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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
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Date of Report (Date of earliest event reported): March 17, 1997
HEARX LTD.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdictionor incorporation)
0-16453
(Commission File Number)
22-2748248
(IRS Employer Identification no.)
1250 NORTHPOINT PARKWAY
WEST PALM BEACH, FLORIDA 33407
(561) 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 March 17, 1997, HEARx Ltd., a Delaware corporation (the "Company"),
closed an offering of its securities pursuant to Regulation D, promulgated under
the Securities Act of 1933, as amended. The following summary of this
transaction is qualified in its entirety by the terms of the related agreements,
and by the terms of the certificate of designations, preferences and rights of
the 1997 Convertible Preferred Stock of the Company, filed herewith as exhibits
to this Form 8-K.
THE OFFERING
On March 17, 1997, the Company entered into a Securities Purchase Agreement
with certain purchasers named therein (the "Purchasers"), pursuant to which the
Company sold a total of 10,000 shares of a newly designated preferred stock, the
1997 Convertible Preferred Stock, par value $1.00 per share (the "1997 Preferred
Stock"), pursuant to Regulation D for an aggregate purchase price of $10,000,000
(the "Offering").
The 1997 Preferred Stock is convertible into Common Stock of the Company,
$.10 par value per share ("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 1997 Preferred Stock ($1,000 per share), plus a premium
in the amount of 6% 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 (either 100% or 85% depending upon
the conversion date) of the average of the closing 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 1997 Preferred Stock may not be
converted for the 90-day period after the closing (i.e., to June 16, 1997)
unless the closing price of the Company's Common Stock on the American Stock
Exchange prior to a conversion is $5.00 or more (in which case the 1997
Preferred Stock may be converted at the $5.00 conversion price). For the next 60
days (i.e., to August 14, 1997), so long as the Common Stock is trading at less
than $5.00 per share prior to a conversion, the 1997 Preferred Stock may be
converted only at the market price. If the Common Stock trades at a price of
$5.00 or more per share during that period, the 1997 Preferred Stock may be
converted at the lesser of $5.00 or 85% of the market price. For the next 90-day
period (i.e., to November 12, 1997), up to one-half of the 1997 Preferred Stock
may be converted at the lesser of $5.00 or 85% of the market price (the
remaining one-half is convertible during that period at the lesser of $5.00 or
the market price). Any 1997 Preferred Stock not yet converted at and after
November 12, 1997 may be converted at the lesser of $5.00 or 85% of the market
price. The 1997 Preferred Stock may be converted by holders in accordance with
these terms at any time prior to March 17, 2000, and automatically converts on
such date, unless the Common Stock is trading at $1.50 per share or below and
the Company elects to redeem the 1997 Preferred Stock for a price equal to 115%
of its stated value plus the premium.
The Company has the right upon receipt of notice of an optional conversion
of any shares of the 1997 Preferred Stock to redeem shares of the 1997 Preferred
Stock tendered for conversion in lieu of conversion at a price equal to 115% of
its stated value plus the premium, if the closing price of the Common Stock as
reported on the American Stock Exchange for the date immediately prior to the
conversion date is equal to or less than $1.50 per share. The holders of the
1997 Preferred Stock have no voting power except for certain actions by the
Company that might adversely affect the rights of such holders and as otherwise
provided by Delaware General Corporation Law.
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In connection with this transaction, the Company also entered into a
Registration Rights Agreement with the Purchasers under which the Company is
required to file a registration statement on Form S-3 by April 1, 1997, covering
the shares of Common Stock underlying all of the 1997 Preferred Stock. Under the
Registration Rights Agreement, the Company may be required to make certain
payments to holders of the 1997 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 July 15, 1997.
The net proceeds to the Company after payment of placement fees, and legal
and accounting expenses is estimated to be $9,270,000. The Company also issued
to a placement agent (the "Placement Agent") and its assignees warrants to
purchase an aggregate of 850,000 shares of Common Stock at an exercise price
equal to $5.00 per share in connection with the placement of the 1997 Preferred
Stock. The Company also issued to the Placement Agent and its assignees in
November 1996 warrants to purchase additional shares of Common Stock in
connection with certain other capital-raising services performed for the
Company. Those warrants vest over a four-year period. All of the shares
underlying the Placement Agent warrants must be included in the registration
statement on Form S-3 being filed by the Company on or before April 1, 1997.
In addition, the Company has agreed in the Securities Purchase Agreement,
that (a) for a period beginning on the date of the closing and ending 180 days
following the date of the closing, the Company will obtain the prior written
consent of the Purchasers to any additional equity financings by the Company;
and (b) the Company will provide to the Placement Agent a right to participate
for up to 50% of any future equity financings by the Company before March 17,
1998 on the same terms as contemplated with other participants.
USE OF PROCEEDS
The Company intends to use the net proceeds from the Offering for working
capital purposes, including the opening of new hearing care centers.
OUTSTANDING SECURITIES OF THE COMPANY
At March 17, 1997, there were issued and outstanding approximately
84,133,158 shares of Common Stock, no shares of 1996 Series A Convertible
Preferred Stock, 750 shares of 1996 Series B-1 Convertible Preferred Stock and
1,000 shares of 1996 Series B-2 Convertible Preferred Stock. 10,000 shares of
the 1997 Preferred Stock were issued to the Purchasers in the Offering. The
following table sets forth information regarding warrants to purchase Common
Stock outstanding as of March 17, 1997:
Shares Subject to Warrants Exercise Price Per Share Expiration
- -------------------------- ------------------------ --------------------------
1,100,000 .01 February 1998
5,000 .50 December 1998
1,500 .67 December 1998
2,500 .75 December 1998
43,750 2.00 December 1998
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Shares Subject to Warrants Exercise Price Per Share Expiration
- -------------------------- ------------------------ --------------------------
5,000 1.50 November 1999
11,070,480 .55 January 2001
2,283,278 .63 January 2001
75,000 4.00 August 2001
35,000 4.00 September 2001
750,000 2.00 November 2001
3,750,000 6.4688 December 2001
50,000 3.00 March 2002
850,000 5.00 March 2002
623,375 1.25 February 2003
1,609,341 1.00 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,
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 Certificate of designations, preferences and rights of the 1997
Convertible Preferred Stock of the Company.
4.1 Securities Purchase Agreement, dated March 17, 1997 between HEARx Ltd.
and each of the purchasers set forth on the signature pages thereto.
4.2 Registration Rights Agreement, dated March 17, 1997 between HEARx Ltd.
and each of the purchasers set forth on the signature pages thereto.
4.3 Form of Placement Agent Warrant (to purchase up to 850,000 shares of
Common Stock at an exercise price equal to $5.00 per share).
99 Press release dated March 18, 1997.
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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: March 26, 1997 By: Paul A. Brown
------------------------------------
Paul A. Brown, M.D.,
Chairman and CEO
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EXHIBIT INDEX
Number Description
- ------ ------------------------------------------------------------------------
3 Certificate of designations, preferences and rights of the 1997
Convertible Preferred Stock of the Company.
4.1 Securities Purchase Agreement, dated March 17, 1997 between HEARx Ltd.
and each of the purchasers set forth on the signature pages thereto.
4.2 Registration Rights Agreement, dated March 17, 1997 between HEARx Ltd.
and each of the purchasers set forth on the signature pages thereto.
4.3 Form of Placement Agent Warrant (to purchase up to 850,000 shares of
Common Stock at an exercise price equal to $5.00 per share).
99 Press release dated March 18, 1997.
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CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
1997 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:
1997 Convertible Preferred Stock:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 10,000 shares of
Preferred Stock, is 1997 Convertible Preferred Stock (the "1997 Preferred
Stock") and the stated value shall be One Thousand Dollars ($1,000) per share
(the "Stated Value").
II. RANK
All 1997 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 1997 Preferred Stock 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 1997 Preferred Stock)
(collectively, with the Common Stock, "Junior Securities"); (iii) pari passu
with the Corporation's 1996 Series B-1 Convertible Preferred Stock (the "Series
B-1 Preferred Stock"), the Corporation's 1996 Series B-2
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Convertible Preferred Stock (the "Series B-2 Preferred Stock"), the
Corporation's 1996 Series A Convertible Preferred Stock (the "Series A Preferred
Stock"), and any class or series of capital stock of the Corporation hereafter
created (with the consent of the holders of 1997 Preferred Stock obtained in
accordance with Article IX hereof) specifically ranking, by its terms, on parity
with the 1997 Preferred Stock (together with the Series B-1 Preferred Stock, the
Series B-2 Preferred Stock and the Series A Preferred Stock, the "Pari Passu
Securities"); and (iv) junior to any class or series of capital stock of the
Corporation hereafter created (with the consent of the holders of 1997 Preferred
Stock obtained in accordance with Article IX hereof) specifically ranking, by
its terms, senior to the 1997 Preferred Stock (collectively, 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 1997 Preferred Stock will bear no dividends, and the holders of the
1997 Preferred Stock shall not be entitled to receive dividends on the 1997
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 1997 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 1997 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 1997 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.
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B. At the option of any holder of 1997 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 Corporation,
partnership, association, trust or other entity or organization.
C. For purposes hereof, the "Liquidation Preference" with respect to a
share of the 1997 Preferred Stock shall mean an amount equal to the sum of (i)
the Stated Value thereof plus (ii) an amount equal to six percent (6%) 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; LIMITED REDEMPTION OF 1997 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 that date which is three years from the date of issuance of the
1997 Preferred Stock (in the case of a redemption in connection with a Mandatory
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 1997 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
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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 second 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
Conversion Notice delivered over the subsequent five (5) business day period
following the Corporation's reply. If the Corporation does not respond to such
holder within such two (2) 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. In the event (each of the events described in clauses (i)-(iii) below
after expiration of the applicable cure period (if any) being a "REDEMPTION
EVENT"):
(i) the Corporation fails, and any such failure continues uncured for
five (5) business days after the Corporation has been notified thereof in
writing by the holder, to remove any restrictive legend on any certificate or
any shares of Common Stock issued to the holders of 1997 Preferred Stock upon
conversion of the 1997 Preferred Stock as and when required by this Certificate
of Designation, the Securities Purchase Agreement, dated as of March 11, 1997 by
and between the Corporation and the other signatories thereto with respect to
the sale of 1997 Preferred Stock (the "SECURITIES PURCHASE AGREEMENT") or the
Registration Rights Agreement dated as of March 11, 1997, by and among the
Corporation and the other signatories thereto (the "REGISTRATION RIGHTS
AGREEMENT");
(ii) the Corporation provides notice to any holder of 1997 Preferred
Stock, including by way of public announcement, at any time, of its intention
not to issue shares of Common Stock to any holder of 1997 Preferred Stock upon
conversion in accordance with the terms of this Certificate of Designation; or
(iii) a holder of shares of 1997 Preferred Stock submits a Conversion
Notice, and the Corporation does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of Article VI (in which case the Corporation shall immediately
notify such holder of such occurrence);
then, upon the occurrence of any such Redemption Event, each holder of shares of
1997 Preferred Stock shall thereafter have the option, exercisable in whole or
in part at any time and from time to time by delivery of notice from a holder
requiring a redemption (A "REDEMPTION NOTICE") to the Corporation while such
Redemption Event continues, to require the Corporation to purchase for cash any
or all of the then outstanding shares of 1997 Preferred Stock held by such
holder for an amount per share equal to the Redemption Amount (as defined in
Paragraph C below) in effect at the time of the redemption hereunder.
Notwithstanding anything to the contrary herein, (x) each such holder shall give
all other holders of 1997 Preferred Stock notice of its intention to deliver a
Redemption Notice at least one business day prior to the effective date of such
Redemption Notice, (y) no Redemption Notice shall become effective prior to that
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date which is three business days from the occurrence of a Redemption Event
unless a Redemption Notice is received within two (2) business days of another
Redemption Notice in which case each such Redemption Notice shall be effective
on the Effective Date of the earlier Redemption Notice; and (z) in the event of
a Redemption Event described in subparagraph (iii) above, only the holders who
have submitted a Notice of Conversion shall be entitled to elect redemption and
receive the Redemption Amount and then such holders shall be entitled to receive
the Redemption Amount only in respect of that portion of the 1997 Preferred
Stock for which the Corporation has insufficient shares of Common Stock to
facilitate the conversion which is the subject of such Notices of Conversion.
For the avoidance of doubt, the occurrence of an event described in clause (ii)
above shall immediately constitute a Redemption Event and there shall be no cure
period. If the Corporation fails to pay the Redemption Amount for each share
within two (2) business days of the effective date of a Redemption Notice, then
the holder of 1997 Preferred Stock delivering such Redemption Notice (i) shall
be entitled to interest thereon at a rate per annum equal to the lower of
thirty-six percent (36%) and the highest rate permitted by applicable law until
the date of redemption hereunder, and (ii) except with respect to the Redemption
Event described in subparagraph (iii) above, shall have the right, at any time
and from time to time, to require the Corporation, upon written notice, to
immediately convert (in accordance with the terms of Paragraph A of Article VI
below) all or any portion of the Redemption Amount, plus interest as aforesaid,
into shares of Common Stock at the lowest Conversion Price in effect during the
period beginning on the date of the Redemption Notice and ending on the
Conversion Date with respect to the conversion of such Redemption Amount. In the
event more than one holder delivers a Redemption Notice and the Corporation is
not, at the effective date of such Redemption Notice, able to redeem all of the
shares of 1997 Preferred Stock subject to Redemption Notices, the Corporation
shall select the shares of 1997 Preferred Stock to be redeemed from each holder
pro rata, based on the total number of shares of 1997 Preferred Stock included
by such holder in the Redemption Notice relative to the total number of shares
of 1997 Preferred Stock in all of the Redemption Notices.
C. The "REDEMPTION AMOUNT" with respect to any redemption of a share of
1997 Preferred Stock means an amount equal to:
1,000 + P
---------
X M
C P
where:
"P" means the accrued Premium on such share of 1997 Preferred Stock through
the date of redemption;
"CP" means the Conversion Price in effect on the date of the Redemption
Notice; and
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"M" means the highest closing price of the Corporation's Common Stock
during the period beginning on the date of the Redemption Notice and ending on
the date of the redemption, as reported on AMEX (or the principal securities
exchange or trading market on which the Common Stock is traded).
VI. CONVERSION AT THE OPTION OF THE HOLDER
A. (a) Each holder of shares of 1997 Preferred Stock may, at its option
convert its shares of 1997 Preferred Stock into Common Stock in the following
amounts and at the following times (an "Optional Conversion"), provided,
however, no Optional Conversion shall occur beginning on the date of issuance of
shares of 1997 Preferred Stock (the "Issuance Date") until that date which is
ninety-one days from the Issuance Date if the closing price of the Corporation's
Common Stock as reported by AMEX (or on the principal securities exchange or
other market on which the Common Stock is then being traded) on the Trading Day
immediately preceding a Conversion Date (as defined below) is less than $5.00
per share. Each share of 1997 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 six percent (6%) 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).
(b) If, however, the closing price of the Corporation's Common Stock
as reported by AMEX (or on the principal securities exchange or other securities
market in which the Common Stock is then being traded) on the date prior to any
Conversion Date (as hereinafter defined) is equal to or less than $1.50, and a
holder elects to convert 1997 Preferred Stock as otherwise permitted hereunder,
the Corporation, at its option, may redeem the 1997 Preferred Stock which is the
subject of a Notice of Conversion (as hereinafter defined) at a price equal to
115% of its Stated Value plus the Premium (the "Optional Redemption Amount") in
lieu of converting such 1997 Preferred Stock to Common Stock, provided that the
Corporation gives written notice to such holder of the Corporation's intention
to redeem such 1997 Preferred Stock by 8:00 p.m., New York City time, on the
date such Notice of Conversion is received by the Corporation (which notice
shall include a written representation that the Corporation has sufficient funds
to effect such redemption). If the Corporation so elects, the holder shall
deliver to the Corporation the original certificates representing the 1997
Preferred Stock which was the subject of the Notice of Conversion and upon
receipt of such certificates, the Corporation shall pay the Optional Redemption
Amount to such holder within 48 hours. In the event the Corporation fails to
make such payment, it shall forfeit its right under this Article VI.A(b) with
respect to all then outstanding shares of 1997 Preferred Stock, and the holder
may, at its election, within the next five (5) business days, proceed to convert
the shares of 1997 Preferred Stock in accordance with the original Notice of
Conversion or rescind such Notice of Conversion.
(c) Notwithstanding anything to the contrary contained herein, in no
event shall a holder of shares of 1997 Preferred Stock be entitled to convert
any such shares in
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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 1997
Preferred Stock or the unexercised or unconverted portion of any other
securities of the Corporation (including, without limitation, any warrants)
subject to a limitation on conversion or exercise analogous to the limitations
contained herein) and (y) the number of shares of Common Stock issuable upon the
conversion of the shares of 1997 Preferred Stock with respect to which the
determination of this sentence 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 13 D-G thereunder,
except as otherwise provided in clause (x) above. The restriction contained in
the first sentence of this paragraph of this Article VI.A(c) shall not be
altered, amended, deleted or changed in any manner whatsoever unless the holders
of a majority of the Common Stock, voting as a separate class, and each holder
of 1997 Preferred Stock shall approve such alteration, amendment, deletion or
change.
B. (a) Subject to subparagraph (b) below, the "Conversion Price" shall be
the lesser of (i) the Applicable Percentage (as hereinafter defined) of the
Strike Price (as hereinafter defined) (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 not withstanding anything to the contrary contained herein, (i) 100%, if
the Conversion Date (as hereinafter defined) is between ninety (90) and one
hundred fifty (150) days after the Issuance Date and the closing price of the
Corporation's Common Stock as reported by AMEX (or on the principal securities
exchange or other market on which the Common Stock is then being traded) on the
Trading Day immediately preceding such Conversion Date is less than $5.00 per
share, (ii) 100%, if (x) the Conversion Date is between one hundred fifty one
(151) and two hundred forty (240) days after the Issuance Date, (y) the closing
price of the Corporation's Common Stock as reported by AMEX (or on the principal
securities exchange or other market on which the Common Stock is then being
traded) on the Trading Day immediately preceding such Conversion Date is less
than $5.00 per share and (z) the holder of shares of 1997 Preferred Stock
effecting such conversion has converted, during the period set forth in clause
(x) of this sentence, in excess of fifty percent (50%) of the aggregate shares
of 1997 Preferred Stock owned by such holder using the Applicable Percentage set
forth in clause (iii) of this sentence or (iii) 85%, in all cases other than as
set forth in clauses (i) or (ii) of this sentence. For purposes hereof, the term
"Strike Price" shall mean the average closing price of the Corporation's Common
Stock as reported by AMEX (or such other exchange or market where traded) for
the ten (10) consecutive Trading Days ending one day prior to the Conversion
Date (as defined in Article VI.D(d)).
(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
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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 Article 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 1997 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 1997
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 1997 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
1997 Preferred Stock is issued and outstanding and prior to the conversion of
all 1997 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
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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 1997 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 1997 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 receivable upon the conversion of 1997 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 1997 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 1997 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 1997 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.
D. In order to convert 1997 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 1997
Preferred Stock that the holder elects to convert the same, which notice shall
specify the number of shares of 1997 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
1997 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 1997 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
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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 1997 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 1997 Preferred Stock.
(b) Delivery of Common Stock Upon Conversion. Upon the surrender of
certificates as described above from a holder of 1997 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 1997 Preferred Stock converted as shall be determined in
accordance herewith and (ii) a certificate representing the balance of the
shares of 1997 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 1997 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 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 in accordance with Article
VI.E hereof beginning on the expiration of such ten (10) business day period.
Nothing herein shall limit the holder's right to pursue actual damages for the
Corporation's failure to deliver shares of Common Stock upon conversion of 1997
Preferred Stock as required pursuant to the terms hereof, 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).
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(c) No Fractional Shares. If any conversion of 1997 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 1997 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 4 o'clock p.m., 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 1997 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 1997
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 to
provide for the conversion of the 1997 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 in accordance with the provisions of
Section 4(h) of the Securities Purchase Agreement. Notwithstanding anything to
the contrary herein, shares of Common Stock so reserved shall be allocated for
issuance upon conversion of the 1997 Preferred Stock pro rata among the holders
of 1997 Preferred Stock based on the number of shares of 1997 Preferred Stock
held by each such holder relative to the total number of authorized shares of
1997 Preferred Stock. 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 1997 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 1997 Preferred Stock on the
new basis. In addition to any rights a holder may have pursuant to Article V.B
hereof, if at any time a holder of shares of 1997 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 each holder such holder's pro rata share of all of
the shares of Common Stock which are available to effect such conversion and
shall thereafter use its best efforts to obtain, as soon as practicable,
shareholder approval to authorize the issuance of sufficient shares of Common
Stock to effect conversion of the 1997 Preferred Stock then outstanding. The
number of shares of 1997 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
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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 specified in the Notice of Conversion and (ii) the Conversion
Price on a Conversion Date subsequently 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 1997 Preferred Stock
multiplied by the Excess Amount, multiplied by .36, where N = the number of days
from the Conversion Date specified in the Notice of Conversion 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 1997
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:
(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 1997 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 1997 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 1997 Preferred Stock.
VII. MANDATORY CONVERSION
Each share of 1997 Preferred Stock issued and outstanding on that date
which is three years from the issuance date of 1997 Preferred Stock,
automatically shall be converted into shares of
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Common Stock on such date at a Conversion Price equal to 85% of the Strike Price
(as that term is defined in Article VI.B(a)), but in no event shall the
Conversion Price be greater than $5.00; provided, however, that if the closing
price of the Corporation's Common Stock as reported by AMEX on such date is
equal to or less than $1.50, the Corporation, at its option, may redeem the 1997
Preferred Stock then outstanding at a price equal to 115% of its Stated Value
plus the Premium, in lieu of converting such 1997 Preferred Stock, and provided
further that the Corporation may not redeem any shares of 1997 Preferred Stock
pursuant to this Article VII which are the subject of a Notice of Conversion
which was faxed to the Corporation before 4:00 p.m., New York City time, on such
date or before such date.
VIII. VOTING RIGHTS
The holders of the 1997 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
1997 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; provided,
however, .that the Corporation shall not deliver such notice to the extent it
contains material, non-public information which is not concurrently being
publicly disclosed.
To the extent that under the DGCL the vote of the holders of the 1997
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 1997
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 1997 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 1997 Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of 1997 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 1997 Preferred Stock shall be entitled to notice of
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(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 1997 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 1997 Preferred Stock:
(a) alter or change the rights, preferences or privileges of the 1997
Preferred Stock or any Senior Securities so as to affect adversely the 1997
Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the 1997 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 1997 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 1997 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 1997 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 March 11, 1997, any Senior Securities or Pari Passu
Securities.
In the event holders of at least a majority of the then outstanding shares
of 1997 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 1997 Preferred Stock, pursuant to subsection (a) above, so as to
affect the 1997 Preferred Stock, then the Corporation will deliver notice of
such approved change to the holders of the 1997 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 1997 Preferred
Stock.
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IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation this 10th day of March, 1997.
HEARX LTD.
By: Paul A. Brown
------------------------------------
Paul A. Brown, M.D.
Chairman of the Board
Chief Executive Officer
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NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the 1997 Preferred Stock)
The undersigned hereby irrevocably elects to convert shares of 1997 Preferred
Stock, represented by stock certificate nos(s). ___________ (the "Preferred
Stock Certificates") into shares of common stock ("Common Stock") to acquire
Common Stock of HEARx Ltd. (the "Corporation") according to the conditions of
the Certificate of Designation of 1997 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
1997 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:____________________
Signature:____________________________________
Name:_________________________________________
Address:______________________________________
*The Corporation is not required to issue shares of Common Stock until the
original 1997 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.
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of March 17,
1997 by and among HEARX LTD., a Delaware corporation, with headquarters located
at 1250 Northpoint Parkway, West Palm Beach, Florida 33407 (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 the following new series of preferred
stock: 1997 Convertible Preferred Stock, par value $1.00 per share (the "1997
PREFERRED STOCK"), convertible into shares of Common Stock, par value $.10 per
share, of the Company (the "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 A (the "CERTIFICATE OF
DESIGNATION");
C. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, such number of shares of 1997 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 B (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 1997 Preferred Stock as is set forth on the signature page
hereto executed by Buyer (together with any 1997 Preferred Stock issued in
replacement thereof or as a dividend thereon or otherwise with respect thereto
in accordance with the terms 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").
b. Form of Payment. On the Closing Date (as defined below), (i) each
Buyer shall pay the purchase price for the Preferred Shares to be issued and
sold (the "PURCHASE PRICE") by wire transfer to First Union National Bank of
Georgia (the "Escrow Agent") in accordance with the terms of that certain Escrow
Agreement dated March 17, 1997 by and among the Company, Zanett Securities,
Inc., Buyers and the Escrow Agent (the "Escrow Agreement"), and (ii) the Company
shall deliver to the Escrow Agent, pursuant to the Escrow Agreement, duly
executed certificate(s) representing such number of Preferred Shares which such
buyer is purchasing.
<PAGE>
c. Closing Date. 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 DATE") shall be 12:00 noon Eastern Standard Time on March 17, 1997 or
such other mutually agreed upon time. The closing shall occur on the Closing
Date at the offices of Bryan Cave LLP, 700 Thirteenth Street, N.W., Washington,
DC 20005 or such other mutually agreed place.
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 and
the shares of Common Stock issuable upon conversion thereof (the "CONVERSION
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 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
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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 and, until
such time as the Conversion Shares have been registered under the 1933 Act, the
certificates for the Conversion 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."
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.
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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
Escrow Agreement and the Registration Rights Agreement, and to issue the
Securities, in accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement and the Registration Rights Agreement 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 issuance and reservation for issuance of the Conversion Shares issuable upon
conversion 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 Escrow Agreement and the
Registration Rights Agreement, such instrument will constitute, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.
c. Capitalization. As of February 28, 1997, the authorized capital
stock of the Company consisted of (i) 130,000,000 shares of Common Stock of
which 84,131,158 shares were issued and outstanding, 4,466,475 shares were
reserved for issuance pursuant to the Company's stock option plans, and
23,378,247 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 no shares of 1996-Series A
Convertible Preferred Stock, 750 shares of 1996 Series B-1 Convertible Preferred
Stock, and 1,000 shares of 1996 Series B-2 Convertible Preferred Stock are
issued and outstanding. All of such outstanding shares of capital stock have
been validly issued, fully paid and nonassessable. As of the date hereof,
4,325,000 shares of Common Stock are reserved for issuance upon conversion of
the Preferred Shares to be issued hereunder (subject to adjustment pursuant to
the Company's covenant set forth in Section 4(h) below). As of the date hereof,
10,000 shares of 1997 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
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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").
d. Issuance of Shares. The Preferred Shares and Conversion Shares are
duly authorized and, upon issuance in accordance with the terms of this
Agreement, upon conversion of the Preferred Shares, 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 which
have not been waived. 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 Article VI.E. of the Certificate of Designation.
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Escrow Agreement and the Registration Rights Agreement 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 and Conversion 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 Escrow Agreement or the
Registration Rights Agreement in accordance with the terms hereof or thereof.
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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
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 which, individually or in the
aggregate, not material to the financial condition or operating results of the
Company.
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
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<PAGE>
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
before the 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. 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. 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.
f. Additional Equity Capital. The Company agrees that during the period
beginning on the date hereof and ending one hundred eighty (180) days following
the Closing Date (THE "LOCK-UP PERIOD"), the Company will not, without the prior
written consent of each of the
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<PAGE>
Buyers then holding shares of 1997 Preferred Stock, 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
agrees that it will not conduct any Future Offering during the period beginning
on the date hereof and ending one (1) year after the Closing Date unless it
shall have first provided to Zanett Securities, Inc. at least ten (10) days
prior to the closing of such Future Offering, written notice describing the
proposed Future Offering, including the terms and conditions thereof, and
providing Zanett Securities, Inc. an option during such ten (10) day period to
purchase up to fifty percent (50%) of the proposed Future Offering on the same
terms as contemplated by such Future Offering (the "CAPITAL RAISING
LIMITATION"). The Capital Raising Limitation shall not apply to any commercial
banking loan 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 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.
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. The Company shall at all times have
authorized, and reserved for the purpose of issuance (the "RESERVED AMOUNT") ,
125% of the number of shares of Common Stock necessary to provide for the full
conversion of the outstanding Preferred Shares and issuance of the Conversion
Shares in connection therewith at such time (the "TOTAL COMMON SHARES"). The
foregoing notwithstanding, (i) if the Reserved Amount is at any time less than
125% of the Total Common Shares, the Company shall thereafter be obligated to
have authorized and reserved for issuance, 150% of the Total Common Shares, (ii)
the Company shall not issue any shares of Common Stock, other than shares upon
conversion of 1997 Preferred Stock and shares which are currently reserved for
issuance and disclosed in Section 3(c) hereof, if at such time the Reserved
Amount is less than 200% of the Total Common Shares, and (iii) if the Company
breaches the provisions of clause (ii) above, the Company shall thereafter at
all times be obligated to have authorized and reserved for issuance 200% of the
Total Common Shares.
i. Listing. The Company shall promptly secure the listing of the
Conversion 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.
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j. Corporate Existence. So long as a Buyer beneficially owns any
Preferred Shares, 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 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.
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
in such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares. Prior to registration of the Conversion
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, prior to registration of the Conversion 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 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 the closing is subject to the satisfaction, at or before
the Closing Date, 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 Preferred Shares to any Buyer is distinct from its obligation to
issue and sell Preferred Shares to another Buyer.
With respect to the closing:
(i) Such Buyer shall have executed this Agreement, the
Registration Rights Agreement and the Escrow Agreement, and delivered the same
to the Company and, in the case of the Escrow Agreement, to the Escrow Agent.
(ii) Such Buyer shall have wire transferred the Purchase Price
to the Escrow Agent in accordance with Section 1(b) above.
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(iii) The Certificate of Designation shall have been accepted
for filing with the Secretary of State of the State of Delaware.
(iv) The representations and warranties of such 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 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 such 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 the closing, as applicable, is subject to the satisfaction, at or before the
Closing Date, 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:
With respect to the closing:
(i) The Company shall have executed this Agreement, the Registration
Rights Agreement and the Escrow Agreement, and delivered the same to the Buyer
and, in the case of the Escrow Agreement, to the Escrow Agent.
(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 the Escrow Agent 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 Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied and
complied 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 Closing Date. Such Buyer shall have received a
certificate, executed by the chief executive officer of the Company, dated as of
the Closing Date, 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 Closing Date, in form, scope and substance
reasonably satisfactory to such Buyer and in substantially the same form as
EXHIBIT C attached hereto.
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(vii) Such Buyer shall have received the officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
(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 closing hereunder or to issue the Conversion Shares.
(ix) The Company shall have obtained all necessary consents, including
without limitation, the consent of the current registered holders of 1996 Series
B-1 Convertible Preferred Stock and 1996 Series B-2 Convertible Preferred Stock,
necessary to file the Certificate of Designations and otherwise consummate the
transactions contemplated hereby.
(x) The Irrevocable Transfer Agent Instructions, in the form attached
hereto as Exhibit D, shall have been delivered to and acknowledged in writing by
the Company's transfer agent. In the event the Company is unable to obtain the
transfer agent's acknowledgment at the time of the Closing, the Company
undertakes to use its best efforts to obtain such acknowledgment as soon s
possible.
8. COMPANY'S POST CLOSING OBLIGATIONS.
(a) As soon as practicable after the Closing Date, all of the
Conversion Shares issuable upon conversion of the Preferred Shares sold at the
Closing shall be listed upon AMEX (subject to official notice of issuance).
(b) Within fifteen (15) days of the Closing Date, the Company shall
file a Registration Statement covering the resale of the Registrable Securities
(as defined in the Registration Rights Agreement) underlying the Preferred
Shares issued at the Closing. The Company shall use its reasonable best efforts
to cause such registration statement to become effective within one hundred
twenty (120) days of the Closing Date. In the event that such registration is
not effective within the one hundred twenty (120) days following the Closing
Date, the Company shall incur penalties as set forth in Section 2(c) of the
Registration Rights Agreement.
9. 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 submit to the exclusive jurisdiction of the
U.S. federal courts located in New York, New York, with respect to any dispute
arising under this Agreement, the agreements entered into in connection herewith
or the transaction 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.
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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:
If to the Company:
HEARx LTD.
1250 Northpoint Parkway
West Palm Beach, FL 33407
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 Buyers:
Zanett Securities, Inc.
10 East 76th Street
New York, NY 10021
Attention: Claudio Guazzoni
With copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers
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1401 Walnut Street
Philadelphia, PA 19102
Attention: Todd L. Silverberg, 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, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person other than Zanett Securities, Inc. and its affiliates and
assigns.
i. Survival. The representations and warranties of the Company set
forth in Section 3 shall survive the closings for a period of two (2) year
notwithstanding any due diligence investigation conducted by or on behalf of the
Buyers. The covenants and agreements contained herein shall survive the Closing
for the longer of (i) the expiration thereof pursuant to their specific terms,
or (ii) the date upon which all shares of 1997 Preferred Stock have been
converted or redeemed and all shares of Common Stock issuable upon exercise
thereof have been sold. 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 9(m) below,
including advancement of expenses as they are incurred.
j. Publicity. The Company and each of the 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 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 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.
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l. Termination. In the event that the 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.
14
<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: /s/ Paul A. Brown
-----------------------------------
Name: Paul A. Brown, M.D.
Its: Chairman and CEO
Olympus Securities, Ltd.
By: /s/ Anne Dupuy
-----------------------------------
Name: Anne Dupuy
Its: Alternate Director
RESIDENCE: Bermuda
ADDRESS:
AGGREGATE SUBSCRIPTION AMOUNT: $2,125,000
Number of Shares of 1997 Convertible Preferred Stock: 2,125
Aggregate Purchase Price: $2,125,000
[Signatures Continued on Next Page]
15
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[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: /s/ Paul A. Brown, MD
-------------------------------------
Name: Paul A. Brown, MD
Its: Chairman and CEO
NELSON PARTNERS
By: /s/ Anne Dupuy
-------------------------------------
Name: Anne Dupuy
Its: Alternate Director
RESIDENCE: Bermuda
ADDRESS:
AGGREGATE SUBSCRIPTION AMOUNT: $2,125,000
Number of Shares of 1997 Convertible Preferred Stock: 2,125
Aggregate Purchase Price: $2,125,000
16
<PAGE>
[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: /s/ Paul A. Brown, MD
------------------------------------
Name: Paul A. Brown, MD
Its: Chairman and CEO
ZANETT LOMBARDIER, LTD.
By: /s/ G. A. Cicogna
------------------------------------
Name: G. A. Cicogna
Title: Director
RESIDENCE: Caymen Islands
ADDRESS:
AGGREGATE SUBSCRIPTION AMOUNT: $1,500,000
Number of Shares of 1997 Convertible Preferred Stock: 1,500
Aggregate Purchase Price: $1,500,000
17
<PAGE>
[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: /s/ Paul A. Brown, MD
------------------------------------
Name: Paul A. Brown, MD
Its: Chairman and CEO
CAPITAL VENTURES INTERNATIONAL
By: /s/ Heights Capital Management
------------------------------------
By: /s/ Andrew Frost
Name: Andrew Frost
Title: President
RESIDENCE: Caymen Islands
ADDRESS:
AGGREGATE SUBSCRIPTION AMOUNT: $4,250,000
Number of Shares of 1997 Convertible Preferred Stock: 4,250
Aggregate Purchase Price: $4,250,000
18
<PAGE>
SCHEDULE 3(c)
CONTRACTUAL "PREEMPTIVE" RIGHTS
Rights of the "Buyers" under that Securities Purchase Agreement dated
as of May 3, 1996 relating to the sale and issuance of the 1996 Series B-1
Convertible Preferred Stock and the 1996 Series B-2 Convertible Preferred Stock.
OUTSTANDING OPTIONS, WARRANTS, CONVERTIBLE SECURITIES AND OTHER RIGHTS
1. Warrant Certificate for Purchase of Stock dated February 20, 1991
issued to Minnesota Mining and Manufacturing Company ("3M"), covering 5,000
shares of "Senior Preferred Stock convertible into common voting stock"
(subsequently known as Senior Preferred Stock, Series C) and, since the
Company's listing on the American Stock Exchange, covering 500,000 shares of
common stock.
2. Warrant Certificate for Purchase of Stock dated February 20, 1991
issued to 3M, covering 6,000 shares of "Senior Preferred Stock convertible into
common voting stock" (subsequently known as Senior Preferred Stock, Series C)
and, since the Company's listing on the American Stock Exchange, covering
600,000 shares of common stock.
3. Option to Purchase dated May 15, 1992, granted to 3M to purchase up
to 8,000 shares of Senior Preferred Stock, Series F which, since the Company's
listing on the American Stock Exchange, covers 800,000 shares of common stock.
4. Currently outstanding other options to purchase common stock of the
Company:
(a) Non-Incentive Stock Option Agreements between the Company and Jerry
Wenger and Charlotte Givens;
(b) Non-Incentive Stock Option Agreement between the Company and Edward
Silverman;
(c) Options to employees granted under the Company's stock option
plans;
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(d) Option to Paul A. Brown to acquire 100,000 shares of common stock;
and
(e) Director stock options issued to Non-Employee Directors.
5. Warrants to purchase up to 2,290,488 shares of common stock issued
in connection with prior private placements.
6. Warrants to purchase up to 110,000 shares of common stock issued in
connection with certain finders fees for prior private placements.
7. Class A Warrants to purchase up to 11,070,480 shares of common stock
issued in connection with 1996 private placement of 1996 Senior Preferred Stock.
8. Warrants to purchase up to 2,283,278 shares of common stock issued
as a finders fee (the "Invemed Warrants") in connection with 1996 private
placement of 1996 Senior Preferred Stock and common stock purchase Warrants
(described above).
9. 750 shares of 1996 Series B-1 Convertible Preferred Stock and 1,000
shares of 1996 Series B-2 Preferred Stock, plus warrants to acquire up to
3,750,000 shares of common stock issued (or issuable) upon conversion of the
1996 Series B-1 Convertible Preferred Stock.
10. Company commitment to issue warrants to Zanett Securities, Inc. to
purchase a total of 750,000 shares of common stock (subject to certain vesting
requirements).
OUTSTANDING REGISTRATION RIGHTS
1. Certain registration rights granted to Minnesota Mining and
Manufacturing Company ("3M") in connection with certain convertible preferred
stock purchases and options to purchase certain convertible preferred stock (now
common stock).
2. Registration rights granted pursuant to a Registration Rights
Agreement dated January 26, 1996 in connection with the 1996 private placement
of 1996 Senior Preferred Stock and common stock purchase warrants.
3. Registration rights granted pursuant to a Registration Rights
Agreement dated as of May 3, 1996 in connection with the offer and sale of the
1996 Series B-1 Convertible Preferred Stock and the 1996 Series B-2 Convertible
Preferred Stock.
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of March 17,
1997 by and among HEARX, LTD., a Delaware corporation, with headquarters located
at 1250 Northpoint Parkway, West Palm Beach, Florida 33407 (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 1997
Convertible Preferred Stock (the "1997 PREFERRED STOCK") that is convertible
into shares (the "CONVERSION SHARES") of the Company's common stock (the "COMMON
STOCK") upon the terms and subject to the limitations and conditions set forth
in the Certificate of Designations, Preferences and Rights with respect to such
1997 Preferred Stock (the "CERTIFICATE 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>
(iii) "REGISTRABLE SECURITIES" means (i) the
Conversion Shares; (ii) the shares of Common Stock issuable upon exercise of
those warrants dated as of November 26, 1996 issued to Zanett Securities, Inc.
(the "First Warrants"); (iii) shares of Common Stock issuable upon exercise of
those certain warrants issued pursuant to that certain engagement letter dated
as of March 17, 1997, by and between the Company and Zanett Securities, Inc.;
(the "Second Warrants", and collectively with the First Warrants, the
"Warrants"); (iv) shares of Common Stock issuable upon conversion of amounts
payable to Investors pursuant to Section 2(c) hereof; and (v) 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 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, 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 1997 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 1997 Preferred Stock 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 and their
counsel prior to its filing or other submission. The provisions of Section 2(c)
shall be applicable with respect to each 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 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.
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<PAGE>
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), (ii) 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 (iii) 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") (collectively, with (i) and
(ii), the "Registration Delays"), then the Company will make payments to the
Investors in the following amounts and at the following times 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): For the first
month (following such 120-day period) in which a Registration Delay exists, the
Company shall pay to each holder of the Registrable Securities an amount equal
to the aggregate "Purchase Price" (as defined below) of the 1997 Preferred Stock
held by such Investors (including, without limitation, 1997 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
one and one-half hundredths (.015). For each month thereafter in which a
Registration Delay exists, the Company shall pay to each holder of Registrable
Securities the Aggregate Share Price multiplied by two and one-half hundredths
(.025). Such amounts payable shall be prorated for partial months. 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 Certificate 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 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" means the purchase price paid by the Investors for the
1997 Preferred Stock.
In addition to the remedies provided for above, in the event
the number of shares available under a Registration Statement is insufficient to
cover all shares of Common Stock necessary to effect a conversion in a
Conversion Notice (as defined in the Certificate of Designation), each Investor
shall thereafter have the option, exercisable in whole or in part at any time
and from time to time (until such time as the Company shall have remedied such
insufficiency) by delivery of a written notice to the Company, to require the
Company to purchase
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<PAGE>
for cash, at an amount per share equal to the Redemption Amount (as defined in
Article V.B of the Certificate of Designation), any or all of the portion of the
Investor's Preferred Stock for which shares of Common Stock issuable upon
conversion thereof are not so registered and such Investor shall be entitled to
all the remedies (and shall be bound by the limitations) provided in Article V.B
of the Certificate of Designation as if such event were a Redemption Event (as
defined in the Certificate of Designation).
d. 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 Investor 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.
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) 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 1997 Preferred Stock, the Company shall amend the
Registration Statement, or file a new Registration
4
<PAGE>
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 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 select underwriters for
the offering, the Company shall enter
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<PAGE>
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 Initial Investors to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time prior to their
filing with the 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
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<PAGE>
firm of attorneys and one firm of accountants or other agents retained by the
Investors, (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.
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
7
<PAGE>
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.
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
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<PAGE>
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 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 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 and fees and disbursements of counsel for the Investors, incurred in
connection with registrations, filings or qualifications pursuant to Sections 2
and 3, including, without limitation, all registration, listing and
9
<PAGE>
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,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the affiliates, 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
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
10
<PAGE>
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 Party shall, if a Claim in respect thereof is to be made
11
<PAGE>
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
12
<PAGE>
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 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 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 Initial Investors (to the extent such Initial Investor still owns
Registrable Securities) and Investors who hold a majority interest of the
Registrable
13
<PAGE>
Securities; provided, however, for purposes of determining the number of
Registrable Securities under this sentence, shares of Common Stock issuable upon
exercise of Warrants shall only be included if an amendment or waiver seeks to
amend, alter or waive the definition of Registrable Securities or otherwise
adversely affects the holders of Warrants (or shares of Common Stock issuable
upon exercise of the Warrants) relative to the rights of holders of other
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 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.
1250 Northpoint Parkway
West Palm Beach, FL 33407
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.
14
<PAGE>
Or, in the case of the Initial Investors, at such address as indicated on the
Securities Purchase Agreement, 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 New York, New York,
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
15
<PAGE>
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 1997 Preferred Stock had
been converted into Registrable Securities and for purposes of consents or
determinations which would adversely affect the holders of Warrants (or shares
of Common Stock issuable upon exercise of Warrants) only, as if all Warrants had
been exercised for Registrable Securities).
IN WITNESS WHEREOF, the Company and the undersigned Initial Investors
have caused this Agreement to be duly executed as of the date first above
written.
HEARx LTD.
By: /s/ Paul A. Brown
-----------------------------------
Name: Paul A. Brown, MD
Its: Chairman and CEO
- ---------------------------------------
By:
-----------------------------------
By:
Name:
Its:
[SIGNATURES CONTINUED ON NEXT PAGE]
16
<PAGE>
[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: /s/ Anne Dupuy
---------------------------------
Name: Anne Dupuy
Title: Alternate Director
NELSON PARTNERS
By: /s/ Anne Dupuy
---------------------------------
Name: Anne Dupuy
Title: Officer
17
<PAGE>
[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:
ZANETT LOMBARDIER, LTD.
By: /s/ G. A. Cicogna
---------------------------------
Name: G. A. Cicogna
Title: Director
CAPITAL VENTURES INTERNATIONAL
By: /s/ Andrew Frost
---------------------------------
Name: Andrew Frost
Title: President
18
<PAGE>
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, 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.
EXERCISABLE ON OR BEFORE 5:00 P.M.,
NEW YORK TIME, MARCH 17, 2002
No. 1997W-___
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 $5.00 per share ("Exercise Price"),
subject to the conditions set forth herein and in that certain Placement Agency
Agreement dated as of March 17, 1997 by and among the Company and Zanett
Securities, Inc. (the "Placement Agency Agreement"). 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 Warrant evidenced by this Warrant Certificate is part of
a duly authorized issue of warrants issued pursuant to the Placement Agency
Agreement. The term Warrants as used herein means this Warrant and the other
warrants issued pursuant to the Placement Agency Agreement.
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
<PAGE>
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 Paragraph 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. The restriction
contained in the first sentence of this Paragraph 1 shall not be altered,
amended, deleted or changed in any manner whatsoever unless the holders of a
majority of the Company's Common Stock, voting as a separate class, and each
holder of Warrants shall approve such alteration, amendment, deletion or change.
2
<PAGE>
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").
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
3
<PAGE>
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.
(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 the date on which
this Warrant is issued, 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 Paragraph
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.
4
<PAGE>
(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.
(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
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<PAGE>
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
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<PAGE>
cash, the consideration received therefor for purposes of this
Warrant will be the amount received by the Company therefor,
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 as of the date which this Warrant is
issued; (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
this Warrant or the other warrants issued pursuant to the
Placement Agency Agreement, or issuance or conversion of the
Company's 1996 Series B-1 Convertible Stock, 1996 Series B-2
Convertible Preferred Stock and 1997 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
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<PAGE>
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.
(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.
8
<PAGE>
(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
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 substantially 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
9
<PAGE>
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 upon exercise or conversion of all Options and
Convertible Securities outstanding at such time and which were
outstanding as of the date which this Warrant is issued
(including other warrants issued on such date and the 1997
Convertible Preferred Stock), 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 Paragraph 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 Paragraph 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
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<PAGE>
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.
11
<PAGE>
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. The benefits of this Warrant and the rights
of any holder hereof shall inure to any transferee or assignee of this
Warrant. 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.
(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
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<PAGE>
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
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. 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 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, dated as of
March 17, 1997 by and among the Company and the other signatories thereto
(including, without limitation, Paragraph 2(c) thereof). The Warrant Shares
shall constitute "Registrable Securities" under the Registration Rights
Agreement.
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 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
13
<PAGE>
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 NEW
YORK, NEW YORK 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
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<PAGE>
current Market Price per share of Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
15
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
HEARX LTD.
By:
------------------------------------
Name: Paul A. Brown, M.D.
Title: Chairman
Agreed to and Accepted
By:
---------------------------------
, Initial Holder
Dated as of March 17, 1997
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<PAGE>
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 Paragraph 11(c) of
the Warrant) equal to $_________. Please issue a certificate or certificates 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>
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>
HEARX LTD
Your prescription
for better hearing
FOR IMMEDIATE RELEASE
COMPANY CONTACT:
Paul A. Brown, M.D.
Chairman of the Board
HEARx Ltd.
1250 Northpoint Parkway
West Palm Beach, FL 33407
(561) 478-8770 Ext. 123
HEARX COMPLETES $10 MILLION EQUITY OFFERING
TO FUND ANTICIPATED EXPANSION
WEST PALM BEACH, Fla., March 18, 1997 - Paul A. Brown, M.D., Chairman of HEARx
Ltd. (AMEX:EAR), announced today that HEARx has completed a private placement of
1997 Convertible Preferred Stock in the aggregate amount of $10 million. As a
result of this financing, HEARx now has more than $20 million available for the
anticipated expansion of its center network. Dr. Brown stated that the decision
to raise additional capital at this time was to strengthen the balance sheet in
light of a number of discussions currently being held with several health care
providers interested in having HEARx expand its network of centers into new
geographic areas.
Dr. Brown stated that the investors in this private placement were some of the
same institutions that participated in last year's $30 million offering. Dr.
Brown pointed out that under the terms of this investment there can be no
conversions of the Preferred Stock for the next ninety (90) days unless the
stock trades above $5.00. For the next sixty (60) days, so long as the common
stock is trading below $5.00 per share, the Preferred Stock may be converted
only at the market price. Every ninety (90) days thereafter investors will be
allowed to convert up to fifty percent (50%) of the preferred stock into common
stock at a fifteen percent (15%) discount from market. In no event, however,
will the conversion price exceed $5.00 per share. The company will pay a 6%
premium on conversion. This transaction was arranged by The Zanett Securities
Corporation.
HEARx, with the largest network of audio-vestibular rehabilitative centers in
the $2 billion field of hearing services, operates over 72 company-owned centers
in Connecticut, Florida, New Jersey, New York, Pennsylvania, Oregon and
Virginia. The company provides hearing care primarily to patients whose health
insurance and managed care organization have contracted with HEARx.
###
1250 Northpoint Parkway, West Palm Beach, Florida 33407
(407) 478-8770 Fax (407) 478-9603
