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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): May 9, 2000
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
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER
On May 9, 2000, 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 7% Series I Convertible Preferred Stock of the Company, filed herewith as
exhibits to this Form 8-K.
THE OFFERING
On May 9, 2000, the Company entered into a Convertible Preferred
Stock Purchase Agreement with the purchaser named therein (the "Purchaser"),
pursuant to which the Company sold a total of 500 shares of the Company's 7%
Series I Convertible Preferred Stock, par value $1.00 per share (the "Series I
Preferred Stock") and warrants to acquire 203,390 shares of the Company's common
stock, par value $.10 per share (the "Common Stock") (the "Purchaser Warrants"),
pursuant to Regulation D for an aggregate purchase price of $5,000,000 (the
"Offering").
The Series I Preferred Stock is convertible by the holders thereof
into Common Stock of the Company from and after August 6, 2000. Subject to
adjustment as described below, upon conversion of the Series I Preferred Stock,
holders will be entitled to receive a number of shares of Common Stock
determined by dividing the sum of the stated value of the Series I Preferred
Stock ($10,000 per share) (the "Stated Value"), plus accrued and unpaid
dividends (unless the Company elects to pay dividends in cash), by $4.46
(subject to adjustment upon the occurrence of certain dilutive events).
Dividends are payable upon conversion in an amount equal to 7% of the Stated
Value per annum in cash or by accrual to the Stated Value, at the Company's
discretion subject to limited exceptions. The Series I Preferred Stock may be
converted by holders in accordance with these terms at any time prior to May 9,
2003 and will automatically convert on such date.
During each consecutive 30-day period beginning January 4, 2001
and ending May 4, 2001, a holder of Series I Preferred Stock may request that
the Company prepay up to 25% of the Stated Value, plus accrued and unpaid
dividends, at a price equal to 110% of the Stated Value, plus accrued and unpaid
dividends. If the Company elects to make such prepayment, the amount to be paid
shall be delivered to the holder by the tenth day following the date of the
holder's request. If the Company elects not to make such prepayment, the
conversion price for the shares of Series I Preferred Stock that were the
subject of the holder's request shall be adjusted such that, upon conversion,
the holder will be entitled to receive a number of shares of Common Stock
determined by dividing the sum of the Stated Value, plus accrued and unpaid
dividends (unless the Company elects to pay dividends in cash), by the lesser of
(i) $4.46 and (ii) the average of the five lowest closing prices of the Common
Stock during the thirty trading days preceding the date of conversion.
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Upon the occurrence of certain triggering events, the holders have
the right to require the Company to redeem all or a portion of the Series I
Preferred Stock. Such events include, but are not limited to, the failure of the
registration statement filed in accordance with the Registration Rights
Agreement (described below) to be effective on or prior to November 5, 2000, the
effectiveness of such registration statement lapsing for more than twenty
trading days, and the failure of the Company to have available a sufficient
number of authorized and unreserved shares of Common Stock to issue upon
conversion of the Series I Preferred Stock. The redemption price is an amount in
cash equal to the sum of the Mandatory Redemption Amount, plus the product of
(i) the number of shares of Common Stock issued in respect of conversions of
Series I Preferred Stock within the twenty trading days prior to the triggering
event and (ii) the closing price of the Common Stock on the date redemption is
demanded or the date the redemption price is paid in full, whichever is greater.
The "Mandatory Redemption Amount" means the greater of (i) 120% of the Stated
Value, plus accrued and unpaid dividends and (ii) the product of (A) the closing
price of the Common Stock on the trading day immediately preceding the date of
the triggering event or the date the redemption price is paid in full, whichever
is greater, and (B) the Stated Value, plus accrued and unpaid dividends, divided
by the conversion price in effect on the date of the triggering event.
The holders of the Series I Preferred Stock have no voting power
except for voting rights with respect to certain actions by the Company that
might adversely affect the rights of such holders.
The Purchaser 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 price of $4.46 per share. The Warrants will expire
on May 9, 2005.
In connection with this transaction, the Company also entered into
a Registration Rights Agreement with the Purchaser under which the Company is
required to file a registration statement on Form S-3 by June 8, 2000, covering
resales of the shares of Common Stock underlying all of the Series I Preferred
Stock and the Purchaser Warrants. Under the Registration Rights Agreement, the
Company may be required to make certain payments to holders of the Series I
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 August 6, 2000.
After payment of closing fees and fees to two finders, the net
proceeds to the Company is estimated to be $4,585,000. In connection with the
placement of the Series I Preferred Stock, the Company also issued to the two
finders warrants to purchase an aggregate of 131,695 shares of Common Stock at
an exercise price equal to $4.46 per share (the "Finder Warrants"), which
contain the same restrictions as the Purchaser Warrants. All of the shares
underlying the Finder Warrants must be included in the registration statement on
Form S-3 being filed by the Company on or before June 8, 2000.
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USE OF PROCEEDS
The Company intends to use the net proceeds from the Offering for
working capital purposes.
OUTSTANDING SECURITIES OF THE COMPANY
At May 9, 2000, the authorized capital stock of the Company
consisted of (i) 20,000,000 shares of Common Stock, of which 12,363,075 shares
were issued and outstanding and 5,086,158 shares were reserved for issuance
(including 3,276,057 shares reserved for issuance upon conversion of the Series
I Preferred Stock and exercise of the Purchaser Warrants and the Finder
Warrants), (ii) 2,000,500 shares of preferred stock, par value $1.00 per share,
of which (A) 7,500 shares have been designated as 1998 Convertible Preferred
stock, of which 5,515 shares are isssued and outstanding, (B) 200,000 shares
have been designated as Series H Junior Participating Preferred Stock, of which
no shares are issued and outstanding, and (C) 500 shares of the Series I
Preferred Stock, all of which were issued to the Purchaser in the Offering. In
addition, certain employees, officers, 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.
ITEM 7. EXHIBITS
The following exhibits are filed with this report:
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
3 Certificate of Designations, Preferences and Rights of the 7% Series I
Convertible Preferred Stock of the Company.
4.1 Convertible Preferred Stock Purchase Agreement, dated as of May 9, 2000
between HEARx Ltd. and the purchaser set forth on the signature page
thereto.
4.2 Registration Rights Agreement, dated as of May 9, 2000 between HEARx
Ltd. and the purchaser set forth on the signature page thereto.
4.3 Form of Purchaser Warrant and Finder Warrants.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HEARx Ltd.
DATE: May 22, 2000 By: /s/ Paul A. Brown
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Paul A. Brown, M.D.
Chairman and Chief Executive Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
3 Certificate of Designations, Preferences and Rights of the 7% Series I
Convertible Preferred Stock of the Company.
4.1 Convertible Preferred Stock Purchase Agreement, dated as of May 9, 2000
between HEARx Ltd. and the purchaser set forth on the signature page
thereto.
4.2 Registration Rights Agreement, dated as of May 9, 2000 between HEARx
Ltd. and the purchaser set forth on the signature page thereto.
4.3 Form of Purchaser Warrant and Finder Warrants.
</TABLE>
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EXHIBIT 3
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
7% SERIES I 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 "Company"), hereby certifies that
the following resolutions were adopted by the Board of Directors of the Company
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 the Company (the "Board of Directors" or the "Board") in
accordance with the provisions of the Amended and Restated Certificate of
Incorporation of the Company, the Board of Directors hereby authorizes a series
of the Company's previously authorized Preferred Stock, par value $1.00 per
share (the "Preferred Stock"), and hereby states the designations and number of
shares and fixes the relative rights, preferences, privileges, powers and
restrictions thereof as follows:
7% SERIES I CONVERTIBLE PREFERRED STOCK:
Section 1. Designation, Amount and Par Value. The
series of preferred stock shall be designated as 7% Series I Convertible
Preferred Stock (the "Preferred Stock") and the number of shares so designated
shall be 500 (which shall not be subject to increase without the consent of the
holders of the Preferred Stock (each, a "Holder" and collectively, the
"Holders")). Each share of Preferred Stock shall have a par value of $1.00 per
share and a stated value equal to the sum of $10,000 plus all unpaid and accrued
dividends to the date of determination to the extent not paid in cash in
accordance with the terms hereof (the "Stated Value").
Section 2. Dividends.
(a) Holders shall be entitled to receive, out of funds legally
available therefor, and the Company shall pay, cumulative dividends at the rate
per share (as a percentage of the Stated Value per share) of 7% per annum,
payable on each Conversion Date (as defined herein) for such share, in cash or
by accretion of the Stated Value. Subject to the terms and conditions herein,
the
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decision whether to accrete dividends hereunder to the Stated Value or to pay
for dividends in cash shall be at the discretion of the Company. The Company
shall provide the Holders written notice of its intention to accrete dividends
hereunder to the Stated Value or pay dividends in cash not less than ten days
prior to each Conversion Date for so long as shares of Preferred Stock are
outstanding (the Company may indicate in such notice that the election contained
in such notice shall continue for a particular period or for all periods until
revised). Failure to timely provide such written notice shall be deemed (if
permitted hereunder) an election by the Company to accrete dividends hereunder
to the Stated Value. Dividends on the Preferred Stock shall be calculated on the
basis of a 360-day year, shall accrue daily commencing on the Original Issue
Date (as defined in Section 7), and shall be deemed to accrue from such date
whether or not earned or declared and whether or not there are profits, surplus
or other funds of the Company legally available for the payment of dividends.
Any dividends to be paid in cash hereunder that are not paid within four Trading
Days (as defined in Section 7) following a Conversion Date shall continue to
accrue and shall entail a late fee, which must be paid in cash, at the rate of
18% per annum or the lesser rate permitted by applicable law (such fees to
accrue daily, from the date such dividends are due hereunder through and
including the date of payment).
(b) Notwithstanding anything to the contrary contained
herein, the Company must pay dividends in cash if:
(i) the number of shares of Common Stock (as
defined in Section 7) at the time authorized, unissued and unreserved for all
purposes is insufficient to accrete such dividends to the Stated Value to permit
conversion in full of all outstanding Stated Value;
(ii) after the Dividend Effectiveness Date (as
defined in Section 7), Underlying Shares (as defined in Section 7) (x) are not
registered for resale pursuant to an effective Underlying Shares Registration
Statement (as defined in Section 7) and (y) may not be sold without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act (as
defined in Section 7);
(iii) the Common Stock is not then listed for
trading on the American Stock Exchange (the "AMEX") or listed or quoted for
trading on the Nasdaq National Market, the Nasdaq SmallCap Market, or the New
York Stock Exchange (each, a "Subsequent Market"); or
(iv) the accretion of such dividends to the
Stated Value and subsequent conversions of all then outstanding Stated Value
would result in a violation of Section 5(a)(iii) or the rules or regulations any
rules and regulations governing any Subsequent Market on which the Common Stock
is then listed or quoted for trading.
(c) So long as any Preferred Stock shall remain
outstanding, neither the Company nor any subsidiary thereof shall redeem,
purchase or otherwise acquire directly or indirectly any Junior Securities (as
defined in Section 7), nor shall the Company directly or indirectly pay or
declare any dividend or make any distribution (other than a dividend or
distribution described in Section 5 or dividends due and paid in the ordinary
course on preferred stock of the Company at such times when the Company is in
compliance with its payment and other obligations
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hereunder) upon, nor shall any distribution be made in respect of, any Junior
Securities, nor shall more than $500,000 in the aggregate while shares of
Preferred Stock remain outstanding be set aside for or applied to the purchase
or redemption (through a sinking fund or otherwise) of any Junior Securities or
shares pari passu with the Preferred Stock ("Pari Passu Securities").
Section 3. Voting Rights. Except as otherwise provided
herein and as otherwise required by law, the Preferred Stock shall have no
voting rights. However, so long as any shares of Preferred Stock are
outstanding, the Company shall not, without the affirmative vote of the Holders
of a majority of the shares of the Preferred Stock then outstanding, (a) alter
or change adversely the powers, preferences or rights given to the Preferred
Stock or alter or amend this Certificate of Designation, (b) authorize or create
any class of stock ranking as to dividends or distribution of assets upon a
Liquidation (as defined in Section 4) senior to or otherwise pari passu with the
Preferred Stock, (c) amend its certificate or articles of incorporation or other
charter documents so as to affect adversely any rights of the Holders, (d)
increase the authorized number of shares of Preferred Stock, or (e) enter into
any agreement with respect to the foregoing.
Section 4. Liquidation. Upon any liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary (a
"Liquidation"), the Holders shall be entitled to receive out of the assets of
the Company, whether such assets are capital or surplus, for each share of
Preferred Stock an amount equal to the Stated Value per share before any
distribution or payment shall be made to the holders of any Junior Securities
but after any payment or distribution to be made to the holders of any Senior
Securities (as defined in Section 7), and if the assets of the Company shall be
insufficient to pay in full such amounts and amounts payable to the holders of
Pari Passu Securities, then the entire assets to be distributed to the Holders
and holders of Pari Passu Securities, shall be distributed among the Holders and
holders of Pari Passu Securities, ratably in accordance with the respective
amounts that would be payable on such shares if all amounts payable thereon were
paid in full. A sale, conveyance or disposition of 50% or more of the assets of
the Company or the effectuation by the Company of a transaction or series of
related transactions in which more than 33% of the voting power of the Company
is disposed of, or a consolidation or merger of the Company with or into any
other company or companies into one or more companies not wholly-owned by the
Company shall not be treated as a Liquidation, but instead shall be subject to
the provisions of Section 5. The Company shall mail written notice of any such
Liquidation, not less than 30 days prior to the payment date stated therein, to
each record Holder.
Section 5. Conversion.
(a)(i) Conversions at Option of Holder. Each share of
Preferred Stock shall be convertible into shares of Common Stock at the
Conversion Ratio (as defined in Section 7) at the option of the Holder, at any
time and from time to time from and after the 90th day following the Original
Issue Date. Holders shall effect conversions by surrendering the certificate or
certificates representing the shares of Preferred Stock to be converted to the
Company, together with the form of conversion notice attached hereto as Exhibit
A (a "Conversion Notice"). Each Conversion Notice shall specify the number of
shares of Preferred Stock to be converted, the applicable Conversion Price and
the date on which such conversion is to be effected, which date
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may not be prior to the date the Holder delivers such Conversion Notice by
facsimile to the Company (the "Conversion Date"). If no Conversion Date is
specified in a Conversion Notice, the Conversion Date shall be the date that
such Conversion Notice is deemed delivered under section 5(h). If the Holder is
converting less than all shares of Preferred Stock represented by the
certificate or certificates tendered by the Holder with the Conversion Notice,
or if a conversion hereunder cannot be effected in full for any reason, the
Company shall promptly deliver to such Holder (in the manner and within the time
set forth in Section 5(b)) a certificate representing the number of shares of
Preferred Stock as have not been converted.
(ii) Automatic Conversion. Subject to the
provisions in this paragraph, the shares of Preferred Stock for which Conversion
Notices have not previously been received or for which prepayment has not been
made or shall not have been required to have been made shall be automatically
converted on the third anniversary of the Original Issue Date (the "Automatic
Conversion Date"), at the Initial Conversion Price (as defined below). The
conversion contemplated by this paragraph shall not occur and such shares shall
remain outstanding at such time as (a) (1) an Underlying Shares Registration
Statement is not then effective and available for use by the Holder to resell
all remaining Registrable Securities (as defined in the Registration Rights
Agreement, defined below) or (2) the Holder is not permitted to resell all
remaining Registrable Securities pursuant to Rule 144(k); or (b) there are not
sufficient shares of Common Stock authorized and reserved for issuance upon such
conversion. Notwithstanding anything herein to the contrary, the Automatic
Conversion Date shall be extended (on a day-for-day basis) for any Trading Days
after the Effective Date that the Holder is unable to resell Underlying Shares
due to (a) the Common Stock not being listed for trading on the AMEX or any
Subsequent Market, (b) the failure of an Underlying Shares Registration
Statement to be declared effective by the Commission or, if so declared, to
remain effective during the Effectiveness Period as to all Underlying Shares, or
(c) the suspension of the Holder's right to resell Underlying Shares thereunder.
Notwithstanding anything to the contrary contained herein, a conversion pursuant
to this Section shall not be subject to the provisions of Section 5(a)(iii)(A)
or (B).
(iii) Certain Conversion Restrictions.
(A) A Holder may not convert shares of Preferred
Stock or receive shares of Common Stock as payment of dividends hereunder to the
extent such conversion or receipt of such dividend would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act (as defined in Section 7) and
the rules promulgated thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of, and payment of dividends on, the shares of Preferred Stock held by such
Holder after application of this Section. Since the Holder will not be obligated
to report to the Company the number of shares of Common Stock it may hold at the
time of a conversion hereunder, unless the conversion at issue would result in
the issuance of shares of Common Stock in excess of 4.999% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in
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this Section applies, the determination of which portion of the shares of
Preferred Stock are convertible shall be the responsibility and obligation of
the Holder. If the Holder has delivered a Conversion Notice for shares of
Preferred Stock that, without regard to any other shares that the Holder or its
affiliates may beneficially own, would result in the issuance in excess of the
permitted amount hereunder, the Company shall notify the Holder of this fact and
shall honor the conversion for the maximum number of shares of Preferred Stock
permitted to be converted on such Conversion Date in accordance with the periods
described in Section 5(b) and, at the option of the Holder, either retain shares
of Preferred Stock tendered for conversion in excess of the permitted amount
hereunder for future conversions or return such excess shares of Preferred Stock
permitted to the Holder. The provisions of this Section may be waived by a
Holder (but only as to itself and not to any other Holder) upon not less than 61
days prior notice to the Company. Other Holders shall be unaffected by any such
waiver.
(B) A Holder may not convert shares of Preferred
Stock or receive shares of Common Stock as payment of dividends hereunder to the
extent such conversion or receipt of such dividend would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 9.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
dividends on, the shares of Preferred Stock held by such Holder after
application of this Section. Since the Holder will not be obligated to report to
the Company the number of shares of Common Stock it may hold at the time of a
conversion hereunder, unless the conversion at issue would result in the
issuance of shares of Common Stock in excess of 9.999% of the then outstanding
shares of Common Stock without regard to any other shares which may be
beneficially owned by the Holder or an affiliate thereof, the Holder shall have
the authority and obligation to determine whether the restriction contained in
this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the shares of Preferred Stock are
convertible shall be the responsibility and obligation of the Holder. If the
Holder has delivered a Conversion Notice for shares of Preferred Stock that,
without regard to any other shares that the Holder or its affiliates may
beneficially own, would result in the issuance in excess of the permitted amount
hereunder, the Company shall notify the Holder of this fact and shall honor the
conversion for the maximum number of shares of Preferred Stock permitted to be
converted on such Conversion Date in accordance with the periods described in
Section 5(b) and, at the option of the Holder, either retain shares of Preferred
Stock tendered for conversion in excess of the permitted amount hereunder for
future conversions or return such excess shares of Preferred Stock permitted to
the Holder. The provisions of this Section may be waived by a Holder (but only
as to itself and not to any other Holder) upon not less than 61 days prior
notice to the Company. Other Holders shall be unaffected by any such waiver.
(C) If the Common Stock is then listed for
trading on the AMEX and the Company has not obtained the Shareholder Approval
(as defined below), then the Company is precluded from issuing Underlying Shares
at a Conversion Price that is less than the closing sales price per share of the
Common Stock on the Trading Day immediately preceding the closing of the
transactions contemplated by the Purchase Agreement, subject to equitable
adjustment in the event of stock splits and similar events (such price, the
"Market Price"), in
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excess of 2,386,902 shares of Common Stock (the "Issuable Maximum") upon
conversion of the Preferred Stock and as payment of dividends thereon. The
Issuable Maximum equals 19.999% of the number of shares of Common Stock
outstanding immediately prior to the closing of transactions set forth in the
Purchase Agreement. Each Holder shall be entitled to a portion of the Issuable
Maximum equal to the quotient obtained by dividing (x) the number of shares of
Preferred Stock issued and sold to such Holder on the Original Issue Date by (y)
the number of all shares of Preferred Stock issued and sold by the Company on
the Original Issue Date. If any Holder shall no longer hold shares of Preferred
Stock, then such Holder's remaining portion of the Issuable Maximum shall be
allocated pro-rata among the remaining Holders. If on any Conversion Date (A)
the Common Stock is listed for trading on the AMEX and (B) the Company shall not
have previously obtained the vote of shareholders (the "Shareholder Approval"),
if any, as may be required by the applicable rules and regulations of the
American Stock Exchange (or any successor entity) applicable to approve the
issuance of a number of shares of Common Stock in excess of the Issuable Maximum
at a price below the Market Price, then the Company shall issue to the Holder
requesting a conversion a number of shares of Common Stock equal to the lesser
of (x) the number of shares of Common Stock issuable upon such conversion at the
Conversion Price and (y) the Holder's pro rata portion (determined as described
above) of the Issuable Maximum less all shares of Common Stock previously issued
to such Holder upon conversions of the Preferred Stock (including as payment of
dividends thereon) (but only those shares issued at a Conversion Price less than
the Market Price). With respect to the remainder of the aggregate Stated Value
of the shares of Preferred Stock then held by such Holder for which a conversion
in accordance with the Conversion Price would result in an issuance of shares of
Common Stock in excess of such Holder's pro-rata portion of the Issuable Maximum
(the "Excess Stated Value"), the converting Holder shall have the option to
require the Company to either (1) use its best efforts to obtain the Shareholder
Approval applicable to such issuance as soon as is possible, but in any event
not later than the 75th day after such request, or (2) pay cash to the
converting Holder in an amount equal to the Mandatory Redemption Amount (as
defined in Section 7) for the Excess Stated Value. If the converting Holder
shall have elected the first option pursuant to the immediately preceding
sentence and the Company shall have failed to obtain the Shareholder Approval on
or prior to the 75th day after such request, then, within three Business Days
following the request of the converting Holder, which may be given at any time
following such 75th day, the Company shall pay cash to the converting Holder an
amount equal to the Mandatory Redemption Amount for the Excess Stated Value. If
the Company fails to pay the Mandatory Redemption Amount in full pursuant to
this Section when due, the Company will pay interest thereon at a rate of 18%
per annum or such lesser maximum amount that is permitted to be paid by
applicable law, to the converting Holder, accruing daily from the date such
amounts were due until such amount, plus all such interest thereon, is paid in
full. The Company and the Holder understand and agree that shares of Common
Stock issued to and then held by a Holder as a result of conversions of
Preferred Stock shall not be entitled to vote in respect of the Shareholder
Approval.
(iv) Put Option. During each consecutive 30 day-period
beginning the 240th day and ending on the expiration of the 360th day following
the Original Issue Date, the Holder shall have the right to request that the
Company prepay up to 25% of the original Stated Value (including all then
accrued dividends thereon), on a non-cumulative basis, at a price equal to the
Put Price (as defined in Section 7) by delivering to the Company a written
notice (a "Put Notice")
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specifying (i) the Stated Value of Preferred Stock to be put thereunder and the
amount of all accrued and unpaid dividends thereon, and the amount of liquidated
damages (if any) then owing in respect of such Stated Value and (ii) the
applicable Put Price. Upon receipt of a Put Notice, the Company, at its sole
discretion, shall determine whether to prepay such Stated Value (including all
then accrued dividends thereon). If the Company elects to make such prepayment,
the full Put Price for the Stated Value specified in a Put Notice shall be due
and payable in cash by the expiration of the tenth day from and including the
date of the Put Notice (5:00 P.M. New York time on the tenth day from and
including the date of the Put Notice is the "Put Payment Time"). In the event
the Company elects not to pay the Put Price by the Put Payment Time, or fails to
pay the Put Price by the Put Payment Time, then the Conversion Price for the
Preferred Stock subject to the Put Notice not so prepaid shall thereafter be
determined in accordance with Section 5(c)(i)(B).
(b)(i) Not later than three Trading Days after each Conversion
Date, the Company will deliver to the Holder (A) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of shares of
Preferred Stock, (B) one or more certificates representing the number of shares
of Preferred Stock not converted and (C) a bank check in the amount of accrued
and unpaid dividends (if the Company has elected or is required to pay accrued
dividends in cash). Notwithstanding the foregoing or anything to the contrary
contained herein, the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon conversion of any shares of
Preferred Stock until one Trading Day after certificates evidencing such shares
of Preferred Stock are delivered for conversion to the Company, or the Holder of
such Preferred Stock notifies the Company that such certificates have been lost,
stolen or destroyed and provides a bond (or other adequate security) reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. The Company shall, upon request of the Holder, if
available, use reasonable efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions. If in the case of any Conversion
Notice such certificate or certificates are not delivered to or as directed by
the applicable Holder by the third Trading Day after the Conversion Date, the
Holder shall be entitled to elect by written notice to the Company at any time
on or before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for conversion.
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(b)(i), by the fourth Trading
Day after the Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, $4,000 for each Trading Day after such
fourth Trading Day until such certificates are delivered. Nothing herein shall
limit a Holder's right to pursue actual damages for the Company's failure to
deliver certificates representing shares of Common Stock upon conversion within
the period specified herein and such Holder shall have the right to pursue all
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
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(iii) In addition to any other rights available to the Holder,
if the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 5(b)(i), by the fourth Trading Day after the Conversion
Date, and if after such fourth Trading Day the Holder purchases (in an open
market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by such Holder of the Underlying Shares which the Holder was entitled to
receive upon such conversion (a "Buy-In"), then the Company shall (A) pay in
cash to the Holder the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common Stock
that such Holder was entitled to receive from the conversion at issue multiplied
by (2) the market price of the Common Stock at the time of the sale giving rise
to such purchase obligation and (B) at the option of the Holder, either return
the shares of Preferred Stock for which such conversion was not honored or
deliver to such Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its conversion and delivery
obligations under Section 5(b)(i). For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of shares of Preferred Stock with respect to which the
market price of the Underlying Shares on the date of conversion totaled $10,000,
under clause (A) of the immediately preceding sentence the Company shall be
required to pay the Holder $1,000. The Holder shall provide the Company written
evidence of the amounts paid by the Holder in respect of the Buy-In. Nothing
herein shall limit a Holder's right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company's
failure to timely deliver certificates representing shares of Common Stock upon
conversion of the shares of Preferred Stock as required pursuant to the terms
hereof.
(c)(i) The conversion price for each share of Preferred
Stock in effect on any Conversion Date (the "Conversion Price") shall be
determined as follows: (A) until the Put Payment Time for such share (or portion
thereof), the Conversion Price shall equal 120% of the average of the Per Share
Market Values for the fifteen Trading Days immediately preceding the Original
Issue Date (the "Initial Conversion Price"), and (B) from and after the Put
Payment Time for such share (or portion thereof), the Conversion Price shall
equal the lesser of (1) the Initial Conversion Price, and (2) the Variable
Conversion Price (as defined in Section 7).
(ii) If the Company, at any time while any shares
of Preferred Stock are outstanding, shall (a) pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities or pari
passu securities payable in shares of Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine outstanding
shares of Common Stock into a smaller number of shares, or (d) issue by
reclassification and exchange of the Common Stock any shares of capital stock of
the Company, then the Initial Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common
Stock outstanding before such event and of which the denominator shall be the
number of shares of Common Stock outstanding after such event. Any adjustment
made pursuant to this Section 5(c)(ii) shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
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<PAGE> 9
(iii) If the Company, at any time while any shares
of Preferred Stock are outstanding, shall issue rights, warrants or options to
all holders of Common Stock entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Conversion Price shall be multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such rights, warrants or
options, plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock offered for subscription or purchase. Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right, warrant or option to purchase shares of Common Stock
the issuance of which resulted in an adjustment in the Conversion Price pursuant
to this Section 5(c)(iii), if any such right, warrant or option shall expire and
shall not have been exercised, the Conversion Price shall immediately upon such
expiration shall be recomputed and effective immediately upon such expiration
shall be increased to the price which it would have been (but reflecting any
other adjustments in the Conversion Price made pursuant to the provisions of
this Section 5 upon the issuance of other rights or warrants) had the adjustment
of the Conversion Price made upon the issuance of such rights, warrants, or
options been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such rights, warrants or options actually exercised. The foregoing shall not
apply to any issuances in accordance with the Rights Agreement, dated December
14, 1999, between the Company and the Rights Agent named therein.
(iv) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while any shares of Preferred Stock are outstanding, shall issue shares of
Common Stock or rights, warrants, options or other securities or debt that is
convertible into or exchangeable for shares of Common Stock ("Common Stock
Equivalents"), entitling any Person to acquire shares of Common Stock at a price
per share less than the Conversion Price (if the holder of the Common Stock or
Common Stock Equivalent so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights issued in
connection with such issuance, be entitled to receive shares of Common Stock at
a price less than the Conversion Price, such issuance shall be deemed to have
occurred for less than the Conversion Price), then the Conversion Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to the issuance of such Common
Stock or such Common Stock Equivalents plus the number of shares of Common Stock
which the offering price for such shares of Common Stock or Common Stock
Equivalents would purchase at the Conversion Price, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of shares of Common Stock so issued or
issuable, provided, that for purposes hereof, all shares of Common Stock that
are issuable upon conversion, exercise or exchange of Common Stock Equivalents
shall be deemed
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<PAGE> 10
outstanding immediately after the issuance of such Common Stock Equivalents.
Such adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. However, upon the expiration of any Common Stock
Equivalents the issuance of which resulted in an adjustment in the Conversion
Price pursuant to this Section, if any such Common Stock Equivalents shall
expire and shall not have been exercised, the Conversion Price shall immediately
upon such expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but reflecting
any other adjustments in the Conversion Price made pursuant to the provisions of
this Section after the issuance of such Common Stock Equivalents) had the
adjustment of the Conversion Price made upon the issuance of such Common Stock
Equivalents been made on the basis of offering for subscription or purchase only
that number of shares of the Common Stock actually purchased upon the exercise
of such Common Stock Equivalents actually exercised. The foregoing shall not
apply to any (i) issuances in accordance with the Rights Agreement, dated
December 14, 1999, between the Company and the Rights Agent named therein, (ii)
the issuance of Common Stock upon the exercise or conversion of the Company's
options, warrants or other convertible securities specified in Schedule 2.1(c)
to the Purchase Agreement as outstanding as of the Original Issue Date, or (iii)
the grant of options or warrants, or the issuance of Common Stock upon the
exercise of such options and warrants, or otherwise under any duly authorized
Company stock option, restricted stock plan or stock purchase plan for the
benefit of the Company's employees.
(v) If the Company, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders of Common Stock
(and not to Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Sections 5(c)(ii)-(iv) above), then in each such case the Conversion Price at
which each share of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(vi) All calculations under this Section 5 shall
be made to the nearest cent or the nearest 1/100th of a share, as the case may
be. The number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.
(vii) Whenever the Initial Conversion Price or the
Conversion Price is adjusted pursuant to Section 5(c)(ii),(iii),(iv), or (v) the
Company shall promptly mail to each
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<PAGE> 11
Holder, a notice setting forth the Initial Conversion Price or the Conversion
Price (as applicable) after such adjustment and setting forth a brief statement
of the facts requiring such adjustment.
(viii) In case of any reclassification of the
Common Stock, or any compulsory share exchange pursuant to which the Common
Stock is converted into other securities, cash or property (other than
compulsory share exchanges which constitute Change of Control Transactions), the
Holders of the Preferred Stock then outstanding shall have the right thereafter
to convert such shares only into the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of Common Stock
following such reclassification or share exchange, and the Holders of the
Preferred Stock shall be entitled upon such event to receive such amount of
securities, cash or property as a holder of the number of shares of Common Stock
of the Company into which such shares of Preferred Stock could have been
converted immediately prior to such reclassification or share exchange would
have been entitled. This provision shall similarly apply to successive
reclassifications or share exchanges.
(ix) In case of any (1) merger or consolidation
of the Company with or into another Person, or (2) sale by the Company of more
than one-half of the assets of the Company (on an as valued basis) in one or a
series of related transactions, a Holder shall have the right thereafter to (A)
convert its shares of Preferred Stock into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger, consolidation or sale, and such Holder shall
be entitled upon such event or series of related events to receive such amount
of securities, cash and property as the shares of Common Stock into which such
shares of Preferred Stock could have been converted immediately prior to such
merger, consolidation or sale would have been entitled, or (B) in the case of a
merger or consolidation, (x) require the surviving entity to issue shares of
convertible preferred stock or convertible debentures with such aggregate stated
value or in such face amount, as the case may be, equal to the Stated Value of
the shares of Preferred Stock then held by such Holder, plus all accrued and
unpaid dividends and other amounts owing thereon, which newly issued shares of
preferred stock or debentures shall have terms identical (including with respect
to conversion) to the terms of the Preferred Stock (except, in the case of
debentures, as may be required to reflect the differences between debt and
equity) and shall be entitled to all of the rights and privileges of a Holder of
Preferred Stock set forth herein and the agreements pursuant to which the
Preferred Stock was issued (including, without limitation, as such rights relate
to the acquisition, transferability, registration and listing of such shares of
stock other securities issuable upon conversion thereof), and (y) simultaneously
with the issuance of such convertible preferred stock or convertible debentures,
shall have the right to convert such instrument only into shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger or consolidation. In the case of
clause (B), the conversion price applicable for the newly issued shares of
convertible preferred stock or convertible debentures shall be based upon the
amount of securities, cash and property that each share of Common Stock would
receive in such transaction, the Conversion Ratio immediately prior to the
effectiveness or closing date for such transaction and the Conversion Price
stated herein. The terms of any such merger, sale or consolidation shall include
such terms so as continue to give the Holders of Preferred Stock the right to
receive the securities, cash and property set forth in this Section upon any
conversion or redemption following such event. This provision shall similarly
apply to successive such events. The rights
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set forth in this Section 5(c)(ix) shall not alter the rights of a Holder set
forth in Section 6, provided, that, a Holder may only exercise the rights set
forth in this Section 5(c)(ix) or the rights set forth in Section 6 with respect
to a single event giving rise to such rights.
(x) If (a) the Company shall declare a dividend
(or any other distribution) on the Common Stock, (b) the Company shall declare a
special nonrecurring cash dividend on or a redemption of the Common Stock, (c)
the Company shall authorize the granting to all holders of Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights, (d) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share of exchange whereby the Common Stock is converted into other
securities, cash or property, or (e) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company; then the Company shall notify the Holders at their last addresses as
they shall appear upon the stock books of the Company, at least 20 calendar days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange. Holders are entitled to convert shares of
Preferred Stock during the 20-day period commencing the date of such notice to
the effective date of the event triggering such notice.
(d) The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued shares of Common
Stock solely for the purpose of issuance upon conversion of Preferred Stock and
payment of dividends on Preferred Stock, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders, not less than such number of shares of Common Stock as
shall be issuable (taking into account the provisions of Section 5(a) and
Section 5(c)) upon the conversion of all outstanding shares of Preferred Stock.
The Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly authorized, validly issued, fully paid and
nonassessable.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but shall round to the next highest whole number and disregard the
fraction.
(f) The issuance of certificates for Common Stock on
conversion of Preferred Stock shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other
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than that of the Holder of such shares of Preferred Stock so converted.
(g) Shares of Preferred Stock converted into Common Stock
or redeemed in accordance with the terms hereof shall be canceled and may not be
reissued.
(h) Any and all notices or other communications or
deliveries to be provided by the Holders of the Preferred Stock hereunder,
including, without limitation, any Conversion Notice, shall be in writing and
delivered personally, by facsimile or sent by a nationally recognized overnight
courier service, addressed to the attention of the Chairman addressed to1250
North Point Parkway, West Palm Beach, Florida 33407, or Facsimile No.: (561)
688-8893, or to such other address or facsimile number as shall be specified in
writing by the Company for such purpose. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile or sent by a nationally
recognized overnight courier service, addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the
Company, or if no such facsimile telephone number or address appears, at the
principal place of business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
8:00 p.m. (New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 8:00 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) upon receipt, if sent by a nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
Section 6. Redemption Upon Triggering Events.
(a) Upon the occurrence of a Triggering Event, each
Holder shall (in addition to all other rights it may have hereunder or under
applicable law), have the right, exercisable at the sole option of such Holder,
to require the Company to redeem all or a portion of the Preferred Stock then
held by such Holder for a redemption price, in cash, equal to the sum of (i) the
Mandatory Redemption Amount (as defined in Section 7) plus (ii) the product of
(A) the number of Underlying Shares issued in respect of conversions hereunder
not more than twenty Trading Days prior to the Triggering Event at issue and
then held by the Holder and (B) the Per Share Market Value on the date such
redemption is demanded or the date the redemption price hereunder is paid in
full, whichever is greater (such sum, the "Redemption Price"). The Redemption
Price shall be due and payable within ten Trading Days of the date on which the
notice for the payment therefor is provided by a Holder. If the Company fails to
pay the Redemption Price hereunder in full pursuant to this Section on the date
such amount is due in accordance with this Section, the Company will pay
interest thereon at a rate of 18% per annum (or such lesser rate permitted by
applicable law), accruing daily from such date until the Redemption Price, plus
all such interest thereon, is paid in full. For purposes of this Section, a
share of Preferred Stock is outstanding until such date as the Holder shall have
received Underlying Shares upon a conversion (or attempted conversion) thereof
that meets the requirements hereof.
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A "Triggering Event" means any one or more of the following
events (whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(i) the failure of an Underlying Shares
Registration Statement to be declared effective by the Commission on or prior to
the 180th day after the Original Issue Date;
(ii) if, during the Effectiveness Period, the
effectiveness of the Underlying Shares Registration Statement lapses for any
reason for more than an aggregate of twenty Trading Days (which need not be
consecutive Trading Days), or the Holder shall not be permitted to resell
Registrable Securities under the Underlying Shares Registration Statement for
more than an aggregate of twenty Trading Days (which need not be consecutive
Trading Days);
(iii) the Common Stock is not listed for trading
on the AMEX or listed or quoted for trading on a Subsequent Market for an
aggregate of ten Trading Days (which need to be consecutive Trading Days);
(iv) the Company shall fail for any reason to
deliver certificates representing Underlying Shares issuable upon a conversion
hereunder that comply with the provisions hereof prior to the tenth Trading Day
after the Conversion Date or the Company shall provide notice to any Holder,
including by way of public announcement, at any time, of its intention not to
comply with requests for conversion of any shares of Preferred Stock in
accordance with the terms hereof;
(v) the Company shall be a party to any Change
of Control Transaction, shall agree to sell (in one or a series of related
transactions) more than 33% of its assets or shall redeem or repurchase more
than the amount permitted to be redeemed or repurchased under Section 2(c) of
Common Stock or other Junior Securities (other than redemptions of Underlying
Shares);
(vi) an Event (as defined in the Registration
Rights Agreement) shall not have been cured to the satisfaction of the Holders
prior to the expiration of 30 days from the Event Date (as defined in the
Registration Rights Agreement) relating thereto (other than an Event resulting
from the failure of an Underlying Shares Registration Statement to be declared
effective by the Commission on or prior to the 180th day after the Original
Issue Date, which shall be covered by Section 6(a)(i));
(vii) the Company shall fail for any reason to pay
in full the amount of cash due pursuant to a Buy-In within seven Business Days
after notice therefor is delivered hereunder or shall fail to pay all amounts
owed on account of an Event within seven Business Days of the date due;
(viii) the Company shall fail to have available a
sufficient number of authorized and unreserved shares of Common Stock to issue
to such Holder upon a conversion
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hereunder; or
(ix) the Company shall fail to observe or perform
any other material covenant, agreement or warranty contained in, or otherwise
commit any material breach of the Transaction Documents (as defined in Section
7), and such failure or breach shall not, if subject to the possibility of a
cure by the Company, have been remedied or cured within twenty Business Days
after the date on which written notice of such failure or breach shall have been
given.
Section 7. Section 7. Definitions. For the purposes
hereof, the following terms shall have the following meanings:
"Change of Control Transaction" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
control (whether through legal or beneficial ownership of capital stock of the
Company, by contract or otherwise) of in excess of 33% of the voting securities
of the Company, (ii) a replacement at one time or over time of more than
one-half of the members of the Company's board of directors which is not
approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (iii) the merger of the Company with or into
another entity that is not wholly-owned by the Company, consolidation or sale of
50% or more of the assets of the Company in one or a series of related
transactions, or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, $.10 par
value per share, and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, the
numerator of which is Stated Value and the denominator of which is the
Conversion Price at such time.
"Dividend Effectiveness Date" means the earlier to occur of
(x) the Effectiveness Date (as defined in the Registration Rights Agreement) and
(y) the Effective Date.
"Effective Date" means the date on which the Commission first
declares effective an Underlying Shares Registration Statement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Junior Securities" means the Common Stock and all other
equity securities of the Company other than those securities that are
outstanding on the Original Issue Date and which are explicitly senior in rights
or liquidation preference to the Preferred Stock.
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"Mandatory Redemption Amount" for each share of Preferred
Stock means the sum of (i) the greater of (A) 120% of the Stated Value and (B)
the product of (a) the Per Share Market Value on the Trading Day immediately
preceding (x) the date of the Triggering Event or the Conversion Date, as the
case may be, or (y) the date of payment in full by the Company of the applicable
redemption price, whichever is greater, and (b) the Conversion Ratio calculated
on the date of the Triggering Event, or the Conversion Date, as the case may be,
and (ii) all other amounts, costs, expenses and liquidated damages due in
respect of such share of Preferred Stock.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number of
transfers of any particular shares of Preferred Stock and regardless of the
number of certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the
closing price per share of Common Stock on such date on the AMEX or a Subsequent
Market on which the Common Stock is then listed or quoted, or if there is no
such price on such date, then the closing price on the AMEX or a Subsequent
Market on the date nearest preceding such date, or (b) if the Common Stock is
not then listed or quoted on a Subsequent Market, the closing bid price for a
shares of Common Stock on the OTC, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices),
then the average of the "Pink Sheet" quotes for the relevant conversion period,
as determined in good faith by the Holder, or (d) if the Common Stock is not
then publicly traded the fair market value of a share of Common Stock as
determined by an Appraiser selected in good faith by the Holders of a majority
of the shares of Preferred Stock. All stock prices shall be conclusively
reported by Bloomberg L.P. (or the successor to its function of reporting stock
prices). .
"Person" means a corporation, an association, a partnership,
an organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of the Original Issue Date, to which the Company
and the original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.
"Put Price" for any share of Preferred Stock shall equal the
sum of (i) 110% of the Stated Value of the Preferred Stock subject to the Put
Right, plus all accrued and unpaid interest thereon, and (ii) all other amounts,
expenses, costs and liquidated damages, if any, due in respect of such Preferred
Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
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"Securities Act " means the Securities Act of 1933, as
amended.
"Senior Securities" means the shares of the Company's 1998
Convertible Preferred Stock issued by the Company and outstanding on the
Original Issue Date.
"Trading Day" means (a) a day on which the Common Stock is
traded on the AMEX or a Subsequent Market on which the Common Stock is then
listed or quoted, as the case may be, or (b) if the Common Stock is not listed
on the AMEX or a Subsequent Market, a day on which the Common Stock is traded in
the over-the-counter market, as reported by the OTC, or (c) if the Common Stock
is not quoted on the OTC, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); provided, however, that in the event that the Common Stock is
not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading Day
shall mean any day except Saturday, Sunday and any day which shall be a legal
holiday or a day on which banking institutions in the State of New York are
authorized or required by law or other government action to close.
"Transaction Documents" shall have the meaning set forth in
the Purchase Agreement.
"Underlying Shares" means, collectively, the shares of Common
Stock into which the shares of Preferred Stock are convertible in accordance
with the terms hereof.
"Underlying Shares Registration Statement" means a
registration statement that meets the requirements of the Registration Rights
Agreement and registers the resale of all Underlying Shares by the Holder, who
shall be named as a "selling stockholder" thereunder.
"Variable Conversion Price" means the average of the five
lowest Per Share Market Values for the thirty Trading Days preceding the
Conversion Date (which may include Trading Days prior to the date on which the
Put Notice relating to such share of Preferred Stock may first be delivered and
Trading Days prior to the Put Payment Time); provided, that such thirty Trading
Days period shall be extended for the number of Trading Days during such period
in which (A) trading in the Common Stock is suspended by or not listed for
trading on the AMEX or a Subsequent Market on which the Common Stock is then
listed, or (B) after the Effective Date, the Underlying Shares Registration
Statement is not effective, or the Prospectus included in the Underlying Shares
Registration Statement may not be used by the Holder for the resale of the
Underlying Shares.
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of 7% Series I
Convertible Preferred Stock indicated below, into shares of Common Stock, $.10
par value per share (the "Common Stock"), of HEARx Ltd., a Delaware corporation
(the "Company"), according to the conditions hereof, as of the date written
below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
Holder for any conversion, except for such transfer taxes, if any.
If a Registration Statement is effective and shares are to be issued without a
legend, the undersigned agrees to resell the shares of Common Stock issuable
pursuant to the Notice of Conversion only pursuant to the Prospectus included in
the Registration Statement (as such terms are defined in the Registration Rights
Agreement among the Company and the investor signatory thereto).
Conversion calculations:
Date to Effect Conversion:
Applicable Conversion Price:
Number of shares of Preferred Stock to be Converted:
Stated Value of shares of Preferred Stock to be
Converted:
Stated Value of Shares remaining available for
conversion at Variable Conversion Price:
Number of shares of Common Stock to be Issued:
Signature
Name
Address
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<PAGE> 19
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Company on this 8th day of May, 2000.
HEARX LTD.
By: /s/ Paul A. Brown, M.D.
-----------------------
Paul A. Brown, M.D.
Chairman and Chief Executive Officer
<PAGE> 1
EXHIBIT 4.1
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"),
dated as of May 9, 2000, among HEARx Ltd., a Delaware corporation (the
"Company"), and the investors signatory hereto (each such investor is a
"Purchaser" and all such investors are, collectively, the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers and the
Purchasers, severally and not jointly, desire to purchase from the Company,
shares of the Company's Series I Convertible Preferred Stock, par value $1.00
per share (the "Preferred Stock"), which are convertible into shares of the
Company's common stock, par value $.10 per share (the "Common Stock").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy are
hereby acknowledged, the Company and the Purchasers agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 The Closing.
(a) The Closing. (i) Subject to the terms and conditions
set forth in this Agreement, the Company shall issue and sell to the Purchasers
and the Purchasers shall, severally and not jointly, purchase 500 shares of
Preferred Stock (the "Shares") for an aggregate purchase price of $5,000,000.
The closing of the purchase and sale of the Shares (the "Closing") shall take
place at the offices of Robinson Silverman Pearce Aronsohn & Berman LLP
("Robinson Silverman"), 1290 Avenue of the Americas, New York, New York 10104,
immediately following the execution hereof or such later date as the parties
shall agree. The date of the Closing is hereinafter referred to as the "Closing
Date."
(ii) At the Closing, the parties shall deliver or
shall cause to be delivered the following: (A) the Company shall deliver to each
Purchaser (1) stock certificates, registered in the name of such Purchaser,
representing a number of Shares equal to the quotient obtained by dividing the
purchase price indicated below such Purchaser's name on the signature page to
this Agreement by 10,000, (2) a Common Stock purchase warrant, in the form of
Exhibit D, registered in the name of such Purchaser, pursuant to which such
Purchaser shall have the right to acquire a number of shares of Common Stock
equal to 15% of such Purchaser's purchase price for the Shares being acquired by
it, divided by the Per Share Market Value (as defined below) (collectively, the
"Warrants"), (3) the legal opinion of Bryan Cave LLP, outside counsel to the
Company in the form of Exhibit C, (4) an executed Registration Rights Agreement,
dated the date hereof, among the Company and the Purchasers, in the form of
Exhibit B (the "Registration Rights Agreement") and (5) a copy of the Transfer
Agent Instructions, in the form of Exhibit E, delivered to and acknowledged by
the Company's transfer agent (the "Transfer Agent Instructions"); and (B) each
Purchaser shall deliver to or as directed by the Company (1) the purchase price
indicated below such Purchaser's name on the signature page to this Agreement in
United States dollars in immediately available funds by wire transfer to an
account
<PAGE> 2
designated in writing by the Company for such purpose, and (2) an executed copy
of this Agreement and the Registration Rights Agreement.
1.2 Terms of Preferred Stock. The Preferred Stock shall
have the rights, preferences and privileges set forth in Exhibit A, and shall be
incorporated into a Certificate of Designation (the "Certificate of
Designation") to be filed prior to the Closing by the Company with the Secretary
of State of Delaware, in form and substance mutually agreed to by the parties.
1.3 Certain Defined Terms. For purposes of this
Agreement, "Original Issue Date," "Trading Day" and "Per Share Market Value"
shall have the meanings set forth in Exhibit A; "Business Day" shall mean any
day except Saturday, Sunday and any day which shall be a federal legal holiday
or a day on which banking institutions in the State of New York or the State of
Florida are authorized or required by law or other governmental action to close;
"Person" means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchasers:
(a) Organization and Qualification. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries other than as set forth in
Schedule 2.1(a) (collectively the "Subsidiaries"). Each of the Subsidiaries is
an entity, duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. Each of the Company and the Subsidiaries is duly qualified
to do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not, individually or in
the aggregate, (x) adversely affect the legality, validity or enforceability of
the Securities (as defined below) or any of this Agreement, the Registration
Rights Agreement, the Certificate of Designation, the Transfer Agent
Instructions or the Warrants (collectively, the "Transaction Documents"), (y)
have or result in a material adverse effect on the results of operations,
assets, prospects, or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under any of the Transaction
Documents (any of (x), (y) or (z), a "Material Adverse Effect").
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<PAGE> 3
(b) Authorization; Enforcement. The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and otherwise to
carry out its obligations thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company. Each of the Transaction Documents has been duly executed by the Company
and, when delivered (or filed, as the case may be) in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms. Neither the
Company nor any Subsidiary is in violation of any of the provisions of its
respective certificate or articles of incorporation, by-laws or other
organizational or charter documents.
(c) Capitalization. The number of authorized, issued and
outstanding capital stock of the Company is set forth in Schedule 2.1(c). Except
as disclosed in Schedule 2.1(c), the Company owns all of the capital stock of
each Subsidiary. No shares of Common Stock are entitled to preemptive or similar
rights, nor is any holder of the Common Stock entitled to preemptive or similar
rights arising out of any agreement or understanding with the Company by virtue
of any of the Transaction Documents. Except as a result of the purchase and sale
of the Shares and the Warrants and except as disclosed in Schedule 2.1(c), there
are no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
(d) Issuance of the Shares and the Warrants. The Shares
and the Warrants are duly authorized and, when issued and paid for in accordance
with the terms hereof, will be duly and validly issued, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of first
refusal of any kind (collectively, "Liens"). The Company has on the date hereof
and will, at all times while the Shares and the Warrants are outstanding,
maintain an adequate reserve of duly authorized shares of Common Stock, reserved
for issuance to the holders of the Shares and the Warrants, to enable the
Company to perform its conversion, exercise and other obligations under this
Agreement, the Certificate of Designation and the Warrants. Such number of
reserved and available shares of Common Stock is not less than the sum of (i)
175% of the number of shares of Common Stock which would be issuable upon
conversion in full of the Shares on the Closing Date, assuming that the Shares
are outstanding for three years and that such conversion occurred on the
Original Issue Date but that the conversion price for such calculation is the
Variable Conversion Price (as defined in the Certificate of Designation), and
(ii) the number of shares of Common Stock issuable upon exercise of the Warrants
(such number of shares of Common Stock as contemplated in clauses (i)-(ii), the
"Initial Minimum"). All such authorized shares of Common Stock shall be duly
reserved for issuance to the holders of the Shares and the Warrants. The shares
of Common Stock issuable upon conversion of the Shares and upon exercise of the
Warrants are collectively referred to herein as the "Underlying Shares." The
Shares, the Warrants and the Underlying Shares are collectively referred to
herein as the "Securities." When issued in accordance with the Certificate of
Designation and the Warrants,
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<PAGE> 4
the Underlying Shares will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance
of the Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated thereby do not and will not (i) conflict with
or violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other charter documents (each as amended
through the date hereof), or (ii) subject to obtaining the Required Approvals
(as defined below), 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 (with
or without notice, lapse of time or both) of any agreement, credit facility,
debt or other instrument (evidencing a Company or Subsidiary debt or otherwise)
or other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), as could not, individually or in the aggregate,
reasonably be expected to have or result in a Material Adverse Effect. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually or in the aggregate, could not reasonably be expected to
have or result in a Material Adverse Effect.
(f) Filings, Consents and Approvals. Neither the Company
nor any Subsidiary is required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with, any court
or other federal, state, local or other governmental authority or other Person
in connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing of the Certificate of
Designation with the Secretary of State of Delaware, (ii) the filings required
pursuant to Section 3.9, (iii) the filing with the Securities and Exchange
Commission (the "Commission") of a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale of the Underlying Shares by the Purchasers (the "Underlying Shares
Registration Statement"), (iv) the application(s) to the American Stock Exchange
("AMEX") for the listing of the Underlying Shares for trading on the AMEX (and
with any other national securities exchange or market on which the Common Stock
is then listed) in the time and manner required thereby, (v) applicable Blue Sky
filings and (vi) in all other cases where the failure to obtain such consent,
waiver, authorization or order, or to give such notice or make such filing or
registration could not reasonably be expected to have or result in, individually
or in the aggregate, a Material Adverse Effect (collectively, the "Required
Approvals").
(g) Litigation; Proceedings. Except as specified in the
SEC Documents (as defined below) there is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
or any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal, state,
county, local or
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<PAGE> 5
foreign) (collectively, an "Action") which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities; (ii) could not, individually or in the aggregate, reasonably be
expected to have or result in a Material Adverse Effect; (ii) neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving (A) a claim of violation of or liability
under federal or state securities laws or (B) a claim of breach of fiduciary
duty; (iv) the Company does not have pending before the Commission any request
for confidential treatment of information and the Company has no knowledge of
any expected such request that would be made prior to the Effectiveness Date (as
defined in the Registration Rights Agreement); (v) there has not been, and to
the best of the Company's knowledge there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former
director or officer of the Company.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
which has not been waived which, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound, (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, in each case of clause (i), (ii) or
(iii) above, except as could not individually or in the aggregate, be reasonably
expected to have or result in a Material Adverse Effect.
(i) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
2.2(b)-(g), the offer, issuance and sale of the Securities to the Purchasers as
contemplated hereby are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"). Neither the Company
nor any Person acting on its behalf has taken or is, to the knowledge of the
Company, contemplating taking any action which could subject the offering,
issuance or sale of the Securities to the registration requirements of the
Securities Act including soliciting any offer to buy or sell the Securities by
means of any form of general solicitation or advertising.
(j) SEC Documents; Financial Statements. The Company has
filed all reports required to be filed by it under the Exchange Act of 1934, as
amended (the "Exchange Act"), including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the date hereof (the foregoing materials
being collectively referred to herein as the "SEC Documents" and, together with
the Schedules to this Agreement, the "Disclosure Materials") on a timely basis
or has received a valid extension of such time of filing and has filed any such
SEC Documents prior to the expiration of any such extension. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Documents, when filed, 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. All
material agreements to which the Company is a party or to which the property or
assets of the Company are subject have been
5
<PAGE> 6
filed as exhibits to the SEC Documents as required. The financial statements of
the Company included in the SEC Documents comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
"GAAP"), except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments. Since December 31, 1999, except as specifically
disclosed in the SEC Documents or in Schedule 2.1(j), (a) there has been no
event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (b) the Company has not
incurred any liabilities (contingent or otherwise) other than (x) liabilities
incurred in the ordinary course of business consistent with past practice and
(y) liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made with the
Commission, (c) the Company has not altered its method of accounting or the
identity of its auditors and (d) the Company has not declared or made any
payment or distribution of cash or other property to its stockholders or
officers or directors (other than in compliance with existing Company stock
option plans) with respect to its capital stock, or purchased, redeemed (or made
any agreements to purchase or redeem) any shares of its capital stock.
(k) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. Except for certain fees payable to
Jesup & Lamont Securities Corporation by the Company, no fees or commissions
will be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by this Agreement. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by this Agreement. The
Company shall indemnify and hold harmless the Purchasers, their employees,
officers, directors, agents, and partners, and their respective Affiliates, from
and against all claims, losses, damages, costs (including the costs of
preparation and attorney's fees) and expenses suffered in respect of any such
claimed or existing fees, as such fees and expenses are incurred.
(m) Solicitation Materials. Neither the Company nor any
Person acting on the Company's behalf has solicited any offer to buy or sell the
Securities by means of any form of general solicitation or advertising.
(n) Form S-3 Eligibility. The Company is eligible to
register securities for resale with the Commission under Form S-3 promulgated
under the Securities Act.
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(o) Seniority. Except as set forth on Schedule 2.1(c), no
class of equity securities of the Company is senior to the Shares in right of
payment, whether upon liquidation or dissolution, or otherwise.
(p) Listing and Maintenance Requirements Compliance. The
Company has not, in the two years preceding the date hereof, received notice
(written or oral) from the AMEX or any other stock exchange, market or trading
facility on which the Common Stock is or has been listed (or on which it has
been quoted) to the effect that the Company is not in compliance with the
listing or maintenance requirements of such exchange or market. The Company is,
and has no reason to believe that it will not in the foreseeable future continue
to be, in compliance with all such listing and maintenance requirements.
(q) Patents and Trademarks. The Company and its
Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and rights which are necessary or material for use in connection with
their respective businesses as described in the SEC Documents and which the
failure to so have could reasonably be expected to have or result in a Material
Adverse Effect (collectively, the "Intellectual Property Rights"). Neither the
Company nor any Subsidiary has received a written notice that the Intellectual
Property Rights used by the Company or its Subsidiaries violates or infringes
upon the rights of any Person, to the best knowledge of the Company. To the best
knowledge of the Company, all such Intellectual Property Rights are enforceable
and there is no existing infringement by another Person of any of the
Intellectual Property Rights.
(r) Registration Rights; Rights of Participation. Except
as set forth on Schedule 6(b) to the Registration Rights Agreement, the Company
has not granted or agreed to grant to any Person any rights (including
"piggy-back" registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority which has not
been satisfied. No Person, has any right of first refusal, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
(s) Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
Federal, state or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Documents, except where the
failure to possess such permits could not, individually or in the aggregate,
could reasonably be expected to have or result in a Material Adverse Effect
("Material Permits"), and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any Material Permit.
(t) Title. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them which is
material to the business of the Company and its Subsidiaries and good and
marketable title in all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of such property
by the Company and its Subsidiaries. Any real property and facilities held under
lease by the Company and its Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the
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Company and its Subsidiaries are in compliance and do not interfere with the use
made and proposed to be made of such property and buildings by the Company and
its Subsidiaries.
(u) Tax Matters. The Company and its subsidiaries have
timely prepared and filed all tax returns required to have been filed by the
Company and its subsidiaries with all appropriate governmental agencies and
timely paid all taxes owed by them, except as set forth on Schedule 2.1(u) with
respect to those taxes that the Company is contesting in good faith by
appropriate proceedings or as to which the Company has set aside adequate
reserves determined in accordance with generally accepted accounting principles
and stated in its financial statements. The charges, accruals and reserves on
the books of the Company in respect of taxes for all fiscal periods are adequate
in all material respects, and there are no material unpaid assessments against
the Company or its subsidiaries nor, to the knowledge of the Company, any basis
for the assessment of any additional taxes, penalties or interest for any fiscal
period or audits by any federal, state or local taxing authority except such as
which are not material. All material taxes and other assessments and levies that
the Company and its subsidiaries are required to withhold or to collect for
payment have been duly withheld and collected and paid to the proper
governmental entity or third party when due. There are no tax liens or claims
pending or threatened against the Company or any subsidiary or any of their
respective assets or property. There are no outstanding tax sharing agreements
or other such arrangements between the Company or any subsidiary and any other
corporation or entity.
(v) Environmental Matters. To the Company's knowledge,
neither the Company nor any of its subsidiaries is in violation of any statute,
rule, regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration of
the environment or human exposure to hazardous or toxic substances
(collectively, "Environmental Laws"), owns or operates any real property
contaminated with any substance that is subject to any Environmental Laws, is
liable for any off-site disposal or contamination pursuant to any Environmental
Laws, or is subject to any claim relating to any Environmental Laws, which
violation, contamination, liability or claim could individually or in the
aggregate could reasonably be expected to have or result in a Material Adverse
Effect; and to the Company's knowledge, there is no pending investigation that
could reasonably be expected to lead to such a claim.
(w) Labor Relations. No material labor problem exists or,
to the knowledge of the Company, is imminent with respect to any of the
employees of the Company.
(x) Disclosure. The Company confirms that neither it nor
any other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information regarding the Company, the
Subsidiaries or their respective businesses that might constitute material
non-public information for a period of more than ten Business Days following the
Closing Date. The Company understands and confirms that the Purchasers shall be
relying on the foregoing representations in effecting transactions in securities
of the Company. All disclosure provided to the Purchasers regarding the Company,
its business and the transactions contemplated hereby, including the Schedules
to this Agreement, furnished by or on behalf of the Company are true and correct
and do not contain any untrue statement of a material fact or
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<PAGE> 9
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
2.2 Representations and Warranties of the Purchasers. Each
Purchaser hereby for itself and for no other Purchaser represents and warrants
to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The purchase by such Purchaser of the Securities
hereunder has been duly authorized by all necessary action on the part of such
Purchaser. Each of this Agreement and the Registration Rights Agreement has been
duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms.
(b) Investment Intent. Such Purchaser is acquiring the
Securities as principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to such Purchaser's right, subject to the
provisions of this Agreement and the Registration Rights Agreement, at all times
to sell or otherwise dispose of all or any part of such Securities pursuant to
an effective registration statement under the Securities Act and in compliance
with applicable federal and state securities laws. Such Purchaser is acquiring
the Securities hereunder in the ordinary course of its business. Such Purchaser
does not have any agreement or understanding, directly or indirectly, with any
Person to distribute Securities.
(c) Purchaser Status. At the time such Purchaser was
offered the Shares and its Warrant, it was, and at the date hereof it is, and at
each exercise date under its Warrant, it will be, an "accredited investor" as
defined in Rule 501(a) under the Securities Act. Such Purchaser is not a
registered NASD broker-dealer.
(d) Experience of such Purchaser. Such Purchaser, either
alone or together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the Securities,
and has so evaluated the merits and risks of such investment.
(e) Ability of such Purchaser to Bear Risk of Investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of such
investment.
(f) Access to Information. Such Purchaser acknowledges
that it has reviewed the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to
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<PAGE> 10
enable it to evaluate its investment; and (iii) the opportunity to obtain such
additional information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment and to verify the accuracy and
completeness of the information contained in the Disclosure Materials. Neither
such inquiries nor any other investigation conducted by or on behalf of such
Purchaser or its representatives or counsel shall modify, amend or affect such
Purchaser's right to rely on the truth, accuracy and completeness of the
Disclosure Materials and the Company's representations and warranties contained
in the Transaction Documents.
(g) General Solicitation. Such Purchaser is not
purchasing the Securities as a result of or subsequent to any advertisement,
article, notice or other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(h) Ownership of Common Stock. Prior to the Closing Date,
such Purchaser does not have a long or short position in the Common Stock.
(i) Reliance. Such Purchaser understands and acknowledges
that (i) the Securities are being offered and sold to it without registration
under the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act and (ii) the availability of such
exemption, depends in part on, and the Company will rely upon the accuracy and
truthfulness of, the foregoing representations and such Purchaser hereby
consents to such reliance.
The Company acknowledges and agrees that no Purchaser makes or
has made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act, and in
compliance with any applicable federal and state securities laws. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under the
Securities Act. Notwithstanding the foregoing, the Company, without requiring a
legal opinion as described in the immediately preceding sentence, hereby
consents to and agrees to register on the books of the Company and with any
transfer agent for the securities of the Company any transfer of Securities by a
Purchaser to an Affiliate of such Purchaser or to one or more funds or managed
accounts under common management with such Purchaser, and any transfer among any
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<PAGE> 11
such Affiliates or one or more funds or managed accounts, provided that the
transferee certifies to the Company that it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and that it is acquiring the
Securities solely for investment purposes (subject to the qualifications
hereof). Any such transferee shall agree in writing to be bound by the terms of
this Agreement and the Registration Rights Agreement and shall have the rights
of a Purchaser under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION, AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
Underlying Shares shall not contain the legend set forth above
nor any other legend if the conversion of Shares and exercise of the Warrants or
other issuances of Underlying Shares as contemplated hereby, by the Certificate
of Designation or the Warrants occurs at any time while an Underlying Shares
Registration Statement is effective under the Securities Act and available for
use by the Selling Shareholders thereunder to dispose of Underlying Shares or,
in the event there is not an effective Underlying Shares Registration Statement
or it is not available for use by the Selling Shareholders to dispose of
Underlying Shares at such time, if, in the opinion of counsel to the Company,
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue the legal opinion
included in the Transfer Agent Instructions to the Company's transfer agent on
the day that the Underlying Shares Registration Statement is declared effective
by the Commission (the "Effective Date"). The Company agrees that, in the event
any Underlying Shares are issued with a legend in accordance with this Section
3.1(b), it will, within three Trading Days after request therefor by a
Purchaser, provide such Purchaser with a certificate or certificates
representing such Underlying Shares, free from such legend at such time as such
legend would not have been required under this Section 3.1(b) had such issuance
occurred on the date of such request. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company which
enlarge the restrictions of transfer set forth in this Section.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Shares in
accordance with the terms of the Certificate of Designation, and (ii) exercise
of the Warrants in accordance with their terms, will result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial
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<PAGE> 12
under certain market conditions. The Company further acknowledges that its
obligation to issue Underlying Shares upon (x) conversion of the Shares in
accordance with the terms of the Certificate of Designation, and (y) exercise of
the Warrants pursuant to the terms thereof, is unconditional and absolute,
subject to the limitations set forth herein, in the Certificate of Designation
or pursuant to the Warrants, regardless of the effect of any such dilution.
3.3 Furnishing of Information. As long as the Purchasers own the
Shares or Warrants, the Company covenants to timely file (or obtain extensions
in respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. As long as the Purchasers own Securities, if
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act such information as is
required for the Purchasers to sell the Securities under Rule 144 promulgated
under the Securities Act. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell Underlying
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including causing its attorneys to render and deliver any legal opinion required
in order to permit a Purchaser to sell Underlying Shares under Rule 144 upon
notice of an intention to sell or other form of notice having a similar effect.
Upon the request of any such Person, the Company shall deliver to such Person a
written certification of a duly authorized officer as to whether it has complied
with such requirements.
3.4 Integration. The Company shall not, and shall use its best
efforts to ensure that no Affiliate of the Company will sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers or that
would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of the AMEX.
3.5 Increase in Authorized Shares. If on any date the Company
would be, if a notice of conversion or exercise (as the case may be) were to be
delivered on such date, precluded from issuing (i) 175% of the number of
Underlying Shares as would then be issuable upon a conversion in full of the
Shares and (ii) the number of Underlying Shares issuable upon exercise in full
of the Warrants (the "Current Required Minimum"), in either case, due to the
unavailability of a sufficient number of authorized but unissued or reserved
shares of Common Stock, then the Board of Directors of the Company shall
promptly prepare and mail to the stockholders of the Company proxy materials
requesting authorization to amend the Company's certificate or articles of
incorporation to increase the number of shares of Common Stock which the Company
is authorized to issue to at least such number of shares as reasonably requested
by the Purchasers in order to provide for such number of authorized and unissued
shares of Common Stock to enable the Company to comply with its issuance,
conversion exercise and reservation of shares obligations as set forth in this
Agreement, the Certificate of Designation and the Warrants (the sum of (x) the
number of shares of Common Stock then outstanding plus all shares of Common
Stock issuable upon exercise of all outstanding options, warrants and
convertible instruments, and (y) the Current Required Minimum, is deemed for
purposes hereof
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<PAGE> 13
to be a reasonable number). In connection therewith, the Board of Directors
shall (a) adopt proper resolutions authorizing such increase, (b) recommend to
and otherwise use its best efforts to promptly and duly obtain stockholder
approval to carry out such resolutions (and hold a special meeting of the
stockholders no later than the earlier to occur of the 60th day after delivery
of the proxy materials relating to such meeting and the 90th day after request
by a holder of Securities to issue the number of Underlying Shares in accordance
with the terms hereof) and (c) within five Business Days of obtaining such
stockholder authorization, file an appropriate amendment to the Company's
certificate or articles of incorporation to evidence such increase.
3.6 Reservation and Listing of Underlying Shares. (a) The Company
shall (i) in the time and manner required by AMEX and such other exchange,
market or quotation system on which the Common Stock is traded, prepare and file
with the AMEX (and such other national securities exchange or market or trading
or quotation facility on which the Common Stock is then listed) an additional
shares listing application covering a number of shares of Common Stock which is
not less than the Initial Minimum, (ii) take all steps necessary to cause such
shares of Common Stock to be approved for listing in the AMEX (as well as on any
such other national securities exchange or market or trading or quotation
facility on which the Common Stock is then listed) as soon as possible
thereafter, and (iii) provide to the Purchasers evidence of such listing, and
the Company shall maintain the listing of its Common Stock thereon. If the
number of Underlying Shares issuable upon conversion in full of the then
outstanding Shares and upon exercise of the then unexercised portion of the
Warrants exceeds 85% of the number of Underlying Shares previously listed on
account thereof with AMEX (and any such other required exchanges), then the
Company promptly shall take the necessary actions to list within three Business
Days a number of Underlying Shares as equals no less than the then Current
Required Minimum.
(b) The Company shall maintain a reserve of shares of
Common Stock for issuance upon the conversion of the Shares in full and upon
exercise in full of the Warrants in accordance with this Agreement, the
Certificate of Designation and the Warrants, respectively, in such amount as may
be required to fulfill its obligations in full under the Transaction Documents,
which reserve shall equal no less than the then Current Required Minimum.
3.7 Conversion and Exercise Procedures. The Transfer Agent
Instructions, Conversion Notice (as defined in the Certificate of Designation)
and Notice of Exercise under the Warrants set forth the totality of the
procedures with respect to the conversion of the Shares and exercise of the
Warrants, including the form of legal opinion, if necessary, that shall be
rendered to the Company's transfer agent to enable the Purchasers to convert
their Shares and exercise their Warrants as contemplated in the Certificate of
Designation and the Warrants (as applicable).
3.8 Right of First Refusal; Subsequent Registrations. (a) The
Company shall not, directly or indirectly, without the prior written consent of
the Purchasers, offer, sell, grant any option to purchase, or otherwise dispose
of (or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities including the issuance of any debt or other instrument at any time
over life thereof convertible into or exchangeable for Common Stock, or any
other transaction intended to be exempt or not subject to registration under the
Securities Act (a "Subsequent Placement") for a period of 180
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<PAGE> 14
Trading Days after the Effective Date, provided, that such 180 Trading Day
period shall be extended for the number of Trading Days during such period (A)
in which trading in the Common Stock is suspended by the AMEX or such market or
quotation system on which the Common Stock is then listed, or (B) during which
the Underlying Shares Registration Statement is not effective, or (C) during
which the prospectus included in the Underlying Shares Registration Statement
may not be used by the holders thereof for the resale of Underlying Shares,
except (i) the granting of options or warrants to employees, officers and
directors, and the issuance of shares upon exercise of options granted, under
any stock option plan heretofore or hereinafter duly adopted by the Company,
(ii) shares of Common Stock issuable upon exercise of any currently outstanding
warrants and upon conversion of any currently outstanding convertible securities
of the Company, in each case disclosed in Schedule 2.1(c), (iii) shares of
Common Stock issuable upon conversion of Shares and upon exercise of the
Warrants in accordance with the Certificate of Designation or the Warrants, and
(iv) shares of Common Stock, or other securities of the Company that are
convertible into or exchangeable for shares of Common Stock, at a fixed price
per share in excess of the Initial Conversion Price (as defined in Exhibit A)
(the requirement for a "fixed" price shall not have been met if, over the life
of the securities offered, other than customary equitable adjustments to
conversion or exchange prices as a result of stock splits or reverse splits of
the Common Stock, there is any ability for (1) an adjustment or reset to the
purchase price, exchange price or conversion price of the securities offered, or
(2) the issuance of additional shares of Common Stock or other securities to the
holder of the offered securities based upon the market price of the Common Stock
or other conditions), unless (A) the Company delivers to each of the Purchasers
a written notice (the "Subsequent Placement Notice") of its intention to effect
such Subsequent Placement, which Subsequent Placement Notice shall describe in
reasonable detail the proposed terms of such Subsequent Placement, the amount of
proceeds intended to be raised thereunder, the Person with whom such Subsequent
Placement shall be effected, and attached to which shall be a term sheet or
similar document relating thereto and (B) such Purchaser shall not have notified
the Company by 5:00 p.m. (New York City time) on the tenth Trading Day after its
receipt of the Subsequent Placement Notice of its willingness to provide (or to
cause its sole designee to provide), subject to completion of mutually
acceptable documentation, financing to the Company on the same terms set forth
in the Subsequent Placement Notice. If the Purchasers shall fail to notify the
Company of their intention to enter into such negotiations within such time
period, the Company may effect the Subsequent Placement substantially upon the
terms and to the Persons (or Affiliates of such Persons) set forth in the
Subsequent Placement Notice; provided, that the Company shall provide the
Purchasers with a second Subsequent Placement Notice, and the Purchasers shall
again have the right of first refusal set forth above in this paragraph (a), if
the Subsequent Placement subject to the initial Subsequent Placement Notice
shall not have been consummated for any reason on the terms set forth in such
Subsequent Placement Notice within thirty Trading Days after the date of the
initial Subsequent Placement Notice with the Person (or an Affiliate of such
Person) identified in the Subsequent Placement Notice. If the Purchasers shall
indicate a willingness to provide financing in excess of the amount set forth in
the Subsequent Placement Notice, then each Purchaser shall be entitled to
provide financing pursuant to such Subsequent Placement Notice up to an amount
equal to such Purchaser's pro-rata portion of the aggregate number of Shares
purchased by such Purchaser under this Agreement, but the Company shall not be
required to accept financing from the Purchasers in an amount in excess of the
amount set forth in the Subsequent Placement Notice.
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(b) Except for (x) Underlying Shares, (y) other
"Registrable Securities" (as such term is defined in the Registration Rights
Agreement) to be registered, and securities of the Company permitted pursuant to
Schedule 6(b) of the Registration Rights Agreement to be registered, in the
Underlying Shares Registration Statement in accordance with the Registration
Rights Agreement, and (z) Common Stock permitted to be issued pursuant to
paragraph (a)(i) - (iii) of Section 3.8(a), the Company shall not, for a period
of not less than 90 Trading Days after the Effective Date, without the prior
written consent of the Purchasers (i) issue or sell any of its or any of its
Affiliates' equity or equity-equivalent securities pursuant to Regulation S
promulgated under the Securities Act, or (ii) register any securities of the
Company. Any days after the Effective Date that a Purchaser is unable to sell
Underlying Shares under the Underlying Shares Registration Statement shall be
added to such 90 Trading Day period for the purposes of (i) and (ii) above.
3.9 Certain Securities Laws Disclosures; Publicity. The Company
shall: (i) within two Business Days of the Closing Date issue a press release
acceptable to the Purchasers disclosing the transactions contemplated hereby,
(ii) file with the Commission a Report on Form 8-K disclosing the transactions
contemplated hereby within ten Business Days after the Closing Date, and (iii)
timely file with the Commission a Form D promulgated under the Securities Act as
required under Regulation D promulgated under the Securities Act and provide a
copy thereof to the Purchasers promptly after the filing thereof. The Company
shall, no less than two Business Days prior to the filing of any disclosure
required by clauses (ii) and (iii) above, provide a copy thereof to the
Purchasers. No such press release or Form D may be made that mentions the
Purchasers by name without the prior consent of the Purchasers. The Company and
the Purchasers shall consult with each other in issuing any press releases or
otherwise making public statements or filings and other communications with the
Commission or any regulatory agency or stock market or trading facility with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement, regarding
such transactions without the prior written consent of the other, which consent
shall not be unreasonably withheld or delayed, except that no prior consent
shall be required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
3.10 Use of Proceeds. The Company shall use the net proceeds from
the sale of the Securities hereunder for working capital purposes and not for
the satisfaction of any portion of the Company's debt (other than payment of
trade payables in the ordinary course of the Company's business and prior
practices), to redeem any Company equity or equity-equivalent securities or to
settle outstanding litigation.
3.11 Reimbursement. If any Purchaser, other than by reason of its
gross negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or solely as a result of having
been a Purchaser of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. The reimbursement
obligations of the Company under
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this paragraph shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions to any
Affiliates of the Purchasers who are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of the Purchasers and any such Affiliate,
and shall be binding upon and inure to the benefit of any successors, assigns,
heirs and personal representatives of the Company, the Purchasers and any such
Affiliate and any such Person. The Company also agrees that neither the
Purchasers nor any such Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company in connection with or
as a result of the consummation of the Transaction Documents except to the
extent that any losses, claims, damages, liabilities or expenses incurred by the
Company result from the gross negligence or willful misconduct of the applicable
Purchaser or entity in connection with the transactions contemplated by this
Agreement.
3.12 Shareholders Rights Plan. The Company will not, directly or
indirectly, make any claim, and will not enforce any claim by any Person, that
any Purchaser by virtue of receiving Securities (including Underlying Shares)
under the Transaction Documents (a) is an "Acquiring Person" under any
shareholders rights plan or similar agreement of the Company now in existence or
hereafter created or (b) has triggered the provisions of such plan or agreement.
By its execution and delivery of this Agreement to the Purchasers, the Company
shall have approved the acquisition of Common Stock by the Purchasers so that
the Purchasers will not be "Acquiring Persons" under the Company's Shareholders
Rights Plan and accompanying Rights Agreement, dated December 14, 1999 by virtue
of the acquisition.
3.13 Certain Trading Restrictions. For so long as it holds Shares
of the Preferred Stock, each Purchaser agrees that it will not enter into any
Short Sales (as defined herein). For purposes hereof, a "Short Sale" by a
Purchaser shall mean a sale of Common Stock by such Purchaser that is marked as
a short sale and that is made at a time when there is no equivalent offsetting
long position in the Common Stock held by such Purchaser. For purposes of
determining whether there is an equivalent offsetting long position in the
Common Stock held by a Purchaser, Underlying Shares issuable upon conversions of
Preferred Stock (including dividends thereon) or exercises of Warrants (as the
case may be) for which a Conversion Notice (as to Preferred Stock) or Form of
Election to Purchase (as to Warrants) has been delivered in accordance with such
instrument shall be deemed to be held long by such Purchaser.
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ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. At the Closing, the Company shall
reimburse the Purchasers for their legal fees and expenses incurred in
connection with the preparation and negotiation of the Transaction Documents by
paying to Robinson Silverman $15,000 for the preparation and negotiation of the
Transaction Documents. The amount contemplated by the immediately preceding
sentence shall be retained by the Purchasers and shall not be delivered to the
Company at the Closing. Other than the amount contemplated in the immediately
preceding sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.
4.2 Entire Agreement; Amendments. The Transaction
Documents, together with the Exhibits and Schedules thereto and the Transfer
Agent Instructions contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
4.3 Notices. Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time) on a Business Day, against electronic confirmation thereof, (ii)
the Business Day after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Agreement later than 8:00 p.m. (New York City time) on any date, against
electronic confirmation thereof, (iii) the Business Day following the date of
mailing, if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as follows:
If to the Company: HEARx Ltd.
1250 Northpoint Parkway
West Palm Beach, FL 33407
Facsimile No.: (501) 688-8883
Attn: Chairman
With copies to: Bryan Cave LLP
700 Thirteenth Street, N.W.
Suite 700
Washington, DC 20005-3960
Facsimile No.: (202) 508-6200
Attn: LaDawn Naegle, Esq.
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If to a Purchaser: To the address set forth under such
Purchaser's name on the signature pages
hereto.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement
may be waived or amended except in a written instrument signed, in the case of
an amendment, by the Company and each of the Purchasers or, in the case of a
waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
4.5 Headings. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Purchasers.
4.7 No Third-Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective successors
and permitted assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person.
4.8 Governing Law. The corporate laws of Delaware
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof.
4.9 Survival. The representations and warranties
contained herein shall survive until the expiration of the third anniversary
following the Closing. The agreements and covenants contained herein shall
survive the Closing and the delivery and conversion or exercise (as the case may
be) of the Shares and the Warrants until the expiration of the applicable
statute of limitations (if any) therefor.
4.10 Execution. This Agreement may be executed in two
or more counterparts, all of which when taken together 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, it being understood that
both parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
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4.11 Severability. In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affected or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
4.12 Remedies. In addition to being entitled to exercise
all rights provided herein or granted by law, including recovery of damages,
each party will be entitled to seek specific performance of the obligations of
the other party(s) under the Transaction Documents. The Company and each of the
Purchasers agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of its obligations described in the
foregoing sentence and hereby agrees to waive in any action for specific
performance of any such obligation the defense that a remedy at law would be
adequate.
4.13 Independent Nature of Purchasers' Obligations and
Rights. The obligations of each Purchaser under any Transaction Document is
several and not joint with the obligations of any other Purchaser and no
Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert with respect to
such obligations or the transactions contemplated by the Transaction Document.
Each Purchaser shall be entitled to independently protect and enforce its
rights, including without limitation the rights arising out of this Agreement or
out of the other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such
purpose.
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SIGNATURE PAGES FOLLOWS]
19
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this
Convertible Preferred Stock Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first indicated above.
HEARX LTD.
By: /s/ Paul A. Brown
-----------------
Name: Paul A. Brown, M.D.
Title: Chairman and Chief Executive Officer
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
<PAGE> 21
ADVANTAGE FUND II LTD.
By: /s/ Donald R. Morken
---------------------
Name: Donald R. Morken
Title: President
Purchase Price for Shares to be
acquired at Closing: $5,000,000
Address for Notice:
c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Facsimile: 011-599-9732-2008
Attention: W.R. Weber
With copies to:
Genesee International Inc.
10500 NE 8th Street
Suite 1920
Bellevue, WA 98004
Facsimile: (425) 462-4645
Attention: Christopher Purrier
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 and (212) 541-1432
Attn: Eric L. Cohen, Esq.
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of May 9, 2000, among HEARx Ltd., a Delaware corporation (the
"Company"), and the investors signatory hereto (each such investor is a
"Purchaser" and all such investors are, collectively, the "Purchasers").
This Agreement is made pursuant to the Convertible Preferred
Stock Purchase Agreement, dated as of the date hereof among the Company and the
Purchasers (the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Affiliate" means, with respect to any Person, any other Person
that directly or indirectly controls or is controlled by or under common control
with such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York or the State of Florida generally are authorized or required
by law or other government actions to close.
"Certificate of Designation" shall have the meaning set forth in
the Purchase Agreement.
"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, $.10 par value
per share, or such securities into which such stock shall hereafter be
reclassified.
"Effectiveness Date" means, with respect to the initial
Registration Statement required to be filed hereunder, the 90th day following
the Closing Date and, with respect to any additional Registration Statements
which may be required pursuant to Section 3(c), the 90th day following the date
that notice of the requirement to file such additional Registration Statement is
provided.
<PAGE> 2
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means, with respect to the initial Registration
Statement required to be filed hereunder, the 30th day following the Closing
Date and, with respect to any additional Registration Statements which may be
required pursuant to Section 3(c), the 30th day following the date that notice
of the requirement to file such additional Registration Statement is provided.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section
5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the shares of Common Stock
issuable upon conversion in full of the Shares and exercise in full of the
Warrants.
"Registration Statement" means the registration statement and any
additional registration statements contemplated by Section 3(c), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
<PAGE> 3
"Rule 144" means Rule 144 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 424" means Rule 424 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Shares" means the shares of the Company's Series I Convertible
Preferred Stock, $1.00 par value, issued to the Purchasers pursuant to the
Purchase Agreement.
"Special Counsel" means one special counsel to the Holders, for
which the Holders will be reimbursed by the Company pursuant to Section 4.
"Warrants" shall mean (i) the Common Stock purchase warrants
issued to the Purchasers on the Closing Date pursuant to the Purchase Agreement
and (ii) the Common Stock purchase warrant issued or issuable to Jesup & Lamont
Securities Corporation in connection with the transactions contemplated by the
Purchase Agreement.
2. Shelf Registration
(a) On or prior to each Filing Date, the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering the
resale of all Registrable Securities relating thereto for an offering to be made
on a continuous basis pursuant to Rule 415. The Registration Statement shall be
on Form S-3 (except if the Company is not then eligible to register for resale
the Registrable Securities on Form S-3, in which case such registration shall be
on another appropriate form in accordance herewith as the Holders may consent)
and shall contain (except if otherwise directed by the Holders) the "Plan of
Distribution" attached hereto as Annex A. The Company shall use its best efforts
to cause each Registration Statement required to be filed hereunder to be
declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event prior to each applicable Effectiveness Date,
and shall use its best efforts to keep such Registration Statement continuously
effective under the Securities Act until all Registrable Securities covered by
such Registration Statement have been sold or may be sold by the Holders thereof
without volume restrictions pursuant to Rule 144(k) as determined by the counsel
to the Company pursuant to a written opinion letter to such effect, addressed
and acceptable to the Company's transfer agent and the affected Holders (the
"Effectiveness Period"), provided, that the Company shall not be deemed to have
used its best efforts to keep the Registration Statement effective during the
Effectiveness Period if it voluntarily takes any action that would result in the
Holders not being able to sell the Registrable
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<PAGE> 4
Securities covered by such Registration Statement during the Effectiveness
Period, unless such action is required under applicable law or the Company has
filed a post-effective amendment to the Registration Statement and the
Commission has not declared it effective.
(b) The initial Registration Statement required to be filed
hereunder shall include a number of shares of Common Stock equal to no less than
the sum of (i) 175% of the number of shares of Common Stock issuable upon
conversion in full of the Shares, assuming for such purposes that such Shares
are outstanding for three years and that such conversion occurred on the Closing
Date, the Filing Date or the date that is one Trading Day prior to the date
Company files an acceleration request with the Commission relating to the
Registration Statement (in each case assuming that the Variable Conversion Price
under the Certificate of Designation applies to such conversion), whichever
yields the lowest Conversion Price (as defined in the Certificate of
Designation) and (ii) the number of shares of Common Stock issuable upon
exercise in full of the Warrants.
(c) If (a) a Registration Statement is not filed on or prior
to the applicable Filing Date (if the Company files such Registration Statement
without affording the Holder the opportunity to review and comment on the same
as required by Section 3(a) hereof, the Company shall not be deemed to have
satisfied this clause (a)), or (b) the Company fails to file with the Commission
a request for acceleration in accordance with Rule 461 promulgated under the
Securities Act, within five days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that a
Registration Statement will not be "reviewed," or not subject to further review,
or (c) the Registration Statement filed hereunder is not declared effective by
the Commission on or prior to the applicable Effectiveness Date, or (d) after a
Registration Statement is filed with and declared effective by the Commission,
such Registration Statement ceases to be effective as to all Registrable
Securities at any time prior to the expiration of the Effectiveness Period
without being succeeded within ten Trading Days by an amendment to such
Registration Statement or by a subsequent Registration Statement filed with and
declared effective by the Commission, or (e) the Common Stock shall be delisted
or suspended from trading on the American Stock Exchange ("AMEX")or on either of
the New York Stock Exchange, NASDAQ National Market or Nasdaq SmallCap Market
(each, a "Subsequent Market") for more than three Trading Days (which need not
be consecutive Trading Days), or (f) the conversion rights of the Holders
pursuant to the Certificate of Designation are suspended for any reason, or (g)
an amendment to a Registration Statement is not filed by the Company with the
Commission within ten Trading Days of the Commission's notifying the Company
that such amendment is required in order for such Registration Statement to be
declared effective (any such failure or breach being referred to as an "Event,"
and for purposes of clauses (a), (c), (f) the date on which such Event occurs,
or for purposes of clause (b) the date on which such five day period is
exceeded, or for purposes of clauses (d) and (g) the date which such ten Trading
Day-period is exceeded, or for purposes of clause (e) the date on which such
three Trading Day period is exceeded, being referred to as "Event Date"), then,
on the Event Date and each monthly anniversary thereof until the applicable
Event is cured, the Company shall pay to each Holder a sum equal to 2.0% of the
aggregate Stated Value (as defined in the Certificate of Designation) of Shares
then held by such Holder pursuant to the Purchase Agreement, in cash, as
liquidated damages and not as a penalty. If the Company fails to pay any
liquidated damages pursuant to this Section in full within seven days after the
date payable, the Company will pay interest
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<PAGE> 5
thereon at a rate of 18% per annum (or such lesser maximum rate that is
permitted to be paid by applicable law) to the Holder, accruing daily from the
date such liquidated damages are due until such amounts, plus all such interest
thereon, are paid in full.
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Not less than five Business Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall, (i) furnish to the
Holders and their Special Counsel copies of all such documents proposed to be
filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Holders and
their Special Counsel, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of respective counsel to such to conduct
a reasonable investigation within the meaning of the Securities Act. The Company
shall not file a Registration Statement or any such Prospectus or any amendments
or supplements thereto to which the Holders of a majority of the Registrable
Securities covered thereby or their Special Counsel shall reasonably object.
Notwithstanding anything to the contrary contained herein, the parties agree
that if (1) the Holders or their Special Counsel shall fail to provide comments
to the Company or their counsel to a proposed Registration Statement by the
expiration of the fifth Business Day following the date on which they received
the same for review, or (2) the Holders or their Special Counsel shall fail to
provide comments to the Company or its counsel to a proposed amendment or
supplement to a Registration Statement hereunder by the expiration of the second
Business Day following the date on which they receive the same for review, then
a number of days equal to the number of Business Days in excess of such periods
shall be added to the definitions of Filing Date and Effectiveness Date for
purposes of Section 2(c) hereof.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to each Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep such
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; and (iii)
respond as promptly as reasonably possible, and in any event within ten Business
Days, to any comments received from the Commission with respect to each
Registration Statement or any amendment thereto and as promptly as reasonably
possible provide the Holders true and complete copies of all correspondence from
and to the Commission relating to such Registration Statement.
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<PAGE> 6
(c) File additional Registration Statements if the number of
Registrable Securities at any time exceeds 85% of the number of shares of Common
Stock then registered in a Registration Statement. Any additional Registration
Statements required to be filed under this Section shall cover 115% of the full
number of Registrable Securities issuable at the prevailing market price of the
Common Stock assuming the full conversion of the Preferred Stock and exercise of
the Warrants.
(d) Notify the Holders of Registrable Securities to be sold
and their Special Counsel as promptly as reasonably possible (and, in the case
of (i)(A) below, not less than five Business Days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to a Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to each of the
Holders); and (C) with respect to each Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of any Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any Transaction Document ceases to be true and correct in
all material respects; (v) of the receipt by the Company of any notification
with respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any jurisdiction,
or the initiation or threatening of any Proceeding for such purpose; and (vi) of
the occurrence of any event or passage of time that makes the financial
statements included in the Registration Statement ineligible for inclusion
therein or any statement made in the Registration Statement or Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires any revisions to the Registration
Statement, Prospectus or other documents so that, in the case of the
Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(e) Use its best efforts to avoid the issuance of, or, if
issued, to obtain the withdrawal of (i) any order suspending the effectiveness
of the Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(f) Furnish to each Holder and their Special Counsel, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
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<PAGE> 7
(g) Promptly deliver to each Holder and their Special Counsel,
without charge, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request. The Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Holders in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration Statement;
provided, that the Company shall not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or subject the
Company to any material tax in any such jurisdiction where it is not then so
subject.
(i) Cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by the Purchase Agreement,
of all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any such Holders may
reasonably request.
(j) Upon the occurrence of any event contemplated by Section
3(d)(vi), as promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Comply with all applicable rules and regulations of the
Commission.
4. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to
the Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with AMEX and any Subsequent Market on which the Common
Stock is then listed for trading, and (B) in compliance with state securities or
Blue Sky laws (including, without limitation, fees and disbursements of counsel
for the Company in connection with Blue Sky qualifications or exemptions of the
Registrable Securities and determination of the eligibility
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<PAGE> 8
of the Registrable Securities for investment under the laws of such
jurisdictions as the Holders of a majority of Registrable Securities may
reasonably designate)), (ii) printing expenses (including, without limitation,
expenses of printing certificates for Registrable Securities), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company, (v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. Notwithstanding the foregoing,
brokerage fees and underwriting commissions incurred by the Holders in disposing
of their Registrable Securities under a Registration Statement shall be borne by
such Holders.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that (1) such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
or (2) in the case of an occurrence of an event of the type specified in Section
3(d)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus
after the Company has notified such Holder in writing that the Prospectus is
outdated or defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(e). The Company shall notify the Holders promptly of
the institution, threat or assertion of any Proceeding of which the Company is
aware in connection with the transactions contemplated by this Agreement.
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<PAGE> 9
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that (1) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (2) in the case of an occurrence of an event
of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of an
outdated or defective Prospectus after the Company has notified such Holder in
writing that the Prospectus is outdated or defective and prior to the receipt by
such Holder of the Advice contemplated in Section 6(e). In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying
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<PAGE> 10
Party in writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and such counsel shall be at the expense of the Indemnifying
Party). The Indemnifying Party shall not be liable for any settlement of any
such Proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten Business Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy
or otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f)
10
<PAGE> 11
of the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to seek specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would not
provide adequate compensation for any losses incurred by reason of a breach by
it of any of the provisions of this Agreement and hereby further agrees that, in
the event of any action for specific performance in respect of such breach, it
shall waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of
its subsidiaries has entered, as of the date hereof, nor shall the Company or
any of its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as and to the extent specified in Schedule 6(b)
hereto, neither the Company nor any of its subsidiaries has previously entered
into any agreement granting any registration rights with respect to any of its
securities to any Person.
(c) No Piggyback on Registrations. Neither the Company nor any
of its security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the Registration Statement
other than the Registrable Securities, and the Company shall not after the date
hereof enter into any agreement providing any such right to any of its security
holders.
(d) Compliance. Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
(e) Discontinued Disposition. Each Holder agrees by its
acquisition of such Registrable Securities that, upon receipt of a notice from
the Company of the occurrence of any event of the kind described in Sections
3(d)(ii), 3(d)(iii), 3(d)(iv), 3(d)(v) or 3(d)(vi), such Holder will forthwith
discontinue disposition of such Registrable Securities under the Registration
Statement until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement contemplated by Section 3(j),
or until it is advised in writing (the "Advice") by the Company that the use of
the applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or
11
<PAGE> 12
deemed to be incorporated by reference in such Prospectus or Registration
Statement. The Company may provide appropriate stop orders to enforce the
provisions of this paragraph.
(f) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement covering
all of the Registrable Securities and the Company shall determine to prepare and
file with the Commission 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 (each as promulgated under
the Securities Act) 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, then the Company shall send to each Holder written notice of such
determination and, if within fifteen days after receipt of such notice, any such
Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered.
(h) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least two-thirds of the then outstanding Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(i) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time) on a Business Day, against electronic confirmation of receipt
(ii) the Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in the Purchase Agreement later than 8:00 p.m. (New York City time) on
any date and earlier than 11:59 p.m. (New York City time) on such date, against
electronic confirmation of receipt (iii) the Business Day following the date of
mailing, if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as follows:
If to the Company: HEARx Ltd.
1250 Northpoint Parkway
West Palm Beach, FL 33407
Facsimile No.: (501) 688-8883
Attn: Chairman
12
<PAGE> 13
With copies to: Bryan Cave LLP
700 Thirteenth Street, N.W.
Suite 700
Washington, D.C. 20005-3960
Facsimile No.: (202) 508-6200
Attn: LaDawn Naegle, Esq.
If to a Purchaser: To the address set forth under such
Purchaser's name on the signature pages
hereto.
If to any other Person who is then the registered Holder:
To the address of such Holder as it
appears in the stock transfer books of
the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(j) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
(k) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(l) Governing Law. The corporate laws of Delaware shall govern
all issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof.
(m) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(n) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision,
13
<PAGE> 14
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(o) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(p) Shares Held by the Company and its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
(q) Independent Nature of Purchasers' Obligations and Rights.
The obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and neither Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES TO FOLLOW]
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<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
HEARX LTD.
By: /s/ Paul A. Brown, M.D.
-----------------------
Name: Paul A. Brown, M.D.
Title: Chairman and Chief Executive Officer
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES OF PURCHASERS TO FOLLOW]
<PAGE> 16
ADVANTAGE FUND II LTD.
By: /s/ Donald R. Morken
--------------------
Name: Donald R. Morken
Title: President
Address for Notice:
c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Facsimile: 011-599-9732-2008
Attention: W.R. Weber
With copies to:
Genesee International Inc.
10500 NE 8th Street
Suite 1920
Bellevue, WA 98004
Facsimile: (425) 462-4645
Attention: Christopher Purrier
Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 and (212) 541-1432
Attn: Eric L. Cohen, Esq.
<PAGE> 17
Annex A
PLAN OF DISTRIBUTION
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
- - ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
- - block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
- - purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
- - an exchange distribution in accordance with the rules of the applicable
exchange;
- - privately negotiated transactions;
- - broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
- - a combination of any such methods of sale; and
- - any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may also engage in short sales, short sales
against the box, puts and calls and other transactions in securities of the
Company or derivatives of Company securities and may sell or deliver shares in
connection with these trades. The Selling Stockholders may pledge their shares
to their brokers under the margin provisions of customer agreements. If a
Selling Stockholder defaults on a margin loan, the broker may, from time to
time, offer and sell the pledged shares.
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
<PAGE> 18
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such persons and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the shares. The Company has agreed to indemnify the Selling
Stockholders and the Selling Stockholders have agreed to indemnify the Company
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
<PAGE> 1
EXHIBIT 4.3
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
HEARX LTD.
WARRANT
Warrant No. __ Dated: May 9, 2000
HEARx Ltd., a Delaware corporation (the "Company"), hereby certifies
that, for value received, _________________ or its registered assigns
("Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company up to a total of ______ shares of common stock, $.10 par value per
share (the "Common Stock"), of the Company (each such share, a "Warrant Share"
and all such shares, the "Warrant Shares") at an exercise price equal to $4.46
per share (as adjusted from time to time as provided in Section 8, the "Exercise
Price"), at any time and from time to time from and after the date hereof and
through and including May 9, 2005 (the "Expiration Date"), and subject to the
following terms and conditions:
1. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) Subject to compliance with the legend set forth on
the face hereof and the terms of this Section as to transfer, the Company shall
register the transfer of any portion of this Warrant in the Warrant Register,
upon surrender of this Warrant, with the Form of Assignment attached hereto duly
completed and signed, to the Company at its address for notice set forth in
Section 11. Upon any such registration or transfer, a new warrant to purchase
Common Stock, in substantially the form of this Warrant (any such new warrant, a
"New
<PAGE> 2
Warrant"), evidencing the portion of this Warrant so transferred shall be issued
to the transferee and a New Warrant evidencing the remaining portion of this
Warrant not so transferred, if any, shall be issued to the transferring Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the surrender
hereof by the Holder to the office of the Company at its address for notice set
forth in Section 11 for one or more New Warrants, evidencing in the aggregate
the right to purchase the number of Warrant Shares which may then be purchased
hereunder. Any such New Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered
Holder on any business day before 8:00 P.M., New York City time, at any time and
from time to time on or after the date hereof to and including the Expiration
Date. At 8:00 P.M., New York City time on the Expiration Date, the portion of
this Warrant not exercised prior thereto shall be and become void and of no
value. Prior to the Expiration Date, the Company may not call or otherwise
redeem this Warrant without the prior written consent of the Holder.
(b) Upon delivery of a duly completed and signed Form
of Election to Purchase attached hereto to the Company at its address for notice
set forth in Section 11 and upon payment of the Exercise Price multiplied by the
number of Warrant Shares that the Holder intends to purchase hereunder, in the
manner provided hereunder, all as specified by the Holder in the Form of
Election to Purchase, the Company shall promptly (but in no event later than 3
business days after the Date of Exercise (as defined herein)) issue or cause to
be issued and cause to be delivered to or upon the written order of the Holder
and in such name or names as the Holder may designate, a certificate for the
Warrant Shares issuable upon such exercise, free of restrictive legends except
(i) either in the event that a registration statement covering the resale of the
Warrant Shares and naming the Holder as a selling stockholder thereunder is not
then effective or the Warrant Shares are not freely transferable without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act of
1933, as amended (the "Securities Act"), or (ii) if this Warrant shall have been
issued pursuant to a written agreement between the original Holder and the
Company, as required by such agreement. Any person so designated by the Holder
to receive Warrant Shares shall be deemed to have become holder of record of
such Warrant Shares as of the Date of Exercise of this Warrant. The Company
shall, upon request of the Holder, if available, use its reasonable efforts to
deliver Warrant Shares hereunder electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions.
A "Date of Exercise" means the date on which the Company
shall have received (i) the Form of Election to Purchase attached hereto (or
attached to such New Warrant) appropriately completed and duly signed, and (ii)
payment of the Exercise Price for the number of Warrant Shares so indicated by
the holder hereof to be purchased.
2
<PAGE> 3
(c) This Warrant shall be exercisable, either in its
entirety or, from time to time, for a portion of the number of Warrant Shares.
4. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring this Warrant or
receiving Warrant Shares upon exercise hereof.
5. Replacement of Warrant. If this Warrant is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
6. Reservation of Warrant Shares. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 7). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
7. Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section 7. Upon each such adjustment of
the Exercise Price pursuant to this Section 7, the Holder shall thereafter prior
to the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on
outstanding preferred stock as of the date hereof which contain a stated
dividend rate) or otherwise make a distribution or distributions on shares of
its Common Stock or on any other class of capital stock payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the
3
<PAGE> 4
number of shares of Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding after such event.
Any adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination, and shall apply to
successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock
or any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification or share exchange, and the Holder
shall be entitled upon such event to receive such amount of securities or
property equal to the amount of Warrant Shares such Holder would have been
entitled to had such Holder exercised this Warrant immediately prior to such
reclassification or share exchange. The terms of any such reclassification or
share exchange shall include such terms so as to continue to give to the Holder
the right to receive the securities or property set forth in this Section 7(b)
upon any exercise following any such reclassification or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 7(a), (b) and (d) or to any issuances in accordance with the Rights
Agreement, dated December 14, 1999, between the Company and the Rights Agent
named therein), then in each such case the Exercise Price shall be determined by
multiplying the Exercise Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Exercise Price determined as of
the record date mentioned above, and of which the numerator shall be such
Exercise Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
(d) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while this Warrant is outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt that is convertible into
or exchangeable for shares of Common Stock ("Common Stock Equivalents"),
entitling any person to acquire shares of Common Stock at a price per share less
than the Exercise Price (if the holder of the Common Stock or Common Stock
Equivalent so issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights issued in connection with
such issuance, be entitled to receive shares of Common Stock at a price less
than the Exercise Price, such issuance shall be deemed to have occurred for less
than the Exercise Price), then the Exercise Price shall be multiplied by a
fraction, the numerator of
4
<PAGE> 5
which shall be the number of shares of Common Stock outstanding immediately
prior to the issuance of such Common Stock or such Common Stock Equivalents plus
the number of shares of Common Stock which the offering price for such shares of
Common Stock or Common Stock Equivalents would purchase at the Exercise Price,
and the denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to such issuance plus the number of shares
of Common Stock so issued or issuable, provided, that for purposes hereof, all
shares of Common Stock that are issuable upon conversion, exercise or exchange
of Common Stock Equivalents shall be deemed outstanding immediately after the
issuance of such Common Stock Equivalents. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued. However, upon
the expiration of any Common Stock Equivalents the issuance of which resulted in
an adjustment in the Exercise Price pursuant to this Section, if any such Common
Stock Equivalents shall expire and shall not have been exercised, the Exercise
Price shall immediately upon such expiration be recomputed and effective
immediately upon such expiration be increased to the price which it would have
been (but reflecting any other adjustments in the Exercise Price made pursuant
to the provisions of this Section after the issuance of such Common Stock
Equivalents) had the adjustment of the Exercise Price made upon the issuance of
such Common Stock Equivalents been made on the basis of offering for
subscription or purchase only that number of shares of the Common Stock actually
purchased upon the exercise of such Common Stock Equivalents actually exercised.
The foregoing shall not apply to any (i) issuances in accordance with the Rights
Agreement, dated December 14, 1999, between the Company and the Rights Agent
named therein, (ii) the issuance of Common Stock upon the exercise or conversion
of the Company's options, warrants or other convertible securities specified in
Schedule 2.1(c) to the Purchase Agreement as outstanding as of the date of the
issuance of this Warrant, or (iii) the grant of options or warrants, or the
issuance of Common Stock upon the exercise of such options and warrants, or
otherwise under any duly authorized Company stock option, restricted stock plan
or stock purchase plan for the benefit of the Company's employees.
(e) In case of any (1) merger or consolidation of the
Company with or into another Person, or (2) sale by the Company of more than
one-half of the assets of the Company (on a book value basis) in one or a series
of related transactions, the Holder shall have the right thereafter to exercise
this Warrant for the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
merger, consolidation or sale, and the Holder shall be entitled upon such event
or series of related events to receive such amount of securities, cash and
property as the Common Stock for which this Warrant could have been exercised
immediately prior to such merger, consolidation or sales would have been
entitled. The terms of any such merger, sale or consolidation shall include such
terms so as continue to give the Holder the right to receive the securities,
cash and property set forth in this Section upon any conversion or redemption
following such event. This provision shall similarly apply to successive such
events.
(f) For the purposes of this Section 7, the following
clauses shall also be applicable:
(i) Record Date. In case the Company shall take
a record of the holders of its Common Stock for the purpose of entitling them
(A) to receive a dividend or other
5
<PAGE> 6
distribution payable in Common Stock or in securities convertible or
exchangeable into shares of Common Stock, or (B) to subscribe for or purchase
Common Stock or securities convertible or exchangeable into shares of Common
Stock, then such record date shall be deemed to be the date of the issue or sale
of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(ii) Treasury Shares. The number of shares of
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.
(g) All calculations under this Section 8 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
(h) Whenever the Exercise Price is adjusted pursuant to
Section 7(c) above, the Holder, after receipt of the determination by the
Appraiser, shall have the right to select an additional appraiser (which shall
be a nationally recognized accounting firm), in which case the adjustment shall
be equal to the average of the adjustments recommended by each of the Appraiser
and such appraiser. The Holder shall promptly mail or cause to be mailed to the
Company, a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
adjustment shall become effective immediately after the record date mentioned
above.
(i) If:
(i) the Company shall declare a dividend
(or any other distribution) on its
Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii) the Company shall authorize the
granting to all holders of the
Common Stock rights or warrants to
subscribe for or purchase any shares
of capital stock of any class or of
any rights; or
(iv) the approval of any stockholders of
the Company shall be required in
connection with any reclassification
of the Common Stock, any
consolidation or merger to which the
Company is a party, any sale or
transfer of all or substantially all
of the assets of the Company, or any
compulsory share exchange whereby the
Common Stock is converted into other
securities, cash or property; or
6
<PAGE> 7
(v) the Company shall authorize the
voluntary dissolution, liquidation
or winding up of the affairs of the
Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 20 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
8. Payment of Exercise Price. The Holder shall pay the
Exercise Price in one of the following manners:
(a) Cash Exercise. The Holder may deliver immediately
available funds; or
(b) Cashless Exercise. In the event that a registration
statement covering the resale by the Holders of the Warrant Shares is not then
effective or the Warrant Shares are not freely transferable without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act, the
Holder may surrender this Warrant to the Company together with a notice of
cashless exercise, in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows:
X = Y [ (A-B)/A]
where:
X = the number of Warrant Shares to be issued
to the Holder.
Y = the number of Warrant Shares with respect to
which this Warrant is being exercised.
A = the average of the closing prices of the Common
Stock on the AMEX (as reported by Bloomberg, L.P.
or the successor to its function of reporting share
prices) for the five trading days immediately prior
to (but not including) the Date of Exercise.
B = the Exercise Price.
7
<PAGE> 8
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
9. Certain Exercise Restrictions.
(a) A Holder may not exercise this Warrant to the
extent such exercise would result in the Holder, together with any affiliate
thereof, beneficially owning (as determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules promulgated thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon such exercise
and held by such Holder after application of this Section. Since the Holder will
not be obligated to report to the Company the number of shares of Common Stock
it may hold at the time of an exercise hereunder, unless the exercise at issue
would result in the issuance of shares of Common Stock in excess of 4.999% of
the then outstanding shares of Common Stock without regard to any other shares
which may be beneficially owned by the Holder or an affiliate thereof, the
Holder shall have the authority and obligation to determine whether the
restriction contained in this Section will limit any particular exercise
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of this
Warrant is exercisable shall be the responsibility and obligation of the Holder.
If the Holder has delivered a Form of Election to Purchase for a number of
Warrant Shares that, without regard to any other shares that the Holder or its
affiliates may beneficially own, would result in the issuance in excess of the
permitted amount hereunder, the Company shall notify the Holder of this fact and
shall honor the exercise for the maximum portion of this Warrant permitted to be
exercised on such Date of Exercise in accordance with the periods described
herein and, at the option of the Holder, either keep the portion of the Warrant
tendered for exercise in excess of the permitted amount hereunder for future
exercises or return such excess portion of the Warrant to the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.
(b) A Holder may not exercise this Warrant to the
extent such exercise would result in the Holder, together with any affiliate
thereof, beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of
the then issued and outstanding shares of Common Stock, including shares
issuable upon such exercise and held by such Holder after application of this
Section. Since the Holder will not be obligated to report to the Company the
number of shares of Common Stock it may hold at the time of an exercise
hereunder, unless the exercise at issue would result in the issuance of shares
of Common Stock in excess of 9.999% of the then outstanding shares of Common
Stock without regard to any other shares which may be beneficially owned by the
Holder or an affiliate thereof, the Holder shall have the authority and
obligation to determine whether the restriction contained in this Section will
limit any particular exercise hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of this Warrant is exercisable shall be the
responsibility and obligation of the Holder. If the Holder has delivered a Form
of Election to
8
<PAGE> 9
Purchase for a number of Warrant Shares that, without regard to any other shares
that the Holder or its affiliates may beneficially own, would result in the
issuance in excess of the permitted amount hereunder, the Company shall notify
the Holder of this fact and shall honor the exercise for the maximum portion of
this Warrant permitted to be exercised on such Date of Exercise in accordance
with the periods described herein and, at the option of the Holder, either keep
the portion of the Warrant tendered for exercise in excess of the permitted
amount hereunder for future exercises or return such excess portion of the
Warrant to the Holder. The provisions of this Section may be waived by a Holder
(but only as to itself and not to any other Holder) upon not less than 61 days
prior notice to the Company. Other Holders shall be unaffected by any such
waiver.
10. Fractional Shares. The Company shall not be required to
issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section, be
issuable on the exercise of this Warrant, the Company shall pay an amount in
cash equal to the Exercise Price multiplied by such fraction.
11. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 8:00 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 8:00 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company, to
1250 Northpoint Parkway, West Palm Beach, FL 33407 or facsimile number (561)
688-8893, attention Chairman, or (ii) if to the Holder, to the Holder at the
address or facsimile number appearing on the Warrant Register or such other
address or facsimile number as the Holder may provide to the Company in
accordance with this Section.
12. Warrant Agent. The Company shall serve as warrant agent
under this Warrant. Upon ten days' notice to the Holder, the Company may appoint
a new warrant agent. Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
9
<PAGE> 10
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and assigns. This
Warrant may be amended only in writing signed by the Company and the Holder and
their successors and assigns.
(b) Subject to Section 13(a), above, nothing in this
Warrant shall be construed to give to any person or corporation other than the
Company and the Holder any legal or equitable right, remedy or cause under this
Warrant. This Warrant shall inure to the sole and exclusive benefit of the
Company and the Holder.
(c) The corporate laws of the State of Delaware shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. The Company
and the Holder hereby irrevocably submit to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or that
such suit, action or proceeding is improper. Each of the Company and the Holder
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by receiving a copy thereof
sent to the Company at the address in effect for notices to it under this
instrument and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
(d) The headings herein are for convenience only, do
not constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this
Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
HEARX LTD.
By:
---------------------------------------------------
Name: Paul A. Brown, M.D.
Title: Chairman and Chief Executive Officer
11
<PAGE> 12
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To HEARx Ltd.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of common stock, $.10 par value per share, of HEARx Ltd. (the "Common
Stock") and , if such Holder is not utilizing the cashless exercise provisions
set forth in this Warrant, encloses herewith $________ in cash, certified or
official bank check or checks, which sum represents the aggregate Exercise Price
(as defined in the Warrant) for the number of shares of Common Stock to which
this Form of Election to Purchase relates, together with any applicable taxes
payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
--------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
The undersigned represents and warrants it is an accredited investor
under Rule 501(a) under the Securities Act of 1933, as amended.
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: , Name of Holder:
--------- ----
(Print)
-----------------------------------
(By:)
-------------------------------------
(Name:)
(Title:)
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
<PAGE> 13
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of HEARx Ltd. to which
the within Warrant relates and appoints ________________ attorney to transfer
said right on the books of HEARx Ltd. with full power of substitution in the
premises.
Dated:
- ---------------, ----
----------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
