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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
-----------------------
Date of Report (Date of earliest event reported): August 27, 1998
HEARX LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 0-16453 22-2748248
(State or other jurisdiction (Commission (IRS Employer
or incorporation) File Number) Identification no.)
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 August 27, 1998, 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 1998 Convertible Preferred Stock of the Company, filed herewith as
exhibits to this Form 8-K.
THE OFFERING
On August 27, 1998, the Company entered into a Securities Purchase
Agreement with certain purchasers named therein (the "Purchasers"), pursuant to
which the Company sold a total of 7,500 units (the "Units"), each Unit
consisting of (i) one share of the Company's 1998 Convertible Preferred Stock,
par value $1.00 per share (the "1998 Preferred Stock"), and (ii) a warrant to
acquire 75 shares of the Company's common stock, par value $.10 per share (the
"Common Stock") (the "Warrants"), pursuant to Regulation D for an aggregate
purchase price of $7,500,000 (the "Offering").
The 1998 Preferred Stock is convertible into Common Stock of the
Company. Upon conversion, holders will be entitled to receive a number of shares
of Common Stock determined by dividing the sum of the stated value of the 1998
Preferred Stock ($1,000 per share), plus a premium (unless the Company elects to
pay that premium in cash), by a conversion price equal to the lesser of the
average closing bid prices for the Common Stock during a five-day period prior
to conversion, and $1.80 (subject to adjustment upon the occurrence of certain
dilutive events). The premium payable upon conversion will be equal to 8% of the
stated value of the 1998 Preferred Stock ($1,000 per share) from the date of
issuance until one year following such date, and shall increase by 0.5% each
year, commencing on the date which is one year following the date of issuance.
The 1998 Preferred Stock may not be converted for the 190-day period after the
closing (i.e. to February 5, 1999). The 1998 Preferred Stock may be converted by
holders in accordance with these terms at any time prior to August 27, 2003, and
automatically converts on such date.
The Company has the right upon receipt of notice of conversion of
any shares of the 1998 Preferred Stock to redeem shares of the 1998 Preferred
Stock tendered for conversion in lieu of conversion at a price equal to 108% 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 $1.00 per share. The holders of the
1998 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.
The Warrants are exercisable for shares of Common Stock of the
Company. Upon exercise, holders will be entitled to receive shares of Common
Stock for an exercise
1
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price of $1.80 per share. The Warrants may not be exercised for the 60-day
period after the closing (i.e., to October 26, 1998) and will expire on August
27, 2003.
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 October 26, 1998,
covering resales of the shares of Common Stock underlying all of the 1998
Preferred Stock and the Warrants. Under the Registration Rights Agreement, the
Company may be required to make certain payments to holders of the 1998
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 December 25, 1998.
The net proceeds to the Company after payment of closing fees is
estimated to be $6,975,000. In connection with the placement of the 1998
Preferred Stock, the Company also issued to a placement agent (the "Placement
Agent") and its assignees warrants to purchase an aggregate of 1,125,000 shares
of Common Stock at an exercise price equal to $1.80 per share, which contain the
same restrictions as the Warrants. 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 October 26, 1998.
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 August 27, 1998, there were issued and outstanding
approximately (i) 100,855,550 shares of Common Stock, (ii) warrants to purchase
up to 2,841,627 shares of Common Stock, (iii) options to purchase up to
5,780,354 shares of Common Stock, and (iv) 6,815 shares of 1997 Convertible
Preferred Stock (for which the Company has reserved 5,802,018 shares of Common
Stock for issuance upon conversion). 7,500 shares of the 1998 Preferred Stock
were issued to the Purchasers in the Offering. In addition, certain employees,
non-employee directors and consultants of the Company hold options to purchase
shares of Common Stock. The warrants, options and convertible preferred stock
may be subject to adjustment as the result of the occurrence of dilutive events.
2
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ITEM 7. EXHIBITS
The following exhibits are filed with this report:
Number Description
- ------ -----------
3 Certificate of Designations, Preferences and Rights of the 1998
Convertible Preferred Stock of the Company.
4.1 Securities Purchase Agreement, dated as of August 27, 1998
between HEARx Ltd. and each of the purchasers set forth on the
signature pages thereto.
4.2 Registration Rights Agreement, dated as of August 27, 1998
between HEARx Ltd. and each of the purchasers set forth on
the signature pages thereto.
4.3 Placement Agent Agreement, dated as of August 27, 1998 between
HEARx Ltd. and The Zanett Securities Corporation, Claudio
Guazzoni, David McCarthy, and Tony Milbank
4.4 Form of Warrant issued to Purchasers and Placement Agent.
3
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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: September 3, 1998 By: /s/ Paul A. Brown, MD
----------------------
Paul A. Brown, MD
Chairman and CEO
4
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EXHIBIT INDEX
Number Description
- ------ -----------
3 Certificate of Designations, Preferences and Rights of the 1998
Convertible Preferred Stock of the Company.
4.1 Securities Purchase Agreement, dated as of August 27, 1998
between HEARx Ltd. and each of the purchasers set forth on the
signature pages thereto.
4.2 Registration Rights Agreement, dated as of August 27, 1998
between HEARx Ltd. and each of the purchasers set forth on
the signature pages thereto.
4.3 Placement Agent Agreement, dated as of August 27, 1998 between
HEARx Ltd. and The Zanett Securities Corporation, Claudio
Guazzoni, David McCarthy, and Tony Milbank
4.4 Form of Warrant issued to Purchasers and Placement Agent.
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EXHIBIT 3
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
1998 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:
1998 Convertible Preferred Stock:
I. Designation and Amount
The designation of this series, which consists of 7,500 shares of
Preferred Stock, is 1998 Convertible Preferred Stock (the "1998 PREFERRED
STOCK") and the stated value shall be One Thousand Dollars ($1,000) per share
(the "STATED VALUE").
II. Rank
All 1998 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 1998 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 1998 Preferred Stock)
(collectively, with the Common Stock, "JUNIOR SECURITIES"); (iii) pari passu
with any class or series of capital stock of the Corporation hereafter created
(with the consent of the holders of 1998 Preferred Stock
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obtained in accordance with Article IX hereof) specifically ranking, by its
terms, on parity with the 1998 Preferred Stock (the "PARI PASSU SECURITIES");
and (iv) junior to the Corporation's 1997 Convertible Preferred Stock and any
class or series of capital stock of the Corporation hereafter created (with the
consent of the holders of 1998 Preferred Stock obtained in accordance with
Article IX hereof) specifically ranking, by its terms, senior to the 1998
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 1998 Preferred Stock will bear no dividends, and the holders of the
1998 Preferred Stock shall not be entitled to receive dividends on the 1998
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 1998 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 1998 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 1998 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.
B. At the option of any holder of 1998 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
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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 1998 Preferred Stock shall mean an amount equal to the sum of (i)
the Stated Value thereof plus (ii) an amount equal to ten percent (10%) 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;
Redemption of 1998 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 after receipt by the Corporation
of a Notice of Conversion (in the case of a redemption in connection with an
Optional Conversion) or that date which is five (5) years after the date of
issuance of the 1998 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 or Article VII
hereof, as applicable.
(b) Each holder of 1998 Preferred Stock shall have the right
to require the Corporation to provide advance notice to such holder stating
whether the Corporation will elect to redeem all or any portion of the premium
in cash pursuant to the Corporation's redemption rights discussed in
subparagraph (a) of this Article V.A as set forth herein. A holder may exercise
such right from time to time by sending notice (an "ELECTION NOTICE") to the
Corporation, by facsimile, requesting that the Corporation disclose to such
holder whether the Corporation would elect to redeem any portion of the Premium
for cash in lieu of issuing Common Stock in accordance with Article VI. 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
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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 or
Article VII hereof, as applicable
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 1998
Preferred Stock upon conversion of the 1998 Preferred Stock as and when required
by this Certificate of Designation, the Securities Purchase Agreement, dated as
of August 24, 1998, by and between the Corporation and the other signatories
thereto with respect to the sale of 1998 Preferred Stock (the "SECURITIES
PURCHASE AGREEMENT") or the Registration Rights Agreement dated as of August 24,
1998, by and among the Corporation and the other signatories thereto (the
"REGISTRATION RIGHTS AGREEMENT");
(ii) the Corporation provides to any holder of 1998 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 1998 Preferred Stock upon
conversion in accordance with the terms of this Certificate of Designation; or
(iii) a holder of shares of 1998 Preferred Stock submits a
Notice of Conversion, 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
1998 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 1998 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, 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 1998 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
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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 after receipt of a
Redemption Notice, then the holder of 1998 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 on a given day and the Corporation is not, at the effective date of such
Redemption Notice, able to redeem all of the shares of 1998 Preferred Stock
subject to Redemption Notices, the Corporation shall select the shares of 1998
Preferred Stock to be redeemed from each holder pro rata, based on the total
number of shares of 1998 Preferred Stock included by such holder in the
Redemption Notice relative to the total number of shares of 1998 Preferred Stock
in all of the Redemption Notices.
C. The "REDEMPTION AMOUNT" with respect to any redemption of a
share of 1998 Preferred Stock means an amount equal to:
1,000 + P x M
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C P
where:
"P" means the accrued Premium on such share of 1998 Preferred
Stock through the date of redemption;
"CP" means the Conversion Price in effect on the date of the
Redemption Notice; and
"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 the American Stock Exchange
(the "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) On or after the one hundred and eightieth day after the
Issuance Date (as defined below), each holder of shares of 1998 Preferred Stock
may, at its option, convert its shares of 1998 Preferred Stock into Common Stock
(an "OPTIONAL CONVERSION"). Each share of 1998 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,
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plus (II) unless the Corporation has timely redeemed such Premium in accordance
with Article V.A, an amount equal to I% 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), where "I" means 8.0 and shall increase by 0.5 on the date which
is one (1) year after the date of issuance of shares of 1998 Preferred Stock
(the "ISSUANCE DATE") and by an additional 0.5 on each one (1) year anniversary
thereafter.
(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 on which the Common Stock is then being traded) on the date
prior to any Conversion Date (as hereinafter defined) is less than $1.00, and a
holder elects to convert 1998 Preferred Stock as otherwise permitted hereunder,
the Corporation, at its option, may redeem the 1998 Preferred Stock which is the
subject of a Notice of Conversion at a price equal to 108% of its Stated Value
plus the Premium (the "OPTIONAL REDEMPTION AMOUNT") in lieu of converting such
1998 Preferred Stock to Common Stock, provided that the Corporation gives
written notice to such holder of the Corporation's intention to redeem such 1998
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 1998 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 1998 Preferred Stock, and the holder may, at its election,
within the next five (5) business days, proceed to convert the shares of 1998
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 1998 Preferred Stock be entitled to
convert any such shares in excess of that number of shares upon conversion of
which the sum of (x) the number of shares of Common Stock beneficially owned by
the holder and its affiliates (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unconverted portion of
the shares of 1998 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 1998 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 4.99% 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 1998 Preferred
<PAGE> 7
Stock shall approve such alteration, amendment, deletion or change.
(d) Notwithstanding anything to the contrary contained herein,
so long as no Redemption Event has occurred and except as otherwise provided
below, a holder of 1998 Preferred Stock may not convert shares of 1998 Preferred
Stock to the extent that the total number of shares of 1998 Preferred Stock
previously converted by such holder together with the number of shares of 1998
Preferred Stock which such holder is attempting to convert exceeds the Maximum
Conversion Percentage (as defined below) multiplied by the total number of
shares of 1998 Preferred Stock purchased by such holder pursuant to the
Securities Purchase Agreement (with respect to each such holder, the "ORIGINAL
SHARE AMOUNT"). A holder's Original Share Amount shall be increased or
decreased, as applicable, upon any sale or purchase by such holder of shares of
1998 Preferred Stock occurring after the Issuance Date.
"MAXIMUM CONVERSION PERCENTAGE" means:
If the Conversion Date is: Then the Maximum Conversion Percentage
is:
------------------------------------------------------------------------
On or after the 180th day 33.333%
following the Issuance
Date and before the
270th day following the
Issuance Date
------------------------------------------------------------------------
On or after the 270th day 66.666%
following the Issuance
Date and before the 360th
day following the
Issuance Date
------------------------------------------------------------------------
------------------------------------------------------------------------
On or after the 360th day 100%
following the Issuance
Date
------------------------------------------------------------------------
Notwithstanding the foregoing, the restrictions on conversion set forth
in this Article VI.A(d) shall terminate (i) on or after the date the Corporation
makes a public announcement that it intends to merge or consolidate with any
other entity (other than a merger in which the Corporation is the surviving or
continuing entity and its capital stock is unchanged) or to sell or transfer all
or substantially all of the assets of the Corporation or (ii) on or after the
date any person, group or entity (including the Corporation) publicly announces
a tender offer, exchange offer or another transaction to purchase 50% or more of
the Corporation's Common Stock or otherwise publicly announces an intention to
replace a majority of the Corporation's Board of Directors by waging a proxy
battle or otherwise.
B. (a) Subject to subparagraph (b) below, the "CONVERSION PRICE"
shall be the lesser of (i) the average of the Closing Bid Prices (as defined
below) for the Common Stock for any five (5) trading days chosen by the holder
of 1998 Preferred Stock during the period beginning on the twentieth trading day
prior to the Conversion Date for such conversion and ending on such Conversion
Date (subject to equitable adjustment for any stock splits, stock
<PAGE> 8
dividends, reclassifications or similar events during such 20 trading day
period), and shall be subject to adjustment as provided herein (the "VARIABLE
CONVERSION PRICE"), and (ii) $1.80 (the "FIXED CONVERSION Price") (subject to
equitable adjustments from time to time pursuant to the antidilution provisions
of Article VI.C below). "CLOSING BID PRICE" means, for any security as of any
date, the closing bid price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg Financial Markets or a comparable reporting service of national
reputation selected by the Corporation and reasonably acceptable to holders of a
majority of the then outstanding shares of 1998 Preferred Stock. If Bloomberg
Financial Markets is not then reporting closing bid prices of such security
(collectively, "BLOOMBERG"), or if the foregoing does not apply, the last
reported bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
bid price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as reasonably determined by an investment banking firm selected by the
Corporation and reasonably acceptable to holders of a majority of the then
outstanding shares of 1998 Preferred Stock, with the costs of such appraisal to
be borne by the Corporation.
(b) Notwithstanding anything contained in subparagraph (a)
of this Paragraph B to the contrary, in the event the Corporation (i) makes a
public announcement that it intends to consolidate or merge with any other
corporation (other than a merger in which the Corporation is the surviving or
continuing corporation and its capital stock is unchanged) or sell or transfer
all or substantially all of the assets of the Corporation or (ii) any person,
group or entity (including the Corporation) publicly announces a tender offer to
purchase 50% or more of the Corporation's Common Stock (the date of the
announcement referred to in clause (i) or (ii) is hereinafter referred to as the
"ANNOUNCEMENT DATE"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal to the Conversion Price which
would have been applicable for an Optional Conversion occurring on the
Announcement Date. From and after the Adjusted Conversion Price Termination
Date, the Conversion Price shall be determined as set forth in subparagraph (a)
of this 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 1998 Preferred Stock is issued and
outstanding, the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend, or
<PAGE> 9
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 1998 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 1998
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 the applicable number of trading
days immediately preceding the Conversion Date or the date of the Mandatory
Conversion, as applicable.
(c) Adjustment Due to Merger, Consolidation, Etc. If, at any
time when 1998 Preferred Stock is issued and outstanding and prior to the
conversion of all 1998 Preferred Stock, there shall be (i) any reclassification
or change of the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), (ii) any consolidation or merger
of the Corporation with any other corporation (other than a merger in which the
Corporation is the surviving or continuing corporation and its capital stock is
unchanged), (iii) any sale or transfer of all or substantially all of the assets
of the Corporation or (iv) any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, then the holders of 1998 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 1998 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 1998 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
1998 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 1998 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 1998 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
<PAGE> 10
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 1998 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 1998 Preferred Stock that the holder elects to convert the same,
which notice shall specify the number of shares of 1998 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 "NOTICE OF CONVERSION DEADLINE") on the date of conversion
specified on the Notice of Conversion; and (ii) surrender the original
certificates representing the 1998 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 1998 Preferred Stock; provided, however,
that the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless either the Preferred
Stock Certificates are delivered to the Corporation or its Transfer Agent as
provided above, or the holder notifies the Corporation or its Transfer Agent
that such certificates have been lost, stolen or destroyed (subject to the
requirements of subparagraph (a) below). In the case of a dispute as to the
calculation of the Conversion Price, the Corporation shall promptly issue such
number of shares of Common Stock to purchase shares of Common Stock that are not
disputed in accordance with subparagraph (b) below. The Corporation shall submit
the disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall audit
the calculations and notify the Corporation and the holder of the results no
later than 48 hours from the time it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt by the
Corporation of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of 1998 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 1998 Preferred Stock.
(b) Delivery of Common Stock Upon Conversion. Upon the
surrender of certificates as described above from a holder of 1998 Preferred
Stock accompanied
<PAGE> 11
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 1998 Preferred Stock converted as shall be determined in
accordance herewith and (ii) a certificate representing the balance of the
shares of 1998 Preferred Stock not converted, if any. If the Corporation's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, and so long as the certificates therefor
do not bear a legend and the holder thereof is not then required to return such
certificate for the placement of a legend thereon, the Corporation may cause its
transfer agent to electronically transmit the Common Stock issuable upon
conversion to the holder by crediting the account of the holder or its nominee
with DTC through its Deposit Withdrawal Agent Commission system ("DTC
TRANSFER"). If the aforementioned conditions to a DTC Transfer are not satisfied
or a DTC Transfer is otherwise not effected, the Corporation shall deliver to
the holder physical certificates representing the Common Stock issuable upon
conversion. Further, a holder may instruct the Corporation to deliver to the
holder physical certificates representing the Common Stock issuable upon
conversion in lieu of delivering such shares by way of DTC Transfer. 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 1998 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 1998 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).
(c) No Fractional Shares. If any conversion of 1998 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 1998 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
<PAGE> 12
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 1998 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 1998 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 1998 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(g) 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 1998 Preferred Stock pro rata
among the holders of 1998 Preferred Stock based on the number of shares of 1998
Preferred Stock held by each such holder relative to the total number of
authorized shares of 1998 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 1998 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 1998 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 1998 Preferred Stock
submits a Notice of Conversion, 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 1998 Preferred Stock then
outstanding. The number of shares of 1998 Preferred Stock included in the Notice
of Conversion which exceeds the amount which is then convertible into available
shares of Common Stock (the "EXCESS AMOUNT") shall, notwithstanding anything to
the contrary contained herein, not be convertible into Common Stock in
accordance with the terms hereof until (and at the holder's option at any time
after) the date additional shares of Common Stock are authorized by the
Corporation to permit such conversion, at which time the Conversion Price in
respect thereof shall be the lesser of (i) the Conversion Price on the
Conversion Date 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 1998 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
<PAGE> 13
number of shares of Common Stock to effect conversion of the full number of
shares of 1998 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 1998 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 1998 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 1998 Preferred Stock.
VII. Mandatory Conversion
Each share of 1998 Preferred Stock issued and outstanding on that date
which is five years from the Issuance Date (plus accrued Premium thereon, unless
the Corporation has timely redeemed such Premium in accordance with Article V.A)
automatically shall be converted into shares of Common Stock on such date at a
Conversion Price equal to the average of the Closing Bid Prices for the Common
Stock for the five trading days immediately preceding such 5 year anniversary of
the Issuance Date (subject to equitable adjustment for any stock splits, stock
dividends, reclassifications or similar events during such 5 trading day
period); provided, however, that if the closing price of the Corporation's
Common Stock as reported by AMEX (or the principal securities exchange or other
securities market on which the Common Stock is then being traded) on such 5 year
anniversary is equal to or less than $1.00, the Corporation, at its
<PAGE> 14
option, may redeem the 1998 Preferred Stock then outstanding at a price equal to
108% of its Stated Value plus the Premium, in lieu of converting such 1998
Preferred Stock, and provided further that the Corporation may not redeem any
shares of 1998 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 1998 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
1998 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 1998
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 1998
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 1998 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 1998 Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of 1998 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 1998 Preferred Stock shall be entitled to notice of
(and copies of proxy materials and other information sent to shareholders) all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Corporation's
by-laws and the DGCL.
<PAGE> 15
IX. Protection Provision
So long as shares of 1998 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 1998 Preferred Stock:
(a) alter or change the rights, preferences or privileges of
the 1998 Preferred Stock or any Senior Securities so as to affect adversely the
1998 Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the 1998 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 1998 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 1998 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 1998 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 any Senior Securities or Pari Passu Securities.
In the event holders of at least a majority of the then outstanding
shares of 1998 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 1998 Preferred Stock, pursuant to subsection (a) above, so as
to affect the 1998 Preferred Stock, then the Corporation will deliver notice of
such approved change to the holders of the 1998 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 1998 Preferred
Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 16
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 24th day of August, 1998.
HEARx LTD.
By: /s/ Paul A. Brown, MD
----------------------
Paul A. Brown, M.D.
Chairman of the Board and
Chief Executive Officer
<PAGE> 17
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the 1998 Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of 1998
Preferred Stock (the "CONVERSION"), represented by stock certificate Nos(s).
___________ (the "PREFERRED STOCK CERTIFICATES"), into shares of common stock
("COMMON STOCK") of HEARx LTD. (the "CORPORATION") according to the conditions
of the Statement of Designation, Rights and Preferences of the 1998 Convertible
Preferred Stock of HEARx LTD. (the "STATEMENT OF DESIGNATION"), 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. 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 requests that the Corporation electronically transmit the Common
Stock issuable pursuant to this Notice of Conversion to the account of the
undersigned or its nominee (which is _________________) with DTC through its
Deposit Withdrawal Agent Commission System ("DTC TRANSFER").
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
1998 Preferred Stock shall be made pursuant to registration of the Common Stock
under the Securities Act of 1933, as amended (the "ACT"), or pursuant to an
exemption from registration under the Act.
G In lieu of receiving the shares of Common Stock issuable pursuant to
this Notice of Conversion by way of DTC Transfer, the undersigned hereby
requests that the Corporation issue and deliver to the undersigned
physical certificates representing such shares of Common Stock.
Date of Conversion:
Applicable Conversion Price:
Number of Shares of Common
Stock to be Issued:
Signature:
Name:
Address:
---------------------------------------
---------------------------------------
<PAGE> 1
EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of August 27,
1998, between HEARx LTD., a corporation organized under the laws of the State of
Delaware (the "COMPANY"), and each of the purchasers (the "PURCHASERS") set
forth on the execution pages hereof (the "EXECUTION PAGES").
WHEREAS:
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT").
B. The Company desires to sell, and each Purchaser desires to purchase
severally and not jointly, upon the terms and conditions stated in this
Agreement, up to 7,500 units (the "UNITS"), each Unit consisting of (i) one
share of the Company's 1998 Convertible Preferred Stock, par value $1.00 per
share (the "PREFERRED SHARES"), convertible into shares of the Company's common
stock, par value $.10 per share (the "COMMON STOCK"), and (ii) a warrant, in the
form attached hereto as Exhibit A (the "WARRANT"), to acquire 75 shares of
Common Stock. The rights, preferences and privileges of the Preferred Shares,
including the terms upon which such Preferred Shares are convertible into shares
of Common Stock, are set forth in the form of Certificate of Designations,
Rights and Preferences attached hereto as Exhibit B (the "CERTIFICATE OF
DESIGNATION"). The shares of Common Stock issuable upon conversion of the
Preferred Shares or otherwise pursuant to the Certificate of Designation are
referred to herein as the "CONVERSION SHARES" and the shares of Common Stock
issuable upon exercise of or otherwise pursuant to the Warrants are referred to
herein as the "WARRANT SHARES." The Preferred Shares, the Warrants, the
Conversion Shares and the Warrant Shares are collectively referred to herein as
the "SECURITIES" and each of them may individually be referred to herein as a
"SECURITY."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit C (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
<PAGE> 2
1. PURCHASE AND SALE OF UNITS.
(a) Purchase of Units and Closing. Subject to the satisfaction (or
waiver) of the conditions set forth in Section 6 and Section 7 below, the
Purchasers, severally but not jointly, agree to purchase, that number of the
Units set forth on such Purchaser's Execution Page. The purchase price (the
"PURCHASE PRICE") per Unit shall be equal to One Thousand Dollars ($1,000.00).
The issuance and sale of the Units shall take place, subject to the satisfaction
or waiver of the conditions precedent thereto, in a closing, referred to herein
as the "CLOSING". The aggregate purchase price of the Units being acquired by
each Purchaser at the Closing is set forth on such Purchaser's Execution Page.
The Closing of the purchase, sale and exchange of the Units to be acquired by
the Purchasers from the Company under this Agreement shall take place at the
offices of Klehr, Harrison, Harvey, Branzburg & Ellers, 1401 Walnut Street, 8th
Floor, Philadelphia, PA 19102. The date and time of the Closing (the "CLOSING
DATE") shall be August 27, 1998, or at such time and date thereafter as the
Purchasers and the Company may agree. Each Purchaser's obligation to purchase
Units hereunder is distinct and separate from each other Purchaser's obligation
to purchase Units and no Purchaser shall be required to purchase hereunder more
than the number of Units set forth on such Purchaser's Execution Page hereto
notwithstanding any failure by any other Purchaser to purchase Units hereunder
nor shall any Purchaser have any liability by reason of any such failure by any
other Purchaser.
(b) Form of Payment. On the Closing Date, each Purchaser shall pay the
aggregate Purchase Price for the Units being purchased by such Purchaser on the
Closing Date by wire transfer to the Company, in accordance with the Company's
written wiring instructions, against delivery of duly executed certificates
representing the Preferred Shares and duly executed Warrants being purchased by
such Purchaser and the Company shall deliver such certificates and Warrants
against delivery of such aggregate Purchase Price.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally and not jointly represents and warrants to the
Company as follows:
(a) Purchase for Own Account, Etc. Purchaser is purchasing the Units
for Purchaser's own account and not with a present view towards the public sale
or distribution thereof. Purchaser understands that Purchaser must bear the
economic risk of this investment indefinitely, unless the Securities are
registered pursuant to the Securities Act and any applicable state securities or
blue sky laws or an exemption from such registration is available, and that the
Company has no present intention of registering the resale of any such
Securities other than as contemplated by the Registration Rights Agreement.
Notwithstanding anything in this Section 2(a) to the contrary, by making the
representations herein, the Purchaser does not agree to hold the Securities for
any minimum or other specific term and reserves the right to dispose of the
-2-
<PAGE> 3
Securities at any time in accordance with or pursuant to a registration
statement or an exemption from the registration requirements under the
Securities Act.
(b) Investor Status. Purchaser is an "ACCREDITED INVESTOR" as that term
is defined in Rule 501(a) of Regulation D. Purchaser is not a registered broker
dealer and is not engaged in the business of being a broker dealer.
(c) Reliance on Exemptions. Purchaser understands that the Units are
being offered and sold to Purchaser 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 Purchaser's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of Purchaser to acquire the
Units.
(d) Information. Purchaser and its counsel, if any, have been furnished
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Units which have been
specifically requested by Purchaser or its counsel. Purchaser and its counsel
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other investigation conducted by Purchaser or its counsel or
any of its representatives shall modify, amend or affect Purchaser's right to
rely on the Company's representations and warranties contained in Section 3
below. Purchaser understands that Purchaser's investment in the Units involves a
high degree of risk.
(e) Governmental Review. Purchaser 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 Units.
(f) Transfer or Resale. Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Securities have not been and are not being registered under the Securities Act
or any state securities laws, and the Securities may not be transferred unless
(a) the resale of the Securities has been registered thereunder; or (b)
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; or (c) the Securities are sold under Rule 144 promulgated under
the Securities Act (or a successor rule) ("RULE 144"); or (d) the Securities are
sold or transferred to a non-broker dealer affiliate of Purchaser who agrees to
sell or otherwise transfer the Securities only in accordance with the provisions
of this Section 2(f) and who is an Accredited Investor; and (ii) neither the
Company nor any other person is under any obligation to register such Securities
under the Securities Act or any state securities laws (other than pursuant to
the Registration Rights Agreement). Notwithstanding the foregoing or anything
else contained herein to the contrary, the Securities may be pledged as
collateral in connection with a bona fide
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<PAGE> 4
margin account or other lending arrangement.
(g) Legends. Purchaser understands that the certificates for the
Preferred Shares and the Warrants and, until such time as the Conversion Shares
and Warrant Shares have been registered under the Securities Act (including
registration pursuant to Rule 416 thereunder) as contemplated by the
Registration Rights Agreement or otherwise may be sold by Purchaser under Rule
144(k), the certificates for the Conversion Shares and Warrant Shares may bear a
restrictive legend in substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state of the United States. The securities
represented hereby may not be offered, sold or transferred in the
absence of an effective registration statement for the securities
under applicable securities laws unless offered, sold or
transferred under an available exemption from the registration
requirements of those laws.
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 Securities Act (including registration
pursuant to Rule 416 thereunder) as contemplated by the Registration Rights
Agreement; (b) such holder provides the Company with an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Security may
be made without registration under the Securities Act; or (c) such holder
provides the Company with reasonable assurances that such Security can be sold
under Rule 144(k). Purchaser agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, pursuant
to an effective registration statement, under an exemption from the registration
requirements of the Securities Act or in accordance with Rule 144(k). In the
event the above legend is removed from any Security and thereafter the
securities are not sold or the effectiveness of a registration statement
covering such Security is suspended or the Company determines that a supplement
or amendment thereto is required by applicable securities laws, then upon
reasonable advance notice to Purchaser the Company may require that the above
legend be placed on any such Security that cannot then be sold pursuant to an
effective registration statement or under Rule 144(k) and Purchaser shall
cooperate in the replacement of such legend. Such legend shall thereafter be
removed when such Security may again be sold pursuant to an effective
registration statement or under Rule 144(k).
(h) Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable against Purchaser in accordance with their terms.
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<PAGE> 5
(i) Residency. Purchaser is a resident of the jurisdiction set forth
under Purchaser's name on the Execution Page hereto executed by Purchaser.
(j) Acknowledgments Regarding Placement Agent. Purchaser acknowledges
that The Zanett Securities Corporation is acting as placement agent (the
"PLACEMENT AGENT") for the Securities being offered hereby and will be
compensated by the Company for acting in such capacity. Purchaser further
acknowledges that the Placement Agent has acted solely as placement agent in
connection with the offering of the Securities by the Company, that the
information and data provided to Purchaser and referred to in subsection (d)
above or otherwise in connection with the transactions contemplated hereby have
not been subjected to independent verification by the Placement Agent, and that
the Placement Agent makes no representation or warranty with respect to the
accuracy or completeness of such information, data or other related disclosure
material. Purchaser further acknowledges that in making its decision to enter
into this Agreement and purchase the Securities it has relied on the Company's
representations and warranties contained in Section 3 below and on its own
examination of the Company and the terms of, and consequences of holding, the
Securities. Purchaser further acknowledges that the provisions of this Section
2(j) are for the benefit of, and may be enforced by, the Placement Agent.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser as follows:
(a) Organization and Qualification. 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 its ownership of property or 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 (i) the Securities, (ii) the ability of the Company to perform
its obligations hereunder or under the Certificate of Designation, the Warrants
or the Registration Rights Agreement or (iii) the business, operations,
properties, financial condition or previously publicly announced prospects of
the Company.
(b) Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Warrants and the Registration Rights Agreement, to issue and
sell the Units in accordance with the terms hereof, to issue the Conversion
Shares upon conversion of the Preferred Shares in accordance with the terms of
the Certificate of Designation and to issue the Warrant Shares upon exercise of
the Warrants in accordance with the terms of such Warrants; (ii) the execution,
delivery and performance of this Agreement, the Warrants and the Registration
Rights Agreement by the
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<PAGE> 6
Company and the consummation by it of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Preferred Shares and
Warrants and the issuance and reservation for issuance of the Conversion Shares
and Warrant Shares) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board of
Directors, any committee of the Board of Directors or, except as set forth on
Schedule 3(b), the Company's shareholders is required, and (iii) this Agreement
constitutes, and, upon execution and delivery by the Company of the Warrants and
the Registration Rights Agreement, such agreements will constitute, valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms.
(c) Stockholder Authorization. Except as set forth on Schedule 3(c),
the Company believes that neither the execution, delivery or performance of this
Agreement, the Warrants or the Registration Rights Agreement by the Company nor
the consummation by it of the transactions contemplated hereby or thereby
(including, without limitation, the issuance of the Preferred Shares or Warrants
or the issuance, reservation for issuance or listing of the Conversion Shares or
Warrant Shares) requires any consent, approval or authorization of the Company's
stockholders.
(d) Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Preferred Shares and Warrants)
exercisable or exchangeable for, or convertible into, any shares of capital
stock and the number of shares to be reserved for issuance upon conversion of
the Preferred Shares and exercise of the Warrants is set forth on Schedule 3(d).
All of such outstanding shares of capital stock have been, or upon issuance in
accordance with the terms of any such warrants, options or preferred stock, will
be, validly issued, fully paid and non-assessable. No shares of capital stock of
the Company (including the Preferred Shares, the Conversion Shares and the
Warrant Shares) are subject to preemptive rights or any other similar rights of
the stockholders of the Company. Except for the Securities and as set forth on
Schedule 3(d), 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
exercisable or exchangeable for, any shares of capital stock of the Company, or
arrangements by which the Company is or may become bound to issue additional
shares of capital stock of the Company, and (ii) there are no agreements or
arrangements under which the Company is obligated to register the sale of any of
its or their securities under the Securities Act (except the Registration Rights
Agreement). Except as set forth on Schedule 3(d), (i) there are no securities or
instruments containing antidilution or similar provisions that will be triggered
by the issuance of the Securities in accordance with the terms of this
Agreement, the Certificate of Designation or the Warrants, (ii) there are no
outstanding securities or instruments of the Company which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company is or may become bound to
redeem a
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<PAGE> 7
security of the Company, and (iii) the Company does not have any stock
appreciation rights or "phantom stock" plans or agreements or any similar plan
or agreement. The Company has furnished or made available to the Purchasers true
and correct copies of the Company's Certificate of Incorporation as in effect on
the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-laws as in
effect on the date hereof (the "BY-LAWS"), and all other instruments and
agreements governing securities convertible into or exercisable or exchangeable
for capital stock of the Company. The Certificate of Designation, in the form
attached hereto, will be duly filed prior to Closing with the Secretary of State
of the State of Delaware and, upon the issuance of the Preferred Shares in
accordance with the terms hereof, each Purchaser shall be entitled to the rights
set forth therein.
(e) Issuance of Shares. The Preferred Shares are duly authorized and,
upon issuance in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances and will not be subject to preemptive rights or other similar
rights of stockholders of the Company and will not impose personal liability on
the holders thereof. The Conversion Shares and Warrant Shares are duly
authorized and reserved for issuance, and, upon conversion of the Preferred
Shares in accordance with the Certificate of Designation, and exercise of the
Warrants in accordance with the terms thereof, will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and encumbrances
and will not be subject to preemptive rights or other similar rights of
stockholders of the Company and will not impose personal liability upon the
holder thereof.
(f) No Conflicts. Except as set forth on Schedule 3(f), the execution,
delivery and performance of this Agreement, the Warrants and the Registration
Rights Agreement by the Company, the performance by the Company of its
obligations under the Certificate of Designation, and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance and reservation for issuance, as applicable, of the
Preferred Shares, Warrants, Conversion Shares and Warrant Shares) will not (i)
result in a violation of the Certificate of Incorporation or By-laws or (ii)
conflict with, or constitute a default (or an event which, with notice or lapse
of time or both, would become a default) under, or give to others any rights of
termination, amendment (including, without limitation, the triggering of any
anti-dilution provisions), acceleration or cancellation of, any agreement,
indenture or instrument to which the Company is a party, or result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and rules or regulations of
any self-regulatory organizations to which either the Company or its securities
are subject) applicable to the Company or by which any property or asset of the
Company is bound or affected (except, with respect to clause (ii), for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations that 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 the Company is not in default (and no event has
occurred which, with notice or lapse of time or both, would put the Company in
default) under, nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination,
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<PAGE> 8
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party, except for actual or possible
violations, defaults or rights that would not, individually or in the aggregate,
have a Material Adverse Effect. The business of the Company is not being
conducted, and shall not be conducted so long as a Purchaser owns any of the
Securities, in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations the sanctions for which either singly or
in the aggregate would not have a Material Adverse Effect. Except as
specifically contemplated by this Agreement and Schedule 3(f) and the
Registration Rights Agreement, the Company is not required to obtain any
consent, approval, 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 Warrants or the Registration Rights Agreement or to
perform its obligations under the Certificate of Designation, in each case in
accordance with the terms hereof or thereof. The Company is not in violation of
the listing requirements of the AMEX and does not reasonably anticipate that the
Common Stock will be delisted by the American Stock Exchange ("AMEX") for the
foreseeable future.
(g) SEC Documents, Financial Statements. Since December 1, 1995, the
Company has timely filed (within applicable extension periods) all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT") (all of the foregoing and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein, being hereinafter referred to as the "SEC
DOCUMENTS"). The Company has delivered to the Purchasers true and complete
copies of the SEC Documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act or
the Securities Act, as the case may be, 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. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings made prior to the date hereof). 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
applicable with respect thereto. Such financial statements have been prepared in
accordance with U.S. generally accepted accounting principles ("GAAP"),
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 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
immaterial year-end
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<PAGE> 9
audit adjustments)). Except as set forth in the financial statements of the
Company included in the SEC Documents filed prior to the date hereof, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to the date of such
financial statements, (ii) liabilities not required by GAAP to be disclosed on a
balance sheet prepared in accordance with GAAP, and (iii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under GAAP to be reflected in such financial statements, which
liabilities and obligations referred to in clauses (i), (ii) and (iii),
individually or in the aggregate, are not material to the financial condition or
operating results of the Company. Neither the Company nor any of its officers,
directors, employees or agents have provided the Purchasers with any material,
nonpublic information.
(h) Absence of Certain Changes. Since December 26, 1997, there has been
no material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or previously
publicly announced prospects of the Company, except as disclosed in Schedule
3(h) or in the SEC Documents filed prior to the date hereof.
(i) Absence of Litigation. Except as expressly disclosed in the SEC
Documents filed prior to the date hereof, 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, threatened against or affecting the Company, or any of its directors or
officers in their capacities as such. To the best knowledge of the Company,
there are no facts which, if known by a potential claimant or governmental
authority, could give rise to a claim or proceeding which, if asserted or
conducted with results unfavorable to the Company, could reasonably be expected
to have a Material Adverse Effect.
(j) Intellectual Property. The Company owns or is licensed to use all
patents, patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, permits, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "INTANGIBLES") necessary for the conduct of
its business as now being conducted and as described in the Company's Annual
Report on Form 10-K for the fiscal year ended December 26, 1997. To the best
knowledge of the Company, the Company does not infringe and is not acting in
conflict with any right of any other person with respect to any Intangibles
which, individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a Material Adverse Effect. The Company
has not received written notice of any pending conflict with or infringement
upon such third party Intangibles, which alleged pending conflict or alleged
infringement, if adversely determined, would result in a Material Adverse
Effect. Except as disclosed in Schedule 3(j) or in the SEC Documents filed prior
to the date hereof, the termination of the Company's ownership of, or right to
use, any single Intangible would not result in a Material Adverse Effect on the
Company. The Company has not entered into any consent agreement, indemnification
agreement, forbearance to
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<PAGE> 10
sue or settlement agreement with respect to the validity of the Company's
ownership or right to use its Intangibles and, to the best knowledge of the
Company, there is no reasonable basis for any such claim to be successful. The
Intangibles are valid and enforceable and no registration relating thereto has
lapsed, expired or been abandoned or canceled or is the subject of cancellation
or other adversarial proceedings, and all applications therefor are pending and
in good standing. The Company has complied, in all material respects, with its
contractual obligations relating to the protection of the Intangibles used
pursuant to licenses. To the best knowledge of the Company, no person is
infringing on or violating the Intangibles owned or used by the Company.
(k) Foreign Corrupt Practices. Neither the Company nor any director,
officer, agent, employee or other person acting on behalf of the Company has, in
the course of his actions for, or on behalf of, the Company, used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
(l) Disclosure. All information relating to or concerning the Company
set forth in this Agreement or provided by the Company to the Purchasers
pursuant to Section 2(d) hereof or otherwise provided by the Company to the
Purchasers in connection with the transactions contemplated hereby is true and
correct in all material respects and the Company has not omitted to state any
material fact necessary in order to make the statements made herein or therein,
in light of the circumstances under which they were made, not misleading. No
event or circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial conditions, which has
not been publicly disclosed but, under applicable law, rule or regulation, would
be required to be disclosed by the Company in a registration statement filed on
the date hereof by the Company under the Securities Act with respect to the
primary issuance of the Company's securities.
(m) Acknowledgment Regarding Purchasers' Purchase of the Units. The
Company acknowledges and agrees that none of the Purchasers or the Placement
Agent is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement or the transactions
contemplated hereby, the relationship between the Company and the Purchasers and
the Placement Agent is "arms-length" and any statement made by any Purchaser or
the Placement Agent or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby is not
advice or a recommendation and is merely incidental to such Purchaser's purchase
of Securities or such Placement Agent's role as a placement agent and has not
been relied upon by the Company, its officers or its directors in any way. The
Company further acknowledges that the Company's decision to enter into this
Agreement has been based solely on an independent evaluation by the
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<PAGE> 11
Company and its representatives.
(n) Form S-3 Eligibility. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration statement on Form S-3 with
respect to the Registrable Securities (as defined in the Registration Rights
Agreement).
(o) No General Solicitation. Neither the Company nor any person
participating on the Company's behalf in the transactions contemplated hereby
has conducted any "general solicitation," as such term is defined in Regulation
D, with respect to any of the Securities being offered hereby.
(p) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act or any applicable stockholder
approval provisions.
(q) No Brokers. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby, except for The Zanett Securities Corporation.
(r) Acknowledgment of Dilution. The number of Conversion Shares
issuable upon conversion of the Preferred Shares may increase in certain
circumstances, including if the trading price of the Common Stock declines. The
Company's executive officers have studied and fully understand the nature of the
Securities being sold hereunder. The Company acknowledges that its obligation to
issue Conversion Shares upon conversion of the Preferred Shares in accordance
with the Certificate of Designation is absolute and unconditional, regardless of
the dilution that such issuance may have on the ownership interests of other
stockholders. Taking the foregoing into account, the Company's Board of
Directors has determined in its good faith business judgment that the issuance
of the Preferred Shares and Warrants hereunder and the consummation of the other
transactions contemplated hereby are in the best interests of the Company and
its stockholders.
(s) Title. The Company has good and marketable title in fee simple to
all real property and good and merchantable title to all personal property owned
by it that is material to the business of the Company, in each case free and
clear of all liens, encumbrances and defects except such as are described in the
SEC Documents or such as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of
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<PAGE> 12
such property by the Company. Any real property and facilities held under lease
by the Company are held by it under valid, subsisting and enforceable leases
with such exceptions as are not material and do not materially interfere with
the use made and proposed to be made of such property and buildings by the
Company.
(t) Tax Status. The Company has made or filed all material foreign,
federal, state and local income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with respect to
any statute of limitations relating to the assessment or collection of any
federal, state or local tax. None of the Company's tax returns is presently
being audited by any taxing authority.
(u) Environmental Laws. The Company (i) to the best of its knowledge,
is in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) to the best of its knowledge, has
received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business and (iii) to the best of
its knowledge, is in compliance with all terms and conditions of any such
permit, license or approval. To the best knowledge of the Company, no
contaminant, pollutant or toxic or hazardous waste has been generated, used,
treated, stored or disposed of at, or transported to or from, or released into
the air, soil, surface or ground waters at, on or under any real property at any
time owned, leased, operated or used by the Company. The Company is not
currently involved in and, to the best knowledge of the Company, no person or
entity has taken any action or threatened or proposed to involve the Company in
any environmental clean-up or remediation or sought to expose the Company to
contribution or liability for such remediation.
(v) Regulatory Permits. The Company possesses all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct its business, except where the
failure to possess a certificate, authorization or permit would not result in a
Material Adverse Effect, and the Company has not received any written notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
(w) No Other Agreements. The Company has not, directly or indirectly,
made any
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<PAGE> 13
agreements with any Purchasers relating to the terms or conditions of the
transactions contemplated by this Agreement, the Certificate of Designation, the
Registration Rights Agreement and the Warrants except as set forth in such
documents.
4. COVENANTS.
(a) Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and Section 7 of this
Agreement.
(b) Form D: Blue Sky Laws. The Company shall file with the SEC a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Purchaser 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 sale to the Purchasers
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States set forth on Schedule 4(b) or obtain exemption
therefrom, and shall provide evidence of any such action so taken to the
Purchasers on or prior to the Closing Date.
(c) Reporting Status. So long as any Purchaser beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination. In addition, the Company shall take all actions necessary to
continue to be eligible to register the resale of its Common Stock on a
registration statement on Form S-3 under the Securities Act for so long as the
Company has an obligation to register securities under the Registration Rights
Agreement.
(d) Use of Proceeds. The Company shall use the proceeds from the sale
of the Preferred Shares and Warrants as set forth in Schedule 4(d).
(e) Expenses. Except as otherwise provided herein, in the Placement
Agency Agreement and in the Registration Rights Agreement, each party hereto
shall be responsible for 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) Financial Information. The Company shall send the following reports
to each Purchaser until such Purchaser transfers, assigns or sells all of its
Securities: (i) within 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, its proxy
statements and any Current Reports on Form 8-K; (ii) within one day after
release, copies of all press releases issued by the Company; and (iii) copies of
any notices and
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<PAGE> 14
other information made available or given to shareholders of the Company
generally, contemporaneously with making available or giving thereof to such
shareholders.
(g) Reservation of Shares. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Preferred Shares and issuance of the Conversion Shares in connection therewith
and the full exercise of the Warrants and the issuance of the Warrant Shares in
connection therewith, subject to and as otherwise required by the Certificate of
Designation and the Warrants.
(h) Listing. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any Purchaser (or any of their affiliates) own any Securities, such listing of
all Conversion Shares and Warrant Shares from time to time issuable upon
conversion of the Preferred Shares and exercise of the Warrants. The Company
will use its best efforts to continue the listing and trading of its Common
Stock on the American Stock Exchange ("AMEX") or the NASDAQ Small Cap Market
("NSCM"), the NASDAQ National Market ("NNM"), or the New York Stock Exchange
("NYSE") and will comply in all respects with the reporting, filing and other
obligations under the bylaws or rules of the AMEX, NSCM, NNM or NYSE as
applicable. The Company shall promptly provide to each holder of Preferred
Shares or Warrants copies of any notices it receives regarding the continued
eligibility of the Common Stock for trading on AMEX, or, if applicable, any
other securities exchange or automated quotation system on which securities of
the same class or series issued by the Company are then listed or quoted, if
any.
(i) Corporate Existence. So long as a Purchaser beneficially owns any
Securities, the Company shall maintain its corporate existence, and in the event
of a merger, consolidation or sale of all or substantially all of the Company's
assets, the Company shall ensure that the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
Certificate of Designation, the Warrants (except as otherwise provided therein)
and the agreements and instruments entered into in connection herewith
regardless of whether or not the Company would have had a sufficient number of
shares of Common Stock authorized and available for issuance in order to effect
the conversion of all Preferred Shares and exercise in full of all Warrants
outstanding as of the date of such transaction and (ii) is a publicly traded
corporation whose common stock is listed for trading on the AMEX, NSCM, NNM or
NYSE. Notwithstanding the foregoing, the Company covenants and agrees that it
will not engage in any merger, consolidation or sale of all or substantially all
of its assets at any time prior to the effectiveness of the registration
statement required to be filed pursuant to the Registration Rights Agreement
without (A) providing each Purchaser with written notice of such transaction at
least 60 days prior to the consummation of such transaction, (B) obtaining the
written consent of the Purchasers holding a majority-in-interest of the then
outstanding Preferred Shares on or
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<PAGE> 15
before the 10th day after the delivery of such notice by the Company, and (C)
publicly announcing such transaction.
(j) No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than pursuant to this Agreement and the
Registration Rights Agreement) under circumstances that would require
registration of the Securities being offered or sold hereunder under the
Securities Act or cause the offering of the Securities to be integrated with any
other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities.
(k) Legal Compliance. The Company shall conduct its business in
compliance with all laws, ordinances or regulations of governmental entities
applicable to such businesses, except where the failure to do so would not have
a Material Adverse Effect.
(l) Filing of Form 8-K. On or before the fifth (5th) business day
following the Closing Date, the Company shall file a Current Report on Form 8-K
with the SEC describing the terms of the transactions contemplated by this
Agreement, the Certificate of Designation, the Registration Rights Agreement and
the Warrants in the form required by the Exchange Act.
(m) Intentionally omitted.
(n) No Manipulation. So long as a Purchaser beneficially owns any
Preferred Shares, neither the Purchaser nor any person acting on behalf of such
Purchaser shall take any action intended to decrease the trading price of the
Company's Common Stock during any period in which the Conversion Price (as
defined in the Certificate of Designation) is being computed for purposes of any
conversion of Preferred Shares under the Certificate of Designation. For as long
as the Preferred Shares are outstanding, each Purchaser agrees not to effect
"short" sales in the Common Stock, loan shares or otherwise participate in any
transaction which could be considered as a "short sale" under the rules and
regulations promulgated under the Exchange Act (a "SHORT SALE") and agrees to
prohibit each stockholder, executive, employee, representative, affiliate,
officer, director or control person of the Purchaser from effecting any Short
Sale. Notwithstanding the foregoing, the provisions of this subsection (n) shall
not prohibit a sale, including a Short Sale, by a Purchaser of shares of Common
Stock effected within two business days after the date on which a notice of
conversion of Preferred Shares is delivered to the Company entitling such
Purchaser to receive a number of shares of Common Stock at least equal to the
number of shares so sold.
(o) No Five Percent Holders. As more fully provided in the Certificate
of Designation and subject to the terms and limitations provided in the
Certificate of Designation, a holder of the Preferred Shares shall not be
entitled to receive shares of Common Stock upon conversion where receipt of such
Common Stock would result in such holder of Preferred Shares beneficially owning
more than 4.99% of the Company's outstanding Common Stock.
-15-
<PAGE> 16
5. TRANSFER AGENT INSTRUCTIONS.
(a) The Company shall instruct its transfer agent to issue
certificates, registered in the name of each Purchaser or its nominee, for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by such Purchaser to the Company upon conversion of the Preferred Shares
in accordance with the terms of the Certificate of Designation, or exercise of
the Warrants in accordance with the terms thereof, as applicable.
(b) 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) and (g) hereof in the case of the transfer of the
Conversion Shares or Warrant Shares prior to registration of the Conversion
Shares and Warrant Shares under the Securities Act or without an exemption
therefrom, 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 (i) each
Purchaser's obligations and agreement set forth in Section 2(g) hereof to resell
the Securities pursuant to an effective registration statement or under an
exemption from the registration requirements of applicable securities law or
(ii) the Company's ability to institute a Delay Period pursuant to Section 2(f)
of the Registration Rights Agreement.
(c) If a Purchaser provides the Company and the transfer agent with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration, or a Purchaser provides the Company
with reasonable assurances that such Securities may be sold under Rule 144(k),
the Company shall permit the transfer and, in the case of the Conversion Shares
and Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such
Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Units to a
Purchaser at the Closing is subject to the satisfaction, at or before the
Closing, of each of the following conditions, provided that such conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing prior written notice to each Purchaser. The
obligation of the Company to issue and sell the Units to any Purchaser hereunder
is distinct and separate from its obligation to issue and sell Units to any
other Purchaser hereunder and any failure by one or more Purchasers to fulfill
the conditions set forth herein or to consummate the purchase of Units hereunder
will not relieve the Company of its obligations with respect to any other
Purchaser.
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<PAGE> 17
(a) The applicable Purchaser shall have executed this Agreement and the
Registration Rights Agreement, and delivered executed copies to the Company.
(b) The applicable Purchaser shall have delivered the Purchase Price
for the Units in accordance with Section 1(b) above.
(c) The representations and warranties of the applicable Purchaser
shall be true and correct as of the date when made and as of the date and time
of such closing as though made at that time (except for representations and
warranties that relate to a different date, which shall be true and correct as
of such date), and the applicable Purchaser shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
applicable Purchaser at or prior to the Closing Date.
(d) No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby that prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder to purchase the Units to be
purchased by it at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that such conditions
are for such Purchaser's sole benefit and may be waived by such Purchaser at any
time in such Purchaser's sole discretion:
(a) The Company shall have executed this Agreement and the Registration
Rights Agreement, and delivered executed copies to such Purchaser.
(b) 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 the Secretary of State of the State of Delaware shall have been
delivered to such Purchaser.
(c) The Company shall have delivered to such Purchaser duly executed
certificates and Warrant agreements representing the Preferred Shares and
Warrants being so purchased by such Purchaser in accordance with Section 1(b)
above.
(d) The Common Stock shall be authorized for quotation and listed on
AMEX and trading in the Common Stock (or AMEX generally) shall not have been
suspended by the SEC or AMEX.
-17-
<PAGE> 18
(e) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that relate to a different
date, which shall be true and correct as of such date) and the Company shall
have performed, satisfied and complied 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 Purchaser 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 certifying that (i) he
is the duly elected and acting Chief Executive Officer of the Company, (ii) the
capitalization of the Company described in Schedule 3(d) hereto has not changed
and (iii) there have been no material adverse changes in the business, affairs,
operations, properties, assets, condition or previously publicly announced
prospects of the Company since December 26, 1997, other than the continued
utilization of cash resources.
(f) No litigation, statute, rule, regulation, executive order, decree,
ruling, injunction, action or proceeding shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby that questions the validity of, or challenges or
prohibits the consummation of, any of the transactions contemplated by this
Agreement.
(g) Such Purchaser shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of Exhibit D
attached hereto.
(h) The Company shall have delivered evidence reasonably satisfactory
to the Purchasers that the Company's transfer agent has agreed to act in
accordance with irrevocable instructions in the form attached hereto as Exhibit
E.
(i) There shall have been no material adverse changes and no material
adverse developments in the business, properties, operations, prospects,
financial condition or results of operations of the Company, taken as a whole,
since the date hereof, and no information, of which the Purchasers are not
currently aware, shall come to the attention of the Purchasers that is
materially adverse to the Company.
(j) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form reasonably
acceptable to such Purchaser.
(k) The Company shall have delivered to such Purchaser a certificate
evidencing the incorporation and good standing of the Company in its state of
incorporation issued by the Secretary of State of such state of incorporation as
of a date within ten days of the Closing Date.
(l) The Company shall have delivered to such Purchaser a certified copy
of the
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<PAGE> 19
Articles of Incorporation as certified by the Secretary of State of the State of
Delaware within ten days of the Closing Date.
(m) The Company shall have delivered to such Purchaser a secretary's
certificate, dated as of the Closing Date, as to (i) the resolutions described
in Section 7(k), (ii) the Certificate of Incorporation and (iii) the Bylaws,
each as in effect at the Closing.
8. GOVERNING LAW; MISCELLANEOUS.
(a) Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware without
regard to principles of choice of law or conflicts of laws that would defer to
the substantive law of another jurisdiction. The Company irrevocably consents to
the jurisdiction of the United States federal courts and the state courts
located in the State of New York in any suit or proceeding based on or arising
under this Agreement and irrevocably agrees that any and all claims arising out
of this Agreement or related to the transactions contemplated by this Agreement
shall be determined exclusively in such courts. The Company irrevocably waives
the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company further agrees that service of process mailed by first
class mail shall be deemed in every respect effective service of process in any
such suit or proceeding. Nothing herein shall affect the right of any Purchaser
to serve process in any other manner permitted by law. The Company agrees that a
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
(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. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(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 Purchasers, the
Company, their affiliates and persons acting on their behalf with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Purchaser makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
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<PAGE> 20
this Agreement may be waived other than by an instrument in writing signed by
the party to be charged with enforcement and no provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and a
majority in interest of the Purchasers.
(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 or by confirmed
facsimile, and shall be effective upon receipt or refusal of receipt, if
delivered personally or by courier or confirmed facsimile, 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
If to any Purchaser, to such address set forth under such Purchaser's
name on the Execution Page hereto executed by such Purchaser.
Each party shall provide notice to the other parties 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. Except as
provided herein or therein, the Company shall not assign this Agreement, the
Registration Rights Agreement or the Warrants or any rights or obligations
hereunder or thereunder.
(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, except for the provisions of Section 2(j) and Section 3(m)
which are for the benefit of, and may be enforced by, the Placement Agent.
(i) Survival. The representations, warranties, agreements and covenants
of the Company set forth in Sections 3, 4, 5 and 8 hereof shall survive the
Closing notwithstanding any investigation conducted by or on behalf of any
Purchasers. None of the representations and warranties made by the Company
herein shall act as a waiver of any rights or remedies a Purchaser may have
under applicable federal or state securities laws. The Company shall indemnify
and hold harmless each Purchaser and each of such Purchaser's officers,
directors, employees, partners, members, agents and affiliates for all losses or
damages arising as a result of
-20-
<PAGE> 21
or related to any breach or alleged breach by the Company of any of its
representations or covenants set forth herein, including advancement of
reasonable expenses as they are incurred.
(j) Publicity. The Company and each Purchaser shall have the right to
review before issuance any press releases, SEC or NASDAQ filings, or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior review
of the Purchasers, to make any press release or SEC or NASDAQ filings with
respect to such transactions as is required by applicable law and regulations
(although the Purchasers shall be consulted by the Company in connection with
any such press release and filing prior to its release and shall be provided
with a copy thereof).
(k) Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) Termination. In the event that the Closing shall not have occurred
on or before August 31, 1998, unless the parties agree otherwise, this Agreement
shall terminate at midnight, New York City time on such date. Notwithstanding
any termination of this Agreement, any party not in breach of this Agreement
shall preserve all rights and remedies it may have against another party hereto
for a breach of this Agreement prior to or relating to the termination hereof.
(m) Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Certificate
of Designation, the Warrants and the Registration Rights Agreement. As such, the
language used herein and therein shall be deemed to be the language chosen by
the parties hereto to express their mutual intent, and no rule of strict
construction will be applied against any party to this Agreement.
(n) Equitable Relief. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to a Purchaser by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations hereunder (including, but not limited to, its obligations pursuant
to Section 5 hereof) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement (including,
but not limited to, its obligations pursuant to Section 5 hereof), that a
Purchaser shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer
of the Securities, without the necessity of showing economic loss and without
any bond or other security being required. Notwithstanding anything in this
Section 8(n) to the contrary, the Purchasers shall not be entitled to equitable
relief in the event of a breach by the Company of a representation or warranty
contained in Section 3 of this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the undersigned Purchaser 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
Title: Chairman and CEO
PURCHASER:
ZANETT LOMBARDIER, LTD.
By: /s/ G.A. Cicogna
----------------
Name: G.A. Cicogna
Title: Director to Advisor
RESIDENCE: Cayman Islands
ADDRESS: c/o Bank Julius Baer Trust Co.
Kirk House, P.O. Box 1100
Grand Cayman, Cayman Islands
British West Indies
Telecopy: (345) 949-0993
Attention: Peter Goulden
with copies of all notices to:
The Zanett Securities corporation
Tower 49, 31st Floor
12 East 49th Street
New York, New York 10017
Telecopy: (212) 343-2121
Attention: Claudio Guazzoni
SUBSCRIPTION AMOUNT
Number of Units 5,600
Purchase Price ($1,000 per Unit): $5,600,000
<PAGE> 23
IN WITNESS WHEREOF, the undersigned Purchaser 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
Title: Chairman and CEO
PURCHASER:
GOLDMAN SACHS PERFORMANCE PARTNERS, L.P.
BY: COMMODITIES CORPORATION LLC, ITS GENERAL PARTNER
By: Karen M. Judge
--------------
Name: Karen M. Judge
Title: Vice President
RESIDENCE: Delaware
ADDRESS: c/o Commodities Corporation LLC
701 Mount Lucas Road
CN 850
Princeton, NJ 08540
SUBSCRIPTION AMOUNT
Number of Units 1,050
Purchase Price ($1,000 per Unit): $1,050,000
<PAGE> 24
IN WITNESS WHEREOF, the undersigned Purchaser 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
Title: Chairman and CEO
PURCHASER:
GOLDMAN SACHS PERFORMANCE PARTNERS (OFFSHORE), L.P.
BY: COMMODITIES CORPORATION LLC, ITS GENERAL PARTNER
By: Karen M. Judge
--------------
Name: Karen M. Judge
Title: Vice President
RESIDENCE: Cayman Islands
ADDRESS: P.O. Box 309
South Church Street
George Town, Grand Cayman
Cayman Islands
with copies of all notices to:
c/o Commodities Corporation LLC
701 Mount Lucas Road
CN 850
Princeton, NJ 08540
SUBSCRIPTION AMOUNT
Number of Units 850
Purchase Price ($1,000 per Unit): $850,000
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of August 27,
1998, by and among HEARx LTD., a corporation organized under the laws of the
State of Delaware (the "COMPANY"), and the undersigned (together with
affiliates, the "INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement of even date
herewith by and between the Company and the Initial Investors (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 (i)
shares of its 1997 Convertible Preferred Stock (the "PREFERRED STOCK") that are
convertible into shares (the "CONVERSION SHARES") of the Company's common stock,
par value $.10 per share (the "COMMON STOCK"), upon the terms and subject to the
limitations and conditions set forth in the Certificate of Designations, Rights
and Preferences with respect to such Preferred Stock (the "CERTIFICATE OF
DESIGNATION") and (ii) warrants (the "INVESTOR WARRANTS") to acquire shares (the
"WARRANT SHARES") of Common Stock;
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
"SECURITIES ACT"), and applicable state securities laws; and
C. The Company has agreed to issue to The Zanett Securities Corporation
(the "PLACEMENT AGENT") warrants (the "PLACEMENT WARRANTS") and, collectively
with the Investor Warrants, (the "WARRANTS") to purchase shares of Common Stock
pursuant to that certain Placement Agency Agreement dated as of even date
herewith, by and between the Company and the Placement Agent, and has agreed to
provide the Placement Agent the rights set forth herein. For purposes of this
Agreement, the Placement Agent shall be deemed an "INITIAL INVESTOR" and the
shares of Common Stock issuable upon the exercise of, or otherwise pursuant to,
the Placement Agent Warrants shall be deemed "WARRANT SHARES".
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
<PAGE> 2
(i) "INVESTORS" means the Initial Investors and any transferees
or assignees who agree to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means the Conversion Shares and
the Warrant Shares (including any Conversion Shares issuable in redemption of
any Preferred Stock and any Warrant Shares issuable with respect to Exercise
Default Payments under the Warrants) issued or issuable with respect to the
Preferred Stock and the Warrants and any shares of capital stock issued or
issuable, from time to time (with any adjustments), as a distribution 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 Securities 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
before that date which is sixty (60) days after the date hereof (the "FILING
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 all of the Registrable Securities, subject
to the consent of the Initial Investors (as determined pursuant to Section 11(j)
hereof)) covering the resale of at least 11,850,000 Registrable Securities. The
Registration Statement filed hereunder, to the extent allowable under the
Securities Act and the Rules promulgated thereunder (including Rule 416), shall
state that the Registration Statement also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon conversion of the
Preferred Stock and exercise of the Warrants to prevent dilution resulting from
stock splits, stock dividends or similar transactions. The Registrable
Securities included in the Registration Statement filed hereunder shall be
allocated to the Investors as set forth in Section 11(k) hereof. The
Registration Statement filed hereunder (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.
2
<PAGE> 3
b. Underwritten Offering. If any offering pursuant to the
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 to represent the Investors 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.
In the event that any Investors elect not to participate in such underwritten
offering, the Registration Statement covering all of the Registrable Securities
shall contain appropriate plans of distribution reasonably satisfactory to the
Investors participating in such underwritten offering and the Investors electing
not to participate in such underwritten offering (including, without limitation,
the ability of nonparticipating Investors to sell from time to time and at any
time during the effectiveness of such Registration Statement).
c. Payments by the Company. The Company shall cause the Registration
Statement required to be filed pursuant to Section 2(a) hereof to become
effective as soon as practicable, but in no event later than the one hundred and
twentieth (120th) day following the date hereof (the "REGISTRATION DEADLINE").
If (i) (A) the Registration Statement required to be filed by the Company
pursuant to Section 2(a) hereof is not declared effective by the SEC on or
before the Registration Deadline or (B) any Registration Statement required to
be filed by the Company pursuant to Section 3(b) hereof is not declared
effective by the SEC within sixty (60) days after the applicable Registration
Trigger Date (as defined in Section 3(b) hereof), or (ii) if, after any such
Registration Statement has been declared effective by the SEC, sales of all of
the Registrable Securities required to be covered by such Registration Statement
(including any Registrable Securities required to be registered pursuant to
Section 3(b) hereof) cannot be made pursuant to such Registration Statement (by
reason of a stop order or the Company's failure to update the Registration
Statement or any other reason outside the control of the Investors) or (iii) the
Common Stock is not listed or included for quotation on the Nasdaq SmallCap
Market ("SMALLCAP") , the American Stock Exchange (the "AMEX"), the New York
Stock Exchange (the "NYSE") or the Nasdaq National Market ("NNM") at any time
after the initial Registration Deadline hereunder, then the Company will make
payments to the Investors in such amounts and at such times as shall be
determined pursuant to this Section 2(c) as partial relief for the damages to
the Investors by reason of any such delay in or reduction of their ability to
sell the Registrable Securities (which remedy shall not be exclusive of any
other remedies available at law or in equity). The Company shall pay to each
Investor an amount equal to the product of (i) the aggregate Purchase Price of
the Preferred Stock and Warrants held by such Investor (including, without
limitation, Preferred Stock that has been converted into Conversion Shares and
Warrants that have been exercised for Warrant Shares then held by such Investor)
(the "AGGREGATE SHARE PRICE"), multiplied by (ii) fifteen thousandths (.015),
for the first thirty (30) day period (or portion thereof) and twenty-five
thousandths (.025) for each additional thirty (30) day period (or portion
thereof) thereafter, (A) after the Registration Deadline and prior to the date
the Registration Statement filed pursuant to Section 2(a) is declared effective
by the SEC, (B) after
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the sixtieth (60th) day following a Registration Trigger Date (as defined in
Section 3(b)) and prior to the date the Registration Statement filed pursuant to
Section 3(b) hereof is declared effective by the SEC, and (c) during which sales
of any Registrable Securities cannot be made pursuant to any such Registration
Statement after the Registration Statement has been declared effective or the
Common Stock is not listed or included for quotation on the AMEX, NYSE or NNM;
provided, however, that there shall be excluded from each such period any delays
which are solely attributable to changes (other than corrections of Company
mistakes with respect to information previously provided by the Investors)
required by the Investors in the Registration Statement with respect to
information relating to the Investors, including, without limitation, changes to
the plan of distribution. (For example, if the Registration Statement is not
effective by the Registration Deadline, the Company would pay $15,000 for the
first thirty (30) day period and $25,000 for each additional thirty (30) day
period thereafter with respect to each $1,000,000 of Aggregate Share Price until
the Registration Statement becomes effective.) Such amounts shall be paid in
cash or, at each Investor's option, may be convertible into Common Stock at the
"CONVERSION PRICE" (as defined in the Certificate of Designation) then in
effect. 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 after 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 IV 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.
d. Piggy-Back Registrations. If the Registration Statement required
to be filed pursuant to Section 2(a) hereof has not become effective on or
before the Registration Deadline and, at any time after the Registration
Deadline and prior to the expiration of the Registration Period (as hereinafter
defined) the Company shall file with the SEC a Registration Statement relating
to an offering for its own account or the account of others under the Securities
Act of any of its equity securities (other than on Form S-4 or Form S-8 or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans), the Company shall
send to each Investor who is entitled to registration rights under this Section
2(d) written notice of such determination and, if within fifteen (15) days after
the date of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering, the managing underwriter(s)
thereof shall impose a limitation on the number of shares of Common Stock which
may be included in the Registration Statement because, in such underwriter(s)'
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then the Company shall be obligated to include
in such Registration Statement only such limited
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portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities, in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided,
further, however, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights. No right to registration of Registrable Securities under this Section
2(d) shall be construed to limit any registration required under Section 2(a)
hereof. If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering.
e. Eligibility for Form S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of the
sale by the Initial Investors 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.
f. If at any time prior to the expiration of the Registration Period
(as defined below), the Company has determined in good faith that (i) the filing
of a Registration Statement or compliance by the Company with its disclosure
obligations in connection with the Registration Statement would require the
disclosure of material information which the Company has a bona fide business
purpose for preserving as confidential or (ii) the Company then is unable to
comply with its disclosure obligations or SEC requirements in connection with
the Registration Statement, then in either such case the Company may delay the
filing of the Registration Statement (if not then filed) and shall not be
required to maintain the effectiveness thereof or amend or supplement the
Registration Statement for a period (a "DELAY PERIOD") expiring upon the earlier
to occur of (A) the date on which such material information is disclosed to the
public or ceases to be material or the Company is able to so comply with its
disclosure obligations and SEC requirements or (B) 30 days after the Company
makes such good faith determination. The Company will give prompt written
notice, in the manner prescribed by Section 11(b) hereof, to the Investors of
each Delay Period. Advance notice shall be given to the extent practicable. Such
notice shall state an estimate of the duration of such Delay Period. Each
Investor, by its acceptance of any share of Common Stock, agrees that, upon
receipt of such notice it will
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forthwith discontinue disposition of the Common Stock pursuant to the
Registration Statement, and will not deliver any prospectus forming a part
thereof in connection with any sale of Common Stock, until the expiration of
such Delay Period. In addition, the provisions of Section 2(c) shall not apply
to the Delay Periods. Notwithstanding anything in this Section 2(f) to the
contrary, there shall not be (i) more than four (4) Delay Periods in any twelve
(12) month period or (ii) more than an aggregate of 30 calendar days of Delay
Period in any twelve (12) month period.
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 and file with the SEC the Registration
Statement required by Section 2(a) (but in no event later than the Filing Date),
and cause such Registration Statement relating to Registrable Securities to
become effective as soon as practicable after such filing (but in no event later
than the Registration Deadline), and keep such 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 all of the Registrable Securities (in the reasonable opinion of counsel
to the Initial Investors) may be immediately sold to the public without
registration or restriction pursuant to Rule 144(k) under the Securities Act or
any successor provision (the "REGISTRATION PERIOD"), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein and all documents incorporated by reference 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 Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement. In the event (i) the Company
delivers a Rule 416 Notice to the Investors or the Investors who hold a majority
in interest of the Registrable Securities shall reasonably determine, or the SEC
shall state formally or informally, that Rule 416 under the Securities Act does
not permit a registration statement to cover securities which may become
issuable upon conversion or exercise of convertible or exercisable securities by
reason of reductions in the conversion or exercise price of such securities and
(ii) the number of shares available under a Registration Statement filed
pursuant to this Agreement is, for any three (3) consecutive trading days (the
last of such three
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(3) trading days being the "REGISTRATION TRIGGER DATE"), insufficient to cover
one hundred thirty-five percent (135%) of the Registrable Securities issued or
issuable upon conversion (without giving effect to any limitations on conversion
contained in Article IV.C of the Certificate of Designation) of the Preferred
Stock and exercise of the Warrants (without giving effect to any limitations on
exercise contained in Section 7 of the Warrants), the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover two hundred percent
(200%) of the Registrable Securities issued or issuable (without giving effect
to any limitations on conversion or exercise contained in the Certificate of
Designation or the Warrants) as of the Registration Trigger Date, in each case,
as soon as practicable, but in any event within fifteen (15) days after the
Registration Trigger Date (based on the market price then in effect of the
Common Stock and other relevant factors on which the Company reasonably elects
to rely). The Company shall cause such amendment(s) and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof. In the event the Company fails to obtain the effectiveness of any such
Registration Statement within sixty (60) days after a Registration Trigger Date,
each Investor shall thereafter have the option, exercisable in whole or in part
at any time and from time to time by delivery of a written notice to the Company
(a "MANDATORY REDEMPTION NOTICE"), to require the Company to purchase for cash,
at an amount per share equal to the Redemption Amount (as defined in Article
VIII.B of the Certificate of Designation), a portion of the Investor's Preferred
Stock such that the total number of Registrable Securities included on the
Registration Statements for resale by such Investor exceeds 135% of the
Registrable Securities issued or issuable upon conversion (without giving effect
to any limitations on conversion contained in Article IV.C of the Certificate of
Designation) of such Investor's Preferred Stock and exercise of such Investor's
Warrants. If the Corporation fails to redeem any of such shares within five (5)
business days after its receipt of a Mandatory Redemption Notice, then such
Investor shall be entitled to the remedies provided in Article VIII.C of the
Certificate of Designation.
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 (including, without limitation, any request to
accelerate the effectiveness of the Registration Statement or amendment
thereto), and each item of correspondence from the SEC or the staff of the SEC,
in each case relating to the Registration Statement (other than any portion, if
any, thereof which contains information for which the Company has sought
confidential treatment), (ii) on the date of effectiveness of the Registration
Statement or any amendment thereto, a notice stating that the Registration
Statement or amendment has been declared effective, and (iii) such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other
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<PAGE> 8
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 its best 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 each Investor who holds Registrable Securities being offered
reasonably requests, (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 the Investors who hold a majority in interest of the
Registrable Securities being offered in an offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor of the happening of any event, of which
the Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest practicable moment (including in each case by amending or supplementing
such Registration Statement) 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
(and if such Registration Statement is supplemented or amended, deliver such
number of copies of such
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supplement or amendment to each Investor as such Investor may reasonably
request).
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 its filing with the
SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of the effectiveness of any
Registration Statement without prior notice to such counsel.
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 Securities 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 in an underwritten offering, the
Company shall furnish, on the date of effectiveness of the Registration
Statement (i) an opinion, dated as of such date, from counsel representing the
Company addressed to the Investors and in form, scope and substance as is
customarily given in an underwritten public offering and (ii) a letter, dated
such date, from the Company's independent certified public accountants in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) 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
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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 Investors' 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, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement, or (v) such Investor
consents to the form and content of any such disclosure. 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 to promptly either (i)
cause all of the Registrable Securities covered by the Registration Statement to
be listed on the SmallCap, AMEX, NNM or the NYSE or another national securities
exchange and on each additional national securities exchange on which securities
of the same class or series issued by the Company are then listed, if any, if
the listing of such Registrable Securities is then permitted under the rules of
such exchange, or (ii) secure the designation and quotation of all of the
Registrable Securities covered by the Registration Statement on the NNM and,
without limiting the generality of the foregoing, to arrange for or maintain 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
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such names as the managing underwriter or underwriters, if any, or the Investors
may request, and, within three (3) business days after the 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 opinion of such counsel in the form attached hereto as EXHIBIT 1.
p. At the request of any Investor, the Company shall prepare and
file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.
q. The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the SEC.)
r. The Company shall take all such other actions as any Investor or
the underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of the Registrable Securities.
s. From and after the date of this Agreement, the Company shall not,
and shall not agree to, allow the holders of any securities of the Company to
include any of their securities in the Registration Statement under Section 2(a)
hereof or any amendment or supplement thereto under Section 3(b) hereof without
the consent of the holders of a majority in interest of the Registrable
Securities.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five (5)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
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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 such Registration Statement.
c. In the event Investors holding a majority in interest of the
Registrable Securities being offered 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 not to participate in such
underwritten distribution.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Sections 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 Sections 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 distribution
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, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, the
fees and disbursements of counsel for the Company (but not the fees and
disbursements of counsel for the Investors) and the fees and disbursements
contemplated by Section 3(k) hereof
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shall be borne by the Company. In addition, the Company shall pay all of the
Investors' costs and expenses (including legal fees) incurred in connection with
the enforcement of the rights of the Investors hereunder.
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, and
(ii) the directors, officers, partners, members, employees, agents and each
person who controls any Investor within the meaning of Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), if any, and underwriters for Investors and such
underwriters' directors, officers, partners, members, employees, agents and each
person who controls any such underwriter within the meaning of Section 15 of the
Exchange Act (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 any filing made in connection with
qualification under state securities laws 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, (iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any other applicable securities law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities or (iv) any material breach of this Agreement (the matters in the
foregoing clauses (i) through (iv) 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 other
Indemnified Person, promptly as such expenses are incurred and are due and
payable, for any reasonable legal fees or other reasonable out of pocket
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 such
Indemnified Person expressly for use in the Registration Statement or any such
amendment thereof or supplement thereto; (ii) shall not
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apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (iii) with respect to any preliminary prospectus,
shall not inure to the benefit of any Indemnified Person if the untrue statement
or omission of material fact contained in the preliminary prospectus was
corrected on a timely basis in the prospectus, as then amended or supplemented,
if 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 advice, 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 hereof.
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, its employees, agents and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act (collectively and
together with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim
to which any of them may become subject, under the Securities Act, the Exchange
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 out of pocket 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 actually received by 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 hereof. 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, and the Indemnified Party failed to utilize such
corrected prospectus.
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
14
<PAGE> 15
action), such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that
such indemnifying party shall not be entitled to assume such defense and 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
conflicts of interest between such Indemnified Person or Indemnified Party and
any other party represented by such counsel in such proceeding or the actual or
potential defendants in, or targets of, any such action include both the
Indemnified Person or the Indemnified Party and the indemnifying party and any
such Indemnified Person or Indemnified Party reasonably determines that there
may be legal defenses available to such Indemnified Person or Indemnified Party
which are different from or in addition to those available to such indemnifying
party. 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 the Initial Investors if they hold
Registrable Securities included in such Registration Statement), if the
Investors are entitled to indemnification hereunder, or by 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 person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation, and (iii) contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
15
<PAGE> 16
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant
to the Registration Statement.
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the Securities Act or any other similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. file with the SEC in a timely manner and make and keep available
all reports and other documents required of the Company under the Securities Act
and the Exchange 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 and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
b. furnish to each Investor so long as such Investor owns shares of
Preferred Stock, Warrants or Registrable Securities, promptly upon request, (i)
a written statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested to permit the Investors to sell such securities
under Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any transferee of all or any
portion of the shares of Preferred Stock, the Warrants or the 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 after such assignment, (ii) the Company is 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 Securities Act and applicable state securities laws, (iv) the transferee or
assignee agrees in writing for the benefit of the Company to be bound by all of
the provisions contained herein, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.
16
<PAGE> 17
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 and Investors who
hold a majority in interest of the Registrable Securities; provided, however,
that no amendment hereto which restricts the ability of an Investor to elect not
to participate in an underwritten offering shall be effective against any
Investor which does not consent in writing to such amendment; provided, further,
however, that no consideration shall be paid to an Investor by the Company in
connection with an amendment hereto unless each Investor similarly affected by
such amendment receives a pro-rata amount of consideration from the Company.
Unless an Investor otherwise agrees, each amendment hereto must similarly affect
each Investor. 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. 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 or by confirmed telecopy, and
shall be effective upon receipt or refusal of receipt, if delivered personally
or by courier or confirmed telecopy, 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
and if to any 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).
c. Failure of any party to exercise any right or remedy under this
Agreement
17
<PAGE> 18
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 governed by and construed in accordance
with the laws of the State of Delaware applicable to contracts made and to be
performed in the State of Delaware without regard to principles of choice of law
or conflicts of law that would defer to the substantive law of another
jurisdiction. The Company irrevocably consents to the jurisdiction of the United
States federal courts and the state courts located in the State of New York in
any suit or proceeding based on or arising under this Agreement and irrevocably
agrees that all claims in respect of such suit or proceeding shall be determined
exclusively in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
further agrees that service of process upon the Company, mailed by first class
mail shall be deemed in every respect effective service of process upon the
Company in any such suit or proceeding. Nothing herein shall affect the
Investors' right to serve process in any other manner permitted by law. The
Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
e. This Agreement, the Securities Purchase Agreement (including all
schedules and exhibits thereto) and the Warrants constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
This Agreement, the Securities Purchase Agreement and the Warrants supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
18
<PAGE> 19
j. All consents, approvals and other determinations to be made by
the Investors or the Initial Investors pursuant to this Agreement shall be made
by the Investors or the Initial Investors holding a majority in interest of the
Registrable Securities (determined as if all shares of Preferred Stock and
Warrants then outstanding had been converted into or exercised for Registrable
Securities) held by all Investors or Initial Investors, as the case may be.
k. The initial number of Registrable Securities included on any
Registration Statement and each increase (if any) to the number of Registrable
Securities included thereon shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each Investor at the time
of such establishment or increase, as the case may be. In the event an Investor
shall sell or otherwise transfer any of such holder's Registrable Securities,
each transferee shall be allocated a pro rata portion of the number of
Registrable Securities included on a Registration Statement for such transferor.
Any shares of Common Stock included on a Registration Statement and which remain
allocated to any person or entity which does not hold any Registrable Securities
shall be allocated to the remaining Investors, pro rata based on the number of
shares of Registrable Securities then held by such Investors. For the avoidance
of doubt, the number of Registrable Securities held by any Investor shall be
determined as if all shares of Preferred Stock and Warrants then outstanding
were converted into or exercised for Registrable Securities.
l. Each party to this Agreement has participated in the negotiation
and drafting of this Agreement. As such, the language used herein shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party to
this Agreement.
m. For purposes of this Agreement, the term "business day" means any
day other than a Saturday or Sunday or a day on which banking institutions in
the State of New York are authorized or obligated by law, regulation or
executive order to close.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
19
<PAGE> 20
IN WITNESS WHEREOF, the parties 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
INITIAL INVESTORS:
ZANETT LOMBARDIER, LTD.
By: /s/ G.A. Cicaogna
-----------------
Name: G.A. Cicogna
Its: Director to Advisor
GOLDMAN SACHS PERFORMANCE
PARTNERS, L.P.
Commodities Corporation LLC, General Partner
By: /s/ Karen M. Judge
------------------
Name: Karen M. Judge
Its: Vice President
GOLDMAN SACHS PERFORMANCE
PARTNERS (OFFSHORE), L.P.
Commodities Corporation LLC, General Partner
By: /s/ Karen M. Judge
------------------
Name: Karen M. Judge
Its: Vice President
<PAGE> 21
[Signatures continued from prior page.]
/s/ Claudio Guazzoni
- --------------------------------
CLAUDIO GUAZZONI
/s/ David McCarthy
- --------------------------------
DAVID McCARTHY
/s/ Tony Milbank
- --------------------------------
TONY MILBANK
<PAGE> 22
EXHIBIT 1
TO
REGISTRATION
RIGHTS
AGREEMENT
[Date]
[Name and address
of transfer agent]
RE: HEARx LTD.
Ladies and Gentlemen:
We are counsel to HEARx LTD., a corporation organized under the laws of
the State of Delaware (the "COMPANY"), and we understand that [Name of Investor]
(the "HOLDER") has purchased from the Company (i) shares of the Company's 1997
Convertible Preferred Stock (the "PREFERRED STOCK") that are convertible into
shares of the Company's common stock, par value $.10 per share (the "COMMON
STOCK"), and (ii) warrants (the "WARRANTS") to acquire shares of Common Stock.
Pursuant to a Registration Rights Agreement, dated as of ________ __, 1998, by
and among the Company and the signatories thereto (the "REGISTRATION RIGHTS
AGREEMENT"), the Company agreed with the Holder, among other things, to register
the Registrable Securities (as that term is defined in the Registration Rights
Agreement) under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
upon the terms provided in the Registration Rights Agreement. In connection with
the Company's obligations under the Registration Rights Agreement, on __________
__, 1998, the Company filed a Registration Statement on Form S-___ (File No.
333- _____________) (the "REGISTRATION STATEMENT") with the Securities and
Exchange Commission (the "SEC") relating to the Registrable Securities, which
names the Holder as a selling stockholder thereunder. The Registration Statement
was declared effective by the SEC on _____________, 1998.
[Other customary introductory and scope of examination language to be
inserted]
Based on the foregoing, we are of the opinion that the resale of the
Registrable Securities have been registered under the Securities Act.
[Other customary language to be included.]
Very truly yours,
cc: [Name of Investor]
<PAGE> 1
EXHIBIT 4.3
August 27, 1998
The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, NY 10017
Gentlemen:
This agreement ("Agreement") will confirm that HEARx LTD., a Delaware
corporation (the "Company"), has retained The Zanett Securities Corporation
("Zanett" or the "Placement Agent") as its exclusive placement agent to assist
the Company, during the 30 day period commencing on the date hereof (the
"Term"), on a "best-efforts" basis, in connection with the placement of up to
7,500 units (the "Units") at a price of $1,000 per Unit, each Unit consisting of
(i) one share of the Company's 1998 Convertible Preferred Stock, par value $1.00
per share (each, a "Preferred Share"), convertible into shares of the Company's
common stock, par value $.10 per share (the "Common Stock"), and (ii) one
warrant to acquire 75 shares of Common Stock (each, a "Warrant"). The rights,
preferences and privileges of the Preferred Shares, including the terms upon
which such Preferred Shares will be convertible into shares of Common Stock,
will be set forth in a form of Certificate of Designations, Rights and
Preferences to be agreed upon by the Company and the Placement Agent (the
"Certificate of Designation"). The shares of Common Stock issuable upon
conversion of the Preferred Shares or otherwise pursuant to the Certificate of
Designation are referred to herein as the "Conversion Shares" and the shares of
Common Stock issuable upon exercise of or otherwise pursuant to the Warrants are
referred to herein as the "Warrant Shares." The Preferred Shares, the Warrants,
the Conversion Shares and the Warrant Shares are collectively referred to herein
as the "Securities." The Company agrees that, during the Term, Zanett shall have
the exclusive right to offer and place the Securities and that all
conversations, negotiations, documents and other materials exchanged between the
Company and the Placement Agent shall not be disclosed or released to any third
party without the prior written consent of Zanett. The Company acknowledges that
certain of the aforementioned Securities may be purchased by affiliates of
Zanett.
The Units are being offered to "accredited investors" in accordance with
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Each prospective investor ("Investor") subscribing to
purchase the Units will be required to deliver, among other things, a Securities
Purchase Agreement between the Company and the Investor (the "Securities
Purchase Agreement") in form and substance reasonably satisfactory to Zanett and
<PAGE> 2
the Company, representing and warranting, among other things, that such Investor
is an "accredited investor" as such term is defined in Regulation D.
Contemporaneous with the execution and delivery of the Securities Purchase
Agreement, the Investors shall execute and deliver a Registration Rights
Agreement (the "Registration Rights Agreement") in form and substance reasonably
satisfactory to Zanett and the Company pursuant to which the Company will agree
to provide the Investors certain registration rights under the Securities Act
with respect to the Securities.
The Securities Purchase Agreement, the Certificate of Designation, the
Warrants and the Registration Rights Agreement are referred to herein
collectively as the "Offering Documents." The offering of Units described in the
Offering Documents is referred to herein as the "Offering."
1. Appointment of Placement Agent. Zanett is hereby appointed
Placement Agent of the Company for the purposes of assisting the Company in
finding qualified Investors to participate in the Offering. On the basis of the
representations and warranties and subject to the terms and conditions contained
herein, Zanett hereby accepts such agency and agrees to assist the Company in
finding qualified Investors to participate in the Offering. Zanett's agency
hereunder shall terminate on the earliest of (i) the expiration of the Term,
(ii) the completion of the Offering or (iii) the termination of the Offering. If
the Offering is terminated or the Term shall expire prior to the completion of
the Offering, all subscriptions received, if any, shall be returned to
Investors.
2. Closing; Placement Fee and Warrant; Expenses.
a. Closing. Upon satisfaction of the conditions to the
closing contained in the Securities Purchase Agreement, the closing (the
"Closing") of the purchase and sale of the Units shall take place at the offices
of Klehr, Harrison, Harvey, Branzburg & Ellers LLP or such other mutually agreed
place, at such time and date (the "Closing Date") as may be agreed upon between
the Placement Agent, the Investors and the Company.
b. Procedures at Closing. Counsel for the Placement Agent
shall act as escrow agent for the Closing (the "Escrow Agent"). At the Closing:
(i) The Company shall deliver to the Escrow Agent, on
behalf of the Placement Agent and the Investors, an opinion of the Company's
outside legal counsel, dated as of the Closing Date, in such form as required by
the Securities Purchase Agreement.
(ii) The Company shall deliver to the Escrow Agent
certificates from the Company, signed by the President or a Vice President
thereof, certifying that attached thereto is a true and correct copy of
resolutions adopted by the Company's Board of Directors authorizing (A) the
execution, delivery and performance of this Agreement, the Securities Purchase
Agreement, the Registration Rights Agreement, the Warrants and other
documentation related to the Offering, (B) the execution and filing of the
Certificate of Designation with the
2
<PAGE> 3
Secretary of State of the State of Delaware, and (c) the issuance of the
Preferred Shares and the reservation for issuance and issuance of the Conversion
Shares and the Warrant Shares, and certifying that such resolutions have not
been modified, rescinded or amended and are in full force and effect.
(iii) The Company shall deliver to the Escrow Agent a
certificate of good standing of the Company, dated as of a recent date, from the
Secretary of State of the State of Delaware.
(iv) Each Investor shall deliver to the Escrow Agent an
executed copy of the Securities Purchase Agreement and Registration Rights
Agreement signed by such Investor, and the Company shall deliver to the Escrow
Agent with respect to each Investor, an executed copy of its acceptance of the
Securities Purchase Agreement and Registration Rights Agreement executed by such
Investor.
(v) Each Investor shall have delivered by wire transfer
to an escrow account designated by the Escrow Agent an amount equal to the
aggregate purchase price of the Units(s) being purchased by such Investor at the
Closing.
(vi) The Company shall have delivered to the Escrow
Agent the duly executed Preferred Shares and Warrants being purchased by the
Investors in such denominations as the Investors and the Company shall agree
upon.
(vii) The Company and the Placement Agent shall instruct
the Escrow Agent to pay to the Company the purchase price (the "Purchase Price")
for the Units subscribed for at the Closing, less the Placement Agent Fee (as
defined below), out of the funds on deposit in the escrow account received from
Investors whose Securities Purchase Agreements have been accepted.
c. Placement Fee; Expenses. The Company covenants and agrees
to pay to the Placement Agent at the Closing fees (the "Placement Agent Fees")
equal to 7% of the aggregate gross proceeds payable to the Company for the sale
of the Units at the Closing. The Placement Agent Fees shall be delivered by the
Escrow Agent to Zanett by wire transfer, in accordance with Zanett's written
wiring instructions, from the funds on deposit in the escrow account
simultaneously with payment for and delivery of the Units at such Closing under
the Securities Purchase Agreement as provided in paragraph 2(a) above.
d. Warrants. In addition to the Placement Agent Fees, at
the Closing under the Securities Purchase Agreement, the Company shall issue to
the officers of the Placement Agent set forth on Schedule 2(d) (the "Zanett
Officers"), warrants, in substantially the form attached hereto as Exhibit A, to
purchase, in the aggregate, 75 shares of the Company's Common Stock for each
$1,000 of aggregate gross proceeds received by the Company from the sale of the
Units at the Closing (the "Placement Warrants"). The Placement Warrants shall be
exercisable
3
<PAGE> 4
for a period of sixty (60) months from the date of issuance at a price per share
equal to $1.80. The shares of the Company's Common Stock issuable upon exercise
of the Placement Warrants shall hereinafter be referred to as the "Placement
Warrant Shares." The Company shall grant the Placement Agent certain
registration rights under the Securities Act with respect to the Placement
Warrant Shares pursuant to the Registration Rights Agreement.
e. Expenses of Offering. The Company shall be responsible
for and shall bear all expenses directly and necessarily incurred by it in
connection with the Offering, including, but not limited to, the following:
filing fees, registrar and transfer agent fees, investigatory fees (including,
but not limited to travel, lodging and entertainment expenses), issuer's counsel
and accounting fees, blue sky fees and counsel, if any, and issue and transfer
taxes, if any. In the event the Closing does not occur during the Term, the
Company shall reimburse the Placement Agent for its reasonable out-of-pocket
expenses incurred in connection with the Offering.
f. Non-Circumvention Period.
(i) The Company agrees that, during the period
beginning on the date hereof and ending two (2) years following the later of the
date hereof and the date of the Closing (as defined in Section 2(a) hereof) (the
"Non-Circumvention Period"), it will not, without the prior written consent of
the Placement Agent, negotiate or contract or have discussions concerning any
such matters with any Investor to obtain additional financing in any form.
Notwithstanding the foregoing, without the prior written consent of the
Placement Agent and the payment to the Placement Agent of a fee equal to 7% of
the gross proceeds of any transaction consented to by the Placement Agent, the
Company shall not negotiate or contract or have discussions concerning any
matters with Citadel Investment Group, Susquehanna Investment Group, Rose Glen
Capital, Zanett Lombardier, Ltd., Goldman Sachs, or any affiliate of any of them
to obtain additional financing in any form.
3. Representations and Warranties and Covenants.
a. The Company represents and warrants to Zanett that this
Agreement has been duly authorized, executed and delivered by the Company and,
assuming the due execution by Zanett, constitutes a legal, valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms.
b. The Company has delivered or made available to Zanett true
and complete copies of the SEC Documents (as defined in the Securities Purchase
Agreement) filed by the Company on or after December 31, 1995 with the
Securities and Exchange Commission (the "SEC") pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
c. The Company recognizes and confirms that Zanett (i) will
use and rely
4
<PAGE> 5
primarily on the SEC Documents and on information provided by the Company in
connection with the transactions contemplated by this Agreement in performing
the services contemplated by this Agreement without having independently
verified the same; (ii) is authorized to assist the Company in the structuring
of the Offering with only those prospective purchasers who are "accredited
investors" as defined in Regulation D under the Securities Act and to provide
copies of the SEC Documents and forms of the Securities Purchase Agreement and
other Offering Documents to prospective purchasers of the Company's securities
in connection with the performance of Zanett's services hereunder; and (iii)
does not assume responsibility for the accuracy or completeness of the SEC
Documents.
d. In addition to the foregoing, the Company hereby
incorporates by reference all of the representations and warranties and
covenants to be set forth in the Securities Purchase Agreement and the other
Offering Documents (including, but not limited to, the Company's obligation to
deliver to Zanett within the applicable time periods the reports specified in
Section 4(f) of the Securities Purchase Agreement so long as Zanett, the Zanett
Officers and/or their affiliates own any securities of the Company issued
pursuant to the Offering Documents or this Agreement) with the same force and
effect as if specifically set forth herein.
e. Anything contained herein to the contrary notwithstanding,
Placement Agent's obligations to proceed with the Offering is conditioned upon
Placement Agent's due diligence investigation of the Company. If, in Zanett's
opinion, the condition of the Company, financial or otherwise, and its
previously publicly announced prospects are affected in a material and/or
adverse manner and do not fulfill Zanett's expectations, Zanett shall have the
sole discretion to review and determine its continued interest in the Offering.
f. So long as Zanett, the Zanett Officers and/or their
affiliates own any securities of the Company, the Company shall make available,
during regular business hours, all records and books of account of the Company
for inspection by Zanett. The Company shall permit Zanett, at its expense and
during regular business hours, to inspect its properties.
g. The Company has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement and the
Placement Warrants in accordance with the terms hereof. The execution, delivery
and performance of this Agreement and the Placement Warrants by the Company and
the consummation by it of the transactions contemplated hereby (including,
without limitation, the reservation for issuance and issuance of the Placement
Warrant Shares issuable upon exercise of the Placement Warrants) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its shareholders is
required, except as may be required by the rules of the American Stock Exchange
for shareholder approval of issuances of common stock or securities convertible
into common stock if the common stock has voting power that is 20% or more of
the voting power outstanding before such issuance. This Agreement constitutes,
and upon execution and delivery by the Company of the Placement Warrants, such
Placement Warrants will constitute, valid and binding obligations of the Company
enforceable against the Company in
5
<PAGE> 6
accordance with their terms.
h. The Placement Warrant Shares issuable upon the exercise
of the Placement Warrants are duly authorized and, upon issuance upon
exercise of the Placement Warrants in accordance with the terms thereof, will
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 the shareholders of the Company.
i. Except as set forth on Schedule 3(f) to the Securities
Purchase Agreement, the execution, delivery and performance of this Agreement by
the Company and the consummation by the Company of the transactions contemplated
hereby will not (A) result in a violation of the Company's Certificate of
Incorporation or By-laws or (B) 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 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 by which any property or asset of the Company is
bound or affected (except, with respect to clause (B), for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a material adverse effect
on the operation, properties, financial condition or previously publicly
announced prospects of the Company ("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, nor has there occurred any event giving
others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party, except for possible defaults as
would not, individually or in the aggregate, have a Material Adverse Effect. The
business of the Company is not being conducted, and, so long as Zanett, the
Zanett Officers and/or their affiliates own any securities of the Company, shall
not be conducted, 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 Securities 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 in accordance with the terms hereof.
j. The Company shall at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of Placement Warrant
Shares to provide for the full exercise of the outstanding Placement Warrants.
k. The Company shall promptly secure the listing of the
Placement Warrant Shares upon each national securities exchange or automated
quotation system, if any, upon which
6
<PAGE> 7
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 Placement Warrant Shares from time to time issuable
upon exercise of the Placement Warrants.
l. The Zanett Officers each individually represent and
warrant to the Company that:
(i) The Zanett Officer is acquiring the Placement
Warrants and the Placement Warrant Shares for its own account and not with a
present view towards the public sale or distribution thereof.
(ii) The Zanett Officer is an "Accredited Investor" as
that term is defined in Rule 501(a) of Regulation D.
(iii) The Zanett Officer understands that the Placement
Warrants and the Placement Warrant Shares are being issued to the Zanett Officer
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 Zanett Officer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Zanett Officer to acquire the Placement Warrants and the
Placement Warrant Shares.
(iv) The Zanett Officer understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Placement Warrants and the Placement Warrant Shares issuable upon exercise
thereof have not been and are not being registered under the Securities Act or
any state securities laws, and may not be transferred unless (a) the resale of
the Securities has been registered thereunder; or (b) the Zanett Officer shall
have delivered to the Company an opinion of counsel (which opinion shall be in
form, substance and scope customary for opinions of counsel in comparable
transactions) to the effect that the securities to be sold or transferred may be
sold or transferred pursuant to an exemption from such registration; or (c) the
Securities are sold under Rule 144 promulgated under the Securities Act (or a
successor rule) ("Rule 144"); or (d) the Securities are sold or transferred to a
non-broker dealer affiliate of the Zanett Officer who agrees to sell or
otherwise transfer such securities only in accordance with the provisions of the
terms hereof and who is an Accredited Investor; and (ii) neither the Company nor
any other person is under any obligation to register such Securities under the
Securities Act or any state securities laws (other than pursuant to the
Registration Rights Agreement). Notwithstanding the foregoing or anything else
contained herein to the contrary, such securities may be pledged as collateral
in connection with a bona fide margin account or other lending arrangement.
(v) This Agreement has been duly and validly
authorized, executed and delivered on behalf of Placement Agent and duly and
validly executed and delivered by each
7
<PAGE> 8
Zanett Officer and is the valid and binding agreement of each of them
enforceable against each of them in accordance with its terms.
(vi) Placement Agent is a registered broker dealer (as
such term is defined under the Securities Act of 1933, as amended) and neither
the Placement Agent nor any Zanett Officer has made any general solicitations
(as such term is defined under the Securities Act of 1933, as amended) with
respect to the sale of the Securities.
(vii) Neither the Placement Agent nor the Zanett
Officers have any authority to act on behalf of, or otherwise bind, the Company.
4. Publicity. The Company shall not make any reference to Zanett,
the Zanett Officers or to any of their affiliates in any release or other public
communication without Zanett's prior written consent. Without Zanett's prior
written consent, no advice rendered by Zanett in connection with the services
performed by Zanett pursuant to this Agreement will be quoted by the Company,
its affiliates or representatives nor will any such advice be referred to in any
report, document, release or other communication, whether oral or written,
prepared or issued or transmitted by such person, except to the extent required
by law (in which case the appropriate party shall so advise Zanett in writing
prior to such use and shall consult with Zanett with respect to the form and
timing of the disclosure).
5. Indemnification and Contribution.
a. To the extent permitted by law, the Company will
indemnify, hold harmless and defend Zanett and each of its directors, officers,
partners, members, employees, agents and each person who controls Zanett within
the meaning of the Securities Act or the Exchange 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
transaction contemplated by this Agreement, the retention of Zanett as Placement
Agent under this Agreement, the performance of services by Zanett hereunder or
any involvement or alleged involvement of Zanett in the Offering or (ii) any
breach of any of the Company's representations, warranties or covenants
contained herein. The Company shall reimburse each of the Indemnified Persons,
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 5(a) shall not (i) apply in instances where the Claims
were the result of Zanett's, gross negligence or bad faith or based on Zanett's
wilful misconduct, and (ii) 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.
8
<PAGE> 9
b. Promptly after receipt by an Indemnified Person under
this Section 5 of notice of the commencement of any action (including
any governmental action), such Indemnified Person shall, if a Claim in respect
thereof is made against the Company under this Section 5, deliver to the
Company a written notice of the commencement thereof, and the Company shall
have the right to participate in, and, to the extent the Company so desires, to
assume control of the defense thereof with counsel mutually satisfactory to the
Company and the Indemnified Person; provided, however, that an Indemnified
Person shall have the right to retain its own counsel, with the reasonable fees
and expenses to be paid by the Company if, in the reasonable opinion of counsel
retained by the Indemnified Person, the representation by such counsel of the
Indemnified Person and the Company would be inappropriate due to actual or
potential differing interests between such Indemnified Person and any other
party represented by the Company's counsel in such proceeding. In the event of
such differing interests, the Company shall pay for only one separate legal
counsel for all of the Indemnified Persons, and such legal counsel shall be
selected by Placement Agent and be reasonably acceptable to the Company. The
failure to deliver written notice to the Company within a reasonable time of
the commencement of any such action shall not relieve the Company of any
liability to the Indemnified Person under this Section 5, except to the extent
that the Company is actually prejudiced in its ability to defend such action.
The indemnification required by this Section 5 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.
c. To the extent any indemnification by the Company of an
Indemnified Person is prohibited or limited by law or otherwise unavailable in
respect of any Claim, the Company agrees to make the maximum contribution with
respect to any amounts for which it would otherwise be liable under this Section
5 to the fullest extent permitted by law. In this regard, the Company shall
contribute to the amount paid or payable by such Indemnified Person as a result
of any such Claim (i) in such portion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Indemnified Person,
on the other, from the structuring and issuance of the securities in the
Offering or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, on the one hand, and of the Indemnified Person, on the other, in
connection with untrue statements or omissions or other actions (or alleged
untrue statements, omissions or other actions) which resulted in such Claim as
well as any other relevant equitable considerations. The relative benefits
received by the Company, on the one hand, and the Indemnified Person, on the
other, shall be deemed to be in the same proportion as the total gross proceeds
received by the Company in the Offering or any other financing bears to such
Indemnified Person's compensation. The relative fault of the Company on the one
hand and of the Indemnified Person on the other shall be determined by reference
to, among other things, whether such untrue statements or omissions or other
actions (or alleged untrue statements, omissions or other actions) relate to
information supplied or action taken by the Company, on the one hand, by the
Indemnified Person, on the other, and the relevant persons' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statements, omission or actions.
9
<PAGE> 10
The amount paid or payable by a party as a result of the Claim shall be deemed
to include any legal or other fees or expenses reasonably incurred by such party
in connection with investigating or defending any action or claim. The Company
and Zanett agree that it would not be just and equitable if contribution
pursuant to this Section 5 were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above.
d. The aforesaid indemnity and contribution agreements shall
apply to any modification of Zanett's engagement hereunder, and shall remain in
full force and effect regardless of any investigation made by or on behalf of
Placement Agent or any of its agents, employees, officers, directors or
controlling persons and shall survive the issuance of any securities in any
transaction referred to hereunder (including the Offering) and any termination
of this Agreement or Placement Agent's engagement hereunder. The Company agrees
to promptly notify Zanett of the commencement of any litigation or proceeding
against it or any of its directors, officers, agents or employees in connection
with the transactions contemplated hereby.
e. The Company also agrees that no Indemnified Person shall
have any liability (whether direct or indirect, in contract or tort or
otherwise) to the Company, its owners, creditors or security holders for or in
connection with advice or services rendered or to be rendered by Zanett pursuant
to this Agreement, the transactions contemplated hereby or any Indemnified
Person's actions or inactions in connection with any such advice, services or
transactions except for liabilities (and related expenses) of the Company that
are determined by a final judgment of a court of competent jurisdiction to have
resulted primarily from such Indemnified Person's gross negligence or wilful
misconduct in connection with any such advice, actions, inactions or services.
6. Survival of Certain Provisions. The representations,
warranties, covenants and provisions contained in Section 2(f), Section 3,
Section 4 and Section 5 hereof shall survive in full force and effect until
Zanett no longer owns any Placement Warrants or Placement Warrant Shares,
regardless of (a) any completion or termination of any financing contemplated by
this Agreement (including the Offering), (b) any termination of this Agreement,
or (c) any investigation made by or on behalf of Placement Agent or any
affiliate of Placement Agent, and shall be binding upon, and shall inure to the
benefit of, any successors, assigns, heirs and personal representatives of the
Company, Zanett, the Indemnified Parties and any holder of Placement Warrants.
7. Miscellaneous.
a. All notices, requests, demands and other communications
which are required or may be given hereunder shall be in writing and shall be
deemed to have been duly given when delivered personally, receipt acknowledged
or five (5) days after being sent by registered or certified mail, return
receipt requested, postage prepaid. All notices shall be made to the parties at
the addresses designated above or at such other or different addresses which
10
<PAGE> 11
party may subsequently provided with notice thereof, and, to their respective
legal counsel, as follows:
(i) If to Placement Agent, to
The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, NY 10017
Attention: Claudio Guazzoni
- with a copy simultaneously transmitted by like means to -
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Attention: Stephen T. Burdumy, Esquire
(ii) If to the Company, to
HEARx, LTD.
1250 Northpoint Parkway
West Palm Beach, FL 33407
Attention: Paul A. Brown, M.D.
Chairman of the Board
b. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
c. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to its
conflict of laws provisions). The Company hereby agrees to submit to the
exclusive jurisdiction of an arbitration panel of the National Association of
Securities Dealers, Inc. located in the City of New York in the State of New
York in connection with any suit, action or proceeding related to this Agreement
or any of the matters contemplated hereby, irrevocably waives any defense of
lack of personal jurisdiction and irrevocably agrees that all claims in respect
of any suit, action or proceeding may be heard and determined in by such panel.
The Company irrevocably waives, to the fullest extent it may effectively do so
under applicable law any objection which it may now or hereafter have to the
laying of venue of any such suit, action or proceeding brought before any such
court and any claims that any such suit, action or proceeding brought in any
such arbitration panel has been brought in an inconvenient forum. The Company
further agrees to pay or reimburse Zanett, upon
11
<PAGE> 12
a judgment in favor of Zanett by a court of competent jurisdiction, for all
reasonable costs and expenses incurred by Placement Agent in connection with the
enforcement of any of its rights under this Agreement, including without
limitation, all attorneys' fees and expenses of its counsel.
d. The section headings in this Agreement have been inserted
as a matter of convenience of reference and are not a part of this Agreement.
e. This Agreement may not be modified or amended except in
writing duly signed by the parties hereto.
f. If any term, provision, covenant or restriction contained
in this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions contained in
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
g. Each party to this Agreement has participated in the
negotiation and drafting of this Agreement. As such, the language used herein
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
party to this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE> 13
Please sign and return the original and one copy of this letter to
indicate your acceptance of the terms set forth herein whereupon this letter and
your acceptance shall constitute a binding agreement between you and the
Company.
Very truly yours,
HEARx LTD.
By: /s/ Paul A. Brown, MD
--------------------------
Name: Paul A. Brown, MD
Title: Chairman and CEO
Accepted and Agreed to this
27th day of August, 1998.
THE ZANETT SECURITIES CORPORATION
By: /s/ G.A. Cicogna
-----------------
Name: G.A. Cicogna
Title: Director to Advisor
Claudio Guazzoni
/s/ Claudio Guazzoni
David McCarthy
/s/ David McCarthy
Tony Milbank
/s/ Tony Milbank
<PAGE> 14
SCHEDULE 2(d)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Officer Number of Warrants per $1,000
------- of Aggregate Gross Proceeds
---------------------------
- --------------------------------------------------------------------------------
<S> <C>
Claudio Guazzoni 28.125
- --------------------------------------------------------------------------------
David McCarthy 28.125
- --------------------------------------------------------------------------------
Tony Milbank 18.750
------
- --------------------------------------------------------------------------------
Total 75.0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 4.4
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON AUGUST 27, 2003
(UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED
HEREBY MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES
LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
Right to Purchase __________ Shares of
Common Stock, par value $.10 per share
Date: August 27, 1998
HEARx LTD.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _________________________, or
its registered assigns, is entitled to purchase from HEARx LTD., a corporation
organized under the laws of the State of Delaware (the "COMPANY"), at any time
or from time to time during the period specified in Section 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 per share (the "EXERCISE PRICE") equal to $1.80. The number of
shares of Common Stock purchasable hereunder (the "WARRANT SHARES") and the
Exercise Price are subject to adjustment as provided in Section 4 hereof. The
term "WARRANTS" means this Warrant and the other warrants of the Company issued
pursuant to that certain Securities Purchase Agreement, dated as of August 27,
1998, by and among the Company and the other signatories thereto (the
"SECURITIES PURCHASE AGREEMENT") and that certain Placement Agency Agreement
dated as of the date hereof.
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, including, without limitation, the limitations
contained in Section 7 hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "EXERCISE
AGREEMENT"), to the Company by 11:59 p.m. New York time 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). The Warrant Shares
so purchased shall be deemed
<PAGE> 2
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 and the completed Exercise Agreement shall have been
delivered or, if such date is not a business date, on the next succeeding
business date. 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 three business days, after
this Warrant shall have been so exercised (the "DELIVERY PERIOD"). If the
Company's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, and so long as the
certificates therefor do not bear a legend and the holder is not obligated to
return such certificate for the placement of a legend thereon, the Company shall
cause its transfer agent to electronically transmit the Warrant Shares so
purchased to the holder by crediting the account of the holder or its nominee
with DTC through its Deposit Withdrawal Agent Commission system ("DTC
TRANSFER"). If the aforementioned conditions to a DTC Transfer are not
satisfied, the Company shall deliver to the holder physical certificates
representing the Warrant Shares so purchased. Further, the holder may instruct
the Company to deliver to the holder physical certificates representing the
Warrant Shares so purchased in lieu of delivering such shares by way of DTC
Transfer. Any certificates so delivered shall be in such denominations as may be
reasonably requested by the holder hereof, shall be registered in the name of
such holder or such other name as shall be designated by such holder and,
following the date on which the Warrant Shares have been registered under the
Securities Act pursuant to that certain Registration Rights Agreement, dated as
of August 27, 1998, by and between the Company and the other signatories thereto
(the "REGISTRATION RIGHTS AGREEMENT") or otherwise may be sold by the holder
pursuant to Rule 144 promulgated under the Securities Act (or a successor rule),
shall not bear any restrictive legend. 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.
If, at any time, a holder of this Warrant submits this Warrant and an
Exercise Agreement, and the Company fails for any reason to deliver, on or prior
to the fourth business day following the expiration of the Delivery Period for
such exercise, the number of shares of Common Stock to which the holder is
entitled upon such exercise (an "EXERCISE DEFAULT"), then the Company shall pay
to the holder payments ("EXERCISE DEFAULT PAYMENTS") for an Exercise Default in
the amount of (a) (N/365), multiplied by (b) the Market Price (as defined in
Section 4(l) hereof) on the date the Exercise Agreement giving rise to the
Exercise Default is transmitted in accordance with this Section 1 (the "EXERCISE
DEFAULT DATE"), multiplied by (c) the number of shares of Common Stock the
Company failed to so deliver in such Exercise Default, multiplied by (d) .24,
where N ' the number of days from the Exercise Default Date to the date that the
Company effects the full exercise of this Warrant which gave rise to the
Exercise Default. The accrued Exercise Default Payment for each calendar month
shall be paid in cash or shall be convertible into Common Stock, at the holder's
option, as follows:
2
<PAGE> 3
(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 (in
accordance with the terms contained in Article IV of the Certificate of
Designations, Rights and Preferences (the "CERTIFICATE OF DESIGNATION")
governing the Company's 1998 Convertible Preferred Stock (the "1998 PREFERRED
STOCK")) at the lower of the Exercise Price or the Market Price (as defined in
Section 4(l)) (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.
Nothing herein shall limit the holder's right to pursue
actual damages for the Company's failure to maintain a sufficient number of
authorized shares of Common Stock as required pursuant to the terms of Section
3(b) hereof or to otherwise issue shares of Common Stock upon exercise of this
Warrant in accordance with the terms hereof, and the 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).
2. Period of Exercise.
(a) This Warrant is immediately exercisable, at any time or
from time to time on or after the date of initial issuance of this Warrant (the
"ISSUE DATE") and before 5:00 p.m., New York City time, on that date which is
sixty (60) months after the Issue Date (the "EXERCISE PERIOD"). The Exercise
Period shall automatically be extended by one (1) day for each day (i) on which
the Company does not have a number of shares of Common Stock reserved for
issuance upon exercise hereof at least equal to the number of shares of Common
Stock issuable upon exercise hereof and (ii) for so long as (A) a Redemption
Event (as defined in the Certificate of Designation) shall have occurred and be
continuing or (B) any event shall have occurred and be continuing which, with
the passage of time or the giving of notice and the failure to cure, would
result in a Redemption Event.
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, claims and encumbrances.
(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 in full of this Warrant (without giving effect
to the limitations on exercise set forth in Section 7(g) hereof).
3
<PAGE> 4
(c) Listing. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed or become 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 economic benefit inuring to the holder
hereof and the exercise privilege of the holder of this Warrant against dilution
or other impairment, consistent with the tenor and purpose of this Warrant.
Without limiting the generality of the foregoing, the Company (i) will not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect, and (ii) will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding
upon any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all of the Company's assets.
(f) Blue Sky Laws. The Company shall, on or before the date
of issuance of any Warrant Shares, take such actions as the Company shall
reasonably determine are necessary to qualify the Warrant Shares for, or obtain
exemption for the Warrant Shares for, sale to the holder of this Warrant upon
the exercise hereof under applicable securities or "blue sky" laws of the states
of the United States, and shall provide evidence of any such action so taken to
the holder of this Warrant prior to such date; provided, however, that the
Company shall not be required to qualify as a foreign corporation or file a
general consent to service of process in any such jurisdiction.
4. Antidilution Provisions. During the Exercise Period, the
Exercise Price and the number of Warrant Shares issuable hereunder and for which
this Warrant is then exercisable pursuant to Section 2 hereof shall be subject
to adjustment from time to time as provided in this Section 4.
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<PAGE> 5
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
or down to the nearest cent.
(a) Adjustment of Exercise Price. Except as otherwise
provided in Sections 4(c) and 4(e) hereof, if and whenever during the Exercise
Period the Company issues or sells, or in accordance with Section 4(b) hereof is
deemed to have issued or sold, any shares of Common Stock for no consideration
or for a consideration per share less than the Dilutive Price (as defined in
this subparagraph) on the date of issuance (a "DILUTIVE ISSUANCE"), then
effective immediately upon the Dilutive Issuance, the Exercise Price will be
adjusted in accordance with the following formula:
E' ' E x O + P/M
---------------;
CSDO
where:
E' ' the adjusted Exercise Price;
E ' the then current Exercise Price;
M ' the then current Market Price (as defined in
Section 4(1)(ii));
O ' the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P ' the aggregate consideration, calculated as set
forth in Section 4(b) hereof, received by the
Company upon such Dilutive Issuance; and
CSDO ' the total number of shares of Common Stock deemed
outstanding immediately after the Dilutive
Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 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 exercisable, 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 Dilutive Price in effect on the date of issuance of
such Options ("BELOW MARKET OPTIONS"), then the maximum total number of shares
of Common Stock issuable upon the exercise of all such Below Market Options
(assuming full exercise, conversion or exchange of Convertible Securities, if
applicable) will, as of the date of the issuance or grant of such Below Market
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
Aprice per share for which Common Stock is issuable upon the exercise of such
Below Market Options@ is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for
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<PAGE> 6
the issuance or granting of all such Below Market Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of all such Below Market Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below Market Options,
the minimum aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market 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 Below Market
Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(A) 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 exercise, conversion or
exchange (as determined pursuant to Section 4(b)(ii)(B) if applicable) is less
than the Dilutive Price in effect on the date of issuance of such Convertible
Securities, then the maximum total number of shares of Common Stock issuable
upon the exercise, conversion or exchange of all such Convertible Securities
will, as of the date of the issuance of such Convertible Securities, be deemed
to be outstanding and to have been issued and sold by the Company for such price
per share. For the purposes of the preceding sentence, the "price per share for
which Common Stock is issuable upon such exercise, 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 exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, 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 exercise, conversion or exchange of
such Convertible Securities.
(B) If the Company in any manner issues or sells
any Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "VARIABLE RATE CONVERTIBLE SECURITY"), then the "price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange" for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts contained in
such Convertible Security have been satisfied) if the Dilutive Price on the date
of issuance of such Convertible Security was 75% of the Dilutive Price on such
date (the "ASSUMED VARIABLE MARKET PRICE"). Further, if the Dilutive Price at
any time or times thereafter is less than or equal
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<PAGE> 7
to the Assumed Variable Market Price last used for making any adjustment under
this Section 4 with respect to any Variable Rate Convertible Security, the
Exercise Price in effect at such time shall be readjusted to equal the Exercise
Price which would have resulted if the Assumed Variable Market Price at the time
of issuance of the Variable Rate Convertible Security had been 75% of the
Dilutive Price existing at the time of the adjustment required by this sentence.
(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 exercise,
conversion or exchange of any Convertible Securities; or (iii) the rate at which
any Convertible Securities are convertible into or exchangeable for Common Stock
(in each such case, 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 exercise, conversion or
exchange of any Convertible Securities is not, in fact, issued and the rights to
exercise such Option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Exercise Price then in effect
will be readjusted to the Exercise Price which would have been in effect at the
time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of Common
Stock issued upon exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued, granted or sold for
cash, the consideration received therefor for purposes of this Warrant will be
the amount received by the Company therefor, 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
market 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 market 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 market value of any consideration other than cash or
securities will be determined in good faith by an investment banker or other
appropriate
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<PAGE> 8
expert of national reputation selected by the Company and reasonably acceptable
to the holder hereof, with the costs of such appraisal to be borne by the
Company.
(vi) Exceptions to Adjustment of Exercise Price. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the Issue
Date and set forth on Schedule 3(c) of the Securities Purchase Agreement in
accordance with the terms of such securities as of such date or (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 non-employee members of the Board of Directors of
the Company or a majority of the members of a committee of non-employee
directors established for such purpose; or (iii) upon the issuance of securities
pursuant to an underwritten public offering.
(c) Subdivision or Combination of Common Stock. If the
Company, at any time during the Exercise Period, subdivides (by any stock split,
stock dividend, recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock 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 during the Exercise Period, combines (by reverse stock
split, recapitalization, reorganization, reclassification or otherwise) its
shares of Common Stock into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect immediately
prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant and for which this
Warrant is or may become exercisable 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 or for which this Warrant is or
may become exercisable (as applicable) 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 at any time during the Exercise Period, 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, cash 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
8
<PAGE> 9
appropriate provision to insure that the provisions of this Section 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
Warrant 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. Notwithstanding the foregoing, in the
event of any consolidation of the Company with, or merger of the Company into,
any other corporation, or the sale or conveyance of all or substantially all of
the assets of the Company, at any time during the Exercise Period, the holder of
the Warrant shall, at its option, have the right to receive, in connection with
such transaction, cash consideration equal to the fair market value of this
Warrant as determined in accordance with customary valuation methodology used in
the investment banking industry.
(f) Distribution of Assets. In case the Company shall declare
or make any distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, stock repurchase by
way of return of capital or otherwise (including any dividend or distribution to
the Company's shareholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "DISTRIBUTION"), at any time during the
Exercise Period, then 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 (or rights) 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 shareholders
entitled to such Distribution.
(g) Notice of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant, which
notice shall state the Exercise Price resulting from such adjustment and the
increase or decrease in the number of Warrant Shares purchasable at such price
upon exercise, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of
the Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be made,
but any such lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the Company shall
pay a cash adjustment in respect
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<PAGE> 10
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 consistent with the Company's past practices with respect to
declaring dividends and making distributions) 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 of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable estimate 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 seventy-five
(75) 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. Notwithstanding the foregoing, the Company shall
publicly disclose the substance of any notice delivered hereunder prior to
delivery of such notice to the holder of this Warrant.
(k) Certain Events. If, at any time during the Exercise
Period, any event occurs of the type contemplated by the adjustment provisions
of this Section 4 but not expressly provided for by such provisions, the Company
will give notice of such event as provided in Section 4(g) hereof, and the
Company's Board of Directors will make an appropriate adjustment
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<PAGE> 11
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) "MARKET PRICE," as of any date, (i) means the
average of the closing bid prices for the shares of Common Stock as reported on
American Stock Exchange ("AMEX") by Bloomberg Financial Markets ("BLOOMBERG")
for the ten consecutive 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 closing bid prices as reported by Bloomberg on the principal
trading market for the Common Stock during the same period, or, if there is no
sale price for such period, the last reported bid price as reported by Bloomberg
for such 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 by an investment banking firm selected by the
Company and reasonably acceptable to the holder, with the costs of the appraisal
to be borne by 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.
(ii) "COMMON STOCK," for purposes of this Section 4,
includes the Common Stock 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 Common
Stock 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 Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
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.
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<PAGE> 12
7. Transfer, Exchange, Redemption 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
Section 7(e) below, provided, however, that any transfer or assignment shall be
subject to the conditions set forth in Sections 7(f) and (g) hereof and to the
provisions of Sections 2(f) and 2(g) of the Securities Purchase Agreement. Until
due presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 8 hereof are assignable only in
accordance with the provisions of the Registration Rights Agreement.
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Section 7(e) below, for new
Warrants of like tenor of different denominations 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 Section 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 Section 7. The Company
shall indemnify and reimburse the holder of this Warrant for all losses and
damages arising as a result of or related to any breach of the terms of this
Warrant, including costs and expenses (including legal fees) incurred by such
holder in connection with the enforcement of its rights hereunder.
(e) Warrant 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
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<PAGE> 13
the person in whose name this Warrant has been issued, as well as the name and
address of each transferee and each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the
time of the surrender of this Warrant in connection with any exercise, transfer,
or exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state 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 shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such exercise, transfer, or exchange may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws (the cost of which shall be borne by the Company if
the Company's counsel renders such an opinion and up to $250 of such cost shall
be borne by the Company if the holder's counsel is requested to render such
opinion), (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.
(g) Additional Restrictions on Exercise or Transfer.
Notwithstanding anything contained herein to the contrary, unless the holder
hereof delivers a waiver in accordance with the last sentence of this Section
7(g), this Warrant shall not be exercisable by a holder hereof to the extent
(but only to the extent) that (a) the number of shares of Common Stock
beneficially owned by such holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unexercised portion of the Warrants or the unexercised or unconverted portion of
any other securities of the Company (including the 1997 Preferred Stock) subject
to a limitation on conversion or exercise analogous to the limitation contained
herein) and (b) the number of shares of Common Stock issuable upon exercise of
the Warrant (or portion thereof) with respect to which the determination
described herein is being made, would result in beneficial ownership by such
holder and its affiliates of more than 4.99% of the outstanding shares of Common
Stock. To the extent the above limitation applies, the determination of whether
and to what extent this Warrant shall be exercisable with respect to other
securities owned by such holder shall be in the sole discretion of the holder
and submission of this Warrant for full or partial exercise shall be deemed to
be the holder's determination of whether and the extent to which this Warrant is
exercisable, in each case subject to such aggregate percentage limitation. No
prior inability to exercise the Warrant pursuant to this Section shall have any
effect on the applicability of the provisions of this Section with respect to
any subsequent determination of exerciseability. 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, except as otherwise provided in clause (a) hereof. Except as
provided in the immediately succeeding sentence, the restrictions contained in
this Section 7(g) may not be amended without the consent
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<PAGE> 14
of the holder of this Warrant and the holders of a majority of the Company's
then outstanding Common Stock. Notwithstanding the foregoing, the holder hereof
may, by providing written notice to the Company, adjust the restriction set
forth in this Section 7(g) so that the limitation on beneficial ownership of
4.99% of the outstanding shares of Common Stock referred to above shall be
increased to 9.99%, which adjustment shall not take effect until the 61st day
after the date of such notice.
8. Registration Rights. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in the Registration
Rights Agreement, including the right to assign such rights to certain
assignees, as set forth therein.
9. Notices. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective upon receipt or refusal of receipt, if
delivered personally or by courier, or by confirmed telecopy, 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
If to the holder, at such address as such holder shall have provided in writing
to the Company, or at such other address as such holder furnishes by notice
given in accordance with this Section 9.
10. Governing Law; Jurisdiction. This Warrant shall be governed by
and construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware, without regard to
principles of choice of law or conflicts of law that would defer to the
substantive law of another jurisdiction. The Company irrevocably consents to the
jurisdiction of the United States federal courts and state courts located in the
State of New York in any suit or proceeding based on or arising under this
Warrant and irrevocably agrees that all claims in respect of such suit or
proceeding shall be determined exclusively in such courts. The Company
irrevocably waives any objection to the laying of venue and the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
further agrees that service of process upon the Company mailed by certified or
registered mail shall be deemed in every respect effective service of process
upon the Company in any such suit or proceeding. Nothing herein shall affect the
holder's right to serve process in any other manner permitted by law. The
Company agrees that a final non-appealable judgment in any such suit or
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<PAGE> 15
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
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 Sections 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) Business Day. For purposes of this Warrant, the term
"business day" means any day, other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by
law, regulation or executive order to close.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
15
<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
HEARx LTD.
By:
-------------------------------
Name:
-------------------------
Title:
-------------------------
16
<PAGE> 17
FORM OF EXERCISE AGREEMENT
(TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT)
To: HEARx LTD.
1250 Northpoint Parkway
West Palm Beach, FL 33407
Attention: Paul A. Brown, M.D.
Chairman of the Board
The undersigned hereby irrevocably exercises the right to purchase
_____________ shares of the Common Stock of HEARx LTD., a corporation organized
under the laws of the State of Texas (the "COMPANY"), evidenced by the attached
Warrant, in accordance with the conditions and provisions of said Warrant. The
undersigned shall submit as payment for such purchase, at the option of the
Company, either (i) an amount equal to the product of the Exercise Price
multiplied by the number of shares being purchased hereby, or (ii) forfeiture of
a number of shares of Common Stock which would have been issuable under the
Warrant equal to the aggregate Exercise Price payable for such exercise divided
by the Market Price. All capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to such terms in the Warrant.
The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant,
except under circumstances that will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws.
G The undersigned requests that the Company cause its transfer agent to
electronically transmit the Common Stock issuable pursuant to this
Exercise Agreement to the account of the undersigned or its nominee
(which is _________________) with DTC through its Deposit Withdrawal
Agent Commission System ("DTC TRANSFER").
G In lieu of receiving the shares of Common Stock issuable pursuant to
this Exercise Agreement by way of DTC Transfer, the undersigned hereby
requests that the Company cause its transfer agent to issue and deliver
to the undersigned physical certificates representing such shares of
Common Stock.
The undersigned requests that a Warrant representing any unexercised
portion hereof be issued, pursuant to the Warrant, in the name of the Holder and
delivered to the undersigned at the address set forth below:
Dated:
----------------- -----------------------------------
Signature of Holder
-----------------------------------
Name of Holder (Print)
Address:
-----------------------------------
-----------------------------------
-----------------------------------
<PAGE> 18
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
