
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e) or
3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. Expenses of Registration. All reasonable expenses, other than
underwriting discounts and commissions and other fees and expenses of
investment bankers and other than brokerage commissions, incurred in connection
with registrations, filings or qualifications pursuant to Section 3, but
including, without limitation, all registration, listing, and qualifications
fees, printers and accounting fees, and the fees and disbursements of counsel
for the Company, shall be borne by the Company.
6. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person"), against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereof or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary
to make the statements made therein, in light of the circumstances under which
the statements therein were made, not misleading or (iii) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation under the Securities Act, the
Exchange Act or any state securities law (the matters in the foregoing clauses
(i) through (iii) being, collectively, "Violations"). The Company shall
reimburse the Investors, promptly as such expenses are incurred and are due and
<PAGE> 6
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (I) apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(b) hereof; (II) with respect to any preliminary prospectus, inure to the
benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(b) hereof; (III) be
available to the extent such Claim is based on a failure of the Investor to
deliver or cause to be delivered the prospectus made available by the Company;
or (IV) apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld. Each Investor will indemnify the Company and its
officers, directors and agents against any claims arising out of or based upon
a Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company, by or on behalf of such Investor,
expressly for use in connection with the preparation of the Registration
Statement, subject to such limitations and conditions as are applicable to the
Indemnification provided by the Company to this Section 6. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim Relates. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party
of any liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is prejudiced in
its ability to defend such action. The indemnification required by this Section
6 shall be made by periodic payments of the amount thereof during the course of
<PAGE> 7
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
7. Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which
it would otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such
seller from the sale of such Registrable Securities.
8. Reports under Exchange Act. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by the Company and (iii) such other information as may be reasonably requested
to permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. Assignment of the Registration Rights. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of all or any portion
of such securities (or all or any portion of any Preferred Stock of the Company
which is convertible into such securities) only if: (a) the Investor agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately
following such transfer or assignment the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act
and applicable state securities laws, and (d) at or before the time the Company
received the written notice contemplated by clause (b) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein.
<PAGE> 8
10. Amendment of Registration Rights. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold a majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail, return receipt requested,
properly addressed and with proper postage pre-paid (i) if to the Company, at
HEARX LTD., 471 Spencer Drive, West Palm Beach, Florida, ATT: President, (ii)
if to the Initial Investor, at the address set forth under its name in the
Stock Purchase Agreement, with a copy to Zanett Capital, Inc., 10 East 76th
Street, New York, New York, and (iii) if to any other Investor, at such address
as such Investor shall have provided in writing to the Company, or at such
other address as each such party furnishes by notice given in accordance with
this Section 11(b), and shall be effective, when personally delivered, upon
receipt and, when so sent by certified mail, four (4) calendar days after
deposit with the United states Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not effect the validity or enforceability
of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
<PAGE> 9
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(i) The Company acknowledges that any failure by the Company to
perform its obligations under this Agreement, including, without limitation,
the Company's obligations under Section 3(i), or any delay in such performance
could result in direct damages to the Investors and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay. Neither party shall be liable for consequential
damages.
(j) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
HEARX LTD.
By:
--------------------------------
Name:
Title:
<Investor>
By:
--------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 99
FOR IMMEDIATE RELEASE
- ---------------------
COMPANY CONTACT:
----------------
Paul A. Brown, M.D.
Chairman of the Board
HEARx Ltd.
471 Spencer Drive
West Palm Beach, FL 33409
(407) 478-8770
HEARx RAISES $30 MILLION FOR NATIONAL EXPANSION
WEST PALM BEACH, Fla, May 8, 1996 - Paul A. Brown, M.D., Chairman of HEARx Ltd.
(AMEX:EAR), announced today that HEARx has completed two Private Placements
which will raise a total of $30 million, of which $26 million will be used for
a national expansion of the HEARx center network. The expansion would be based
on requirements of signed health insurance contracts, and should allow the
company to expand its center network to approximately 250 centers over the next
several years. Pending such use, the funds will be invested primarily in high
grade U.S. Securities.
Dr. Brown stated that the Company's 1996 Redeemable Preferred will be redeemed
with $4 million of these proceeds in combination with $2 million of company
funds. He noted that HEARx intends to use the balance of the proceeds to open
or acquire company-owned hearing care centers nationally. He added that $12.45
million of the proceeds is to be paid to the company following the effective
date of an S-3 Registration Statement which the company expects to file within
two weeks.
In the financing, HEARx is selling 8% Convertible Preferred Stock which may be
called at the company's option at the end of three years. The conversion price
is the lesser of $5.00 per share or up to a maximum of 25% below then current
market. In addition, certain investors will receive upon conversion 5-year
Warrants to purchase 3.75 million shares at a price of $8.00 per share, subject
to certain adjustments. Investors in the transaction included a number of
domestic and foreign institutions.
HEARx, the largest network of audio-vestibular rehabilitative centers in the $1
billion field of hearing services, operates 52 company-owned centers in
Florida, New York, New Jersey, Connecticut, Oregon and Virginia. The company
provides hearing care primarily to patients whose health insurance and managed
care organizations have contracted with HEARx.
###
471 Spencer Drive, West Palm Beach, Florida 33409 (407) 478-8770
