UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-QSB
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from to
COMMISSION FILE NUMBER 0-28566
HENLEY HEALTHCARE, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS 76-0335587
(State or other jurisdiction of No.) (IRS Employer Identification
incorporation or organization)
120 INDUSTRIAL BOULEVARD, SUGAR LAND, TEXAS 77478
(Address of principal executive offices)
713-276-7000
(Issuer's telephone number)
Check whether the issuer (i) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (ii)
has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
As of August 10, 1998, the issuer had 5,383,205 shares of common stock
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [x]
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PART I. FINANCIAL INFORMATION
This report includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this report are forward looking
statements. Such forward looking statements include, without limitation,
statements under "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" regarding the
Company's estimate of sufficiency of existing capital resources and its ability
to raise additional capital to fund cash requirements for future operations and
acquisitions. Although the Company believes the expectations reflected in such
forward looking statements are reasonable, it can give no assurance that such
expectations reflected in such forward looking statements will prove to have
been correct. The ability to achieve the Company's expectations is contingent
upon a number of factors which include (i) ongoing cost of research and
development activities, (ii) timely approval of the Company's product candidates
by appropriate governmental and regulatory agencies, (iii) effect of any current
or future competitive products, (iv) the Company's ability to manufacture and
market its products commercially, (v) the retention of key personnel and (vi)
capital market conditions. This Report may contain trademarks and service marks
of other companies
ITEM 1. FINANCIAL STATEMENTS
The information required hereunder is included in this report as set
forth in the "Index to Financial Statements."
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE
Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-9
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HENLEY HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1998 December 31,
1997
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................... $ 1,326,979 $ 123,620
Accounts receivable, net of allowance for
doubtful accounts of $3,117,888 and
$2,165,124, respectively .................. 12,667,940 6,675,800
Inventory .................................... 10,815,826 8,147,357
Prepaid expenses ............................. 671,130 228,165
Other current assets ......................... 140,196 71,960
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TOTAL CURRENT ASSETS ...................... 25,622,071 15,246,902
PROPERTY, PLANT AND EQUIPMENT, net .............. 7,164,606 3,994,231
GOODWILL AND OTHER INTANGIBLES, net ............. 18,367,362 5,670,004
OTHER ASSETS, net ............................... 1,345,109 1,244,580
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TOTAL ASSETS .................................... $ 52,499,148 $ 26,155,717
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit - bank ........................ $ 14,796,882 $ 7,105,868
Current maturities of long-term debt ......... 2,345,214 433,763
Accounts payable ............................. 7,270,276 3,970,270
Accrued expenses and other current liabilities 4,073,124 1,099,572
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TOTAL CURRENT LIABILITIES ....................... 28,485,495 12,609,473
INTEREST PAYABLE ................................ 295,000 536,667
LONG-TERM DEBT, net of current maturities ....... 15,296,569 9,466,179
- -------------------------------------------------------------------------------
TOTAL LIABILITIES ......................... 44,077,064 22,612,319
STOCKHOLDERS' EQUITY
Preferred stock - $.10 par value; authorized
2,500,000 shares; issued and outstanding
1,825 shares of Series A .................. 1,368,750 --
Common stock - $.01 par value; authorized
20,000,000 shares; issued 5,662,205 and
3,473,897, respectively ................... 56,622 34,738
Additional paid-in-capital ................... 20,030,058 14,117,079
Accumulated deficit .......................... (10,290,230) (10,382,240)
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11,165,200 3,769,577
Treasury stock, at cost, 279,000 common shares (226,179) (226,179)
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TOTAL STOCKHOLDERS' EQUITY ................ 8,422,084 3,543,398
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...... $ 52,499,148 $ 26,155,717
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
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HENLEY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, 1998 1997
- -------------------------------------------------------------------------------
NET SALES ....................................... $ 10,650,466 $ 5,545,031
COST OF SALES ................................... 6,750,477 2,602,276
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GROSS PROFIT .................................... 3,899,989 2,942,755
OPERATING EXPENSES .............................. 5,304,780 2,541,636
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INCOME FROM OPERATIONS .......................... (1,404,791) 401,119
LOSS ON DISPOSAL OF HOMECARE DIVISION ........... (952,052)
INTEREST EXPENSE ................................ (386,976) (264,244)
OTHER INCOME (EXPENSE), net ..................... (237,331) (43,177)
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NET INCOME (LOSS)................................ $ (2,981,150) $ 93,698
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PREFERRED STOCK DIVIDENDS ....................... $ 621,141 $ --
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS .................................... $ (3,602,291) $ --
- -------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE -
basic and diluted ............................... $ (0.67) $ 0.03
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SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE - basic and diluted ........... 5,383,205 2,988,061
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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HENLEY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six months ended June 30, 1998 1997
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NET SALES ....................................... $ 18,634,667 $ 10,411,657
COST OF SALES ................................... 10,937,199 4,569,813
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GROSS PROFIT .................................... 7,697,468 5,841,844
OPERATING EXPENSES .............................. 8,490,633 5,010,877
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INCOME FROM OPERATIONS .......................... (793,165) 830,967
LOSS ON DISPOSAL OF HOMECARE DIVISION ........... (952,052) --
INTEREST EXPENSE ................................ (719,871) (507,012)
OTHER INCOME (EXPENSE), net ..................... (424,048) (77,078)
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NET INCOME (LOSS)................................ $ (2,889,136) $ 246,877
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PREFERRED STOCK DIVIDENDS ....................... $ 700,782 $ --
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS .................................... $ (3,589,918) $ --
- -------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE -
basic and diluted ............................... $ (0.77) $ 0.09
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SHARES USED IN COMPUTING NET INCOME PER COMMON
SHARE - basic and diluted ................... 4,652,609 2,884,851
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<TABLE>
<CAPTION>
HENLEY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30, 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss).................................... $(2,889,136) $ 246,877
- ----------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization expense.......... 867,655 273,119
Interest expense imputed on notes payable ..... 79,332 165,667
Bad debt expense .............................. 590,846 690,441
Changes in operating assets and
liabilities:
Increase in accounts receivable ........... (988,007) (1,270,555)
Increase in inventory ..................... 760,142 (360,923)
Decrease in prepaid expenses and other
current assets ........................ 80
Decrease (increase) in other assets ....... 155,956 80
(Decrease) increase in accounts payable, .. 7,843 (97,084)
accrued expenses and other current
liabilities ............................ (219,649) (107,449)
- ----------------------------------------------------------------------------------
Total adjustments ................... 1,254,117 (706,704)
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Net cash used in
operating activities ............. (1,635,019) (459,827)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired of $8,230 ..... (561,770) (439,641)
Capital expenditures ............................. (1,682,102) (61,367)
- ----------------------------------------------------------------------------------
Net cash used in investing activities (2,243,872) (501,008)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock .... 2,249,875 --
Proceeds from line of credit ..................... 698,955 1,519,462
Payments of line of credit ....................... -- --
Proceeds from long-term debt ..................... 1,260,000 --
Principal payments of long-term debt ............. (236,874) (596,392)
- ----------------------------------------------------------------------------------
Net cash provided by financing
activities ........................ 3,971,956 923,070
- ----------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 93,065 (37,765)
Cash and cash equivalents at beginning of period .... 1,233,914 507,892
- ----------------------------------------------------------------------------------
Cash and cash equivalents at end of period .......... $ 1,326,979 $ 470,127
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ...................................... $ 701,000 $ 325,335
- ----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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HENLEY HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying unaudited interim consolidated financial statements of
Henley Healthcare, Inc. (the "Company"), have been prepared in accordance
with generally accepted accounting principles and the rules of the
Securities and Exchange Commission (the "SEC"), and should be read in
conjunction with the audited consolidated financial statements and notes
thereto contained in the Company's latest Annual Report filed with the SEC
on Form 10-KSB. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of
financial position and the results of operations for the interim periods
presented have been reflected herein. The results of operations for
interim periods are not necessarily indicative of the results to be
expected for the full year. Notes to the consolidated financial
statements, which would substantially duplicate the disclosure contained
in the audited consolidated financial statements for the most recent
fiscal year, 1997, as reported in the Form 10-KSB, have been omitted.
2. ACQUISITIONS:
In January 1998, the Company acquired all of the issued and outstanding
common stock of Garvey Company, a Minnesota corporation, as a wholly-owned
subsidiary, for an estimated purchase price of approximately $880,000,
plus related acquisition costs of approximately $40,000. The purchase
price was paid by the issuance of 120,308 shares of the Company's common
stock. The acquisition was accounted for as a purchase.
In February, 1998, the Company purchased substantially all of the assets
and assumed certain liabilities associated with AMC Acquisition Corp., a
Texas corporation, for an estimated purchase price of approximately
$450,000, plus related acquisition costs of approximately $30,000. The
purchase price was paid by the issuance of 68,000 shares of common stock.
The acquisition was accounted for as a purchase.
On May 29, 1998, the Company acquired substantially all of the assets and
assumed certain liabilities of Enraf-Nonius, B.V. ("Enraf"), a
wholly-owned subsidiary of Delft Instruments N.V.("Delft"). Enraf
specializes in the development, manufacture and sale of medical products,
including ultra-sound and electrical stimulation, used in pain management,
physical therapy and rehabilitation. The purchase price for Enraf was
approximately $15 million plus acquisition costs of approximately
$570,000. The purchase was financed with short and long term notes
totaling approximately $7 million from Delft and $8 million from bank
financing. the short term nontes were repaid by the Series B Preferred
offering that were funded in july and August 1998. The acquisition has
been accounted for as a purchase.
3. FINANCINGS:
In February 1998, the Company entered into an agreement with Maxxim
Medical, Inc. ("Maxxim") whereby it acquired from Maxxim an
office/warehouse building located at 140 Industrial Boulevard, Sugar Land,
Texas, for an estimated purchase price of approximately $1.2 million. The
purchase price was paid in cash which the Company obtained pursuant to a
second amendment of its Amended Loan Agreement "Second Amendment") with
Comerica Bank-Texas, a Texas banking corporation ("Comerica".) In
connection with the Second Amendment with Comerica, the Company obtained a
Term Note C in the principal amount of $1,260,000 with a maturity date of
February 12, 2013. Term Note C bears interest at the Prime Rate plus
one-half of one percent per annum, is payable in monthly principal
installments of $7,000 plus all accrued interest thereon and subject to
the terms and conditions of the Amended Loan Agreement with Comerica. All
of the borrowings from Comerica are secured by substantially all of the
assets of the Company.
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On February 20, 1998 and March 13, 1998, the Company entered into
agreements with Maxxim pursuant to which Maxxim converted an aggregate of
$4,000,000 outstanding under its convertible promissory note (the "Note")
into an aggregate of 2,000,000 shares of the Company's common stock, par
value $.01 per share. The conversions were based on the current conversion
price of $2.00 per share under the Note. The agreements also provide that
the entire $4 million conversion shall be applied to the Company's full
redemption obligation due in the year 2003 and partially to the Company's
redemption obligation due in the year 2002 as provided in the Note. The
Company has filed a registration statement covering the resale of the
shares of Common Stock issued to Maxxim as a result of the conversions
described above.
In March and April 1998, the Company entered into an two agreements with
certain private institutional investors pursuant to which the Company
issued to the investors a total of 2,500 shares of its Series A
Convertible Preferred Stock (the "Preferred Stock") for $2.5 million in
cash. The Preferred Stock is convertible into Henley's Common Stock at the
lesser of (i) 75% of the average closing bid price for Henley's Common
Stock as reported by Nasdaq for the 5 trading days prior to conversion or
(ii) $7.125 for 1,825 shares and $6.375 for 675 shares. For so long as the
Company is listed on The Nasdaq SmallCap or National Markets or any
national securities exchange, the conversion price shall not be lower than
$2.90. In addition, the Company may, at its option, redeem the Preferred
Stock by paying 130% of the purchase price. The Preferred Stock shall pay
an annual dividend of 4%, payable quarterly on each subsequent March 31st,
June 30th, September 30th and December 31st, in cash or shares of Common
Stock at the Company's option. In connection with the agreement, the
Company also issued to the investors 5-year warrants to purchase an
aggregate of 200,000 shares of the Company's Common Stock at exercise
prices ranging from $6.375 to $9.619. No value was assigned to the
warrants as management estimated their value to be immaterial due to the
exercise prices primarily being in excess of the current fair value of the
Company's common stock.
As a result of the guaranteed discount, the Company will incur a deemed
dividend in the future for the conversion of the Preferred Stock. Such
dividend is calculated as the discount over fair market value as of the
date the Preferred Stock was sold to the investors. This aggregate
discount amount of $833,333 will be treated as a dividend to the holders
of the Preferred Stock and will be recorded ratably over 120 days, the
earliest conversion date of the Preferred Stock. For the six months ended
June 30, 1998, the deemed dividend amounted to approximately $673,000. The
Company has filed a registration statement covering the resale of the
shares of Common Stock issuable upon the conversion of the Preferred Stock
and exercise of the warrants sold to the investors described above.
4. COMMITMENTS:
In connection with the acquisition of Enraf-Nonius, B.V., the company
entered into certain long-term agreements with Delft Instruments, B. V.
(Delft) and its subsidiaries. This includes operating leases that are
generally for seven-year terms and require aggregate annual lease payments
of approximately $3 million. management believes the leases approximate
market rates. The company also entered into a seven year $1.6 million note
with Delft to fund the pension liability of the German subsidiary of
Enraf-Nonius. the note bears interest at 4% for the first year and 5%
thereafter and is payable over the last five years.
5. NET INCOME PER COMMON SHARE:
The Company adopted SFAS No. 128, which requires the presentation of both
basic and diluted earnings per common share . Basic earnings per common
share is based on the weighted average number of common shares outstanding
during the period, while diluted earnings per common share considers the
dilutive effect of stock options and warrants reflected under the treasury
stock method. The common shares resulting from the assumed conversion of
the Preferred Stock at the time of issuance (which are considered under
the if-converted method) and the Company's outstanding stock options and
warrants have not been included in the calculation because their effect
would be anti-dilutive. As a result, both basic and diluted earnings per
common share are the same.
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6. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board adopted SFAS No.
130, "Reporting Comprehensive Income," which establishes standards for
reporting comprehensive income and its components. The Company is adopting
this statement in the current fiscal year. There is no difference in the
reported amounts of net income and comprehensive income for the three and
six months ended June 30, 1998.
7. SUBSEQUENT EVENTS:
In July and August, the Company entered into two agreements with certain
private institutional investors pursuant to which the Company issued to
the investors a total of 4,700 shares of its Series B Convertible
Preferred Stock (the "Series B Preferred Stock") for $4.3 million in cash.
The Series B Preferred Stock is convertible into Henley's Common Stock at
the lesser of (i) 110% of the average closing bid price for Henley's
Common Stock as reported by Nasdaq for the 5 trading days prior to
issuance date or (ii) 87% of the average bid price for any 3 consecutive
days of the 20 days prior to conversion. For so long as the Company is
listed on The Nasdaq SmallCap or National Markets or any national
securities exchange, the conversion price shall not be lower than $3.50.
The Series B Preferred Stock shall bear no dividend. In connection with
the agreement, the Company also issued to the investors 5-year warrants to
purchase an aggregate of 235,000 shares of the Company's Common Stock at
exercise prices ranging from $5.87 to 6.00. No value was assigned to the
warrants as management estimated their value to be immaterial.
As a result of the guaranteed discount, the Company will incur a deemed
dividend in the future for the conversion of the Series B Preferred Stock.
Such dividend is calculated as the discount over fair market value as of
the date the Series B Preferred Stock was sold to the investors. This
discount amount of $702,000 will be treated as a dividend to the holders
of the Series B Preferred Stock and will be recorded ratably over 120
days, the earliest conversion date of the Series B Preferred Stock. The
Company intends to file a registration statement covering the resale of
the shares of Common Stock issuable upon the conversion of the Series B
Preferred Stock and exercise of the warrants sold to the investors
describe above.
Pursuant to the terms of the Statement of designation of Rights and
Preferences of the Series B Preferred Stock, the Company is not required
to issue shares of its Common Stock on conversion of the Preferred Stock
unless such shares have been approved for listing on the exchange or
market on which the Common Stock is trading. In such an event, until the
Company obtains the requisite shareholder approval, the Company is not
obligated to issue shares in excess of the amount of shares which does not
require shareholder approval, which under the Nasdaq SmallCap Rules is 20%
of the Company's outstanding Common Stock. Therefore, until the Company
receives shareholder approval, the Preferred Stock will not be convertible
into more than the number of shares of Common Stock which may be listed
under the Nasdaq SmallCap Rules without obtaining shareholder approval.
The Company has agreed to obtain shareholder approval for the issuance of
the Preferred stock subsequent to the closing in order to eliminate this
limit on the shares issuable on conversion of the Preferred Stock.
On August 11, 1998, the Company sold all of its assets related to its
Homecare operations, including accounts receivable, inventory and property
and equipment, for $3,650,000. Based on the sales price of the assets, the
Company has written down certain assets, including related goodwill, to
their net realizable value at June 30, 1998 by approximately $952,000.
Proceeds from the sale were used to pay down on existing bank debt with
Comerica Bank.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company's principal business strategies are to (i) expand distribution
channels and explore new markets, (ii) consolidate the highly-fragmented
physical therapy and rehabilitation industry by pursuing strategic acquisitions
that complement existing product lines and increase market share, (iii) maximize
the utilization of existing manufacturing facilities for increased productivity,
(iv) improve profitability, (v) reduce long-term indebtedness, and (vi) seek
market clearance from the U.S. Food and Drug Administration for the MicroLight
830(TM).
Prior to April 30, 1996, the Company was primarily engaged in the
development and application for marketing clearance of the MicroLight 830(TM).
Beginning with the acquisition of Maxxim's Henley Division, the Company has
pursued a strategy of consolidating the highly fragmented physical therapy and
rehabilitation industry. Since that time, the Company has grown significantly as
a result of additional acquisitions. All acquisitions have been accounted for
under the purchase method of accounting for business combinations and
accordingly, the results of operations for such acquisitions are included in the
Company's financial statements
9
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only from the applicable date of acquisition. As a result, the Company believes
that its historical results of operations for the periods presented may not be
directly comparable. The Company believes the historical results of operations
do not fully reflect the operating efficiencies and improvements that are
expected to be achieved by integrating the acquired businesses and product
lines.
The Company intends to continue its evaluation of acquisitions, and a
period of rapid growth could place a significant strain on the Company's
management, operations and other resources. There can be no assurance that the
Company will continue to be able to identify attractive or willing acquisition
candidates, or that the Company will be able to acquire such candidates on
economically acceptable terms. The Company's ability to grow through
acquisitions and manage such growth will require the Company to continue to
invest in its operational, financial and management information systems and to
attract, retain, motivate and effectively manage its employees. The inability of
the Company's management to manage growth effectively would have a material
adverse effect on the financial condition, results of operations and business of
the Company. As the Company pursues its acquisition strategy in the future, its
financial position and results of operations may fluctuate significantly from
period to period.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto and other detailed
information contained in the Company's Annual Report for fiscal year 1997 filed
with the SEC on Form 10-KSB.
RESULTS OF OPERATIONS
Sales revenues were approximately $18.6 million for the six months ended
June 30, 1998, representing an increase of approximately $8.2 million over the
amount reported for the same period in 1997. Sales revenues were approximately
$10.7 million for the quarter ended June 30, 1998, representing an increase of
approximately $5.1 million over the amount reported for the same period in 1997.
These increases are primarily from increased sales attributable to the
acquisitions of Med-Quip, Enraf-Nonius and the Cybex product line. Also
contributing to the increases are the effects of expanded distribution outlets
during this period.
Gross margin for the six months ended June 30, 1998 was $7.7 million,
which was an increase of $1.9 million over the same period reported for 1997.
Gross margin for the quarter ended June 30, 1998 was $3.9 million, an increase
of $0.9 million over the same period in 1997. The gross margin as a percentage
of sales decreased for the six months ended June 30, 1998 to 41% versus 56% in
1997. This decrease in percentage is a result of three factors: (i) distribution
sales which carry a lower margin, (ii) in initial costs of integrating the Cybex
product line into the Belton facility, approximately $1.1 million and (iii) the
effect of writing down the Cybex inventory, approximately $0.8 million, to
reflect the net realizable value during the second quarter of 1998.
Operating expenses for the six months ended June 30, 1998 increased $3.4
million over the same period in 1997. For the quarter ended June 30, 1998
operating expenses increased by $2.8 million over the $2.5 million reported for
the same period in 1997. The increases in operating expenses are due to the
incremental selling, general and administrative costs of integrating the
acquired operations into existing activities. However, as a percentage of sales,
operating expenses for the six months ended June 30, 1998 decreased to
approximately 46% compared to approximately 48% for the same period in 1997.
This is a result of the synergys that were realized with the acquisition.
Interest charges for the six months and quarter ended June 30, 1998 were
approximately $0.7 million and $0.3 million, respectively, compared to
approximately $0.5 million and $0.2 million reported for the same periods in
1997. The overall increase in interest expense was primarily due to the
interest-bearing notes issued to finance some of the Company's acquisitions.
The Company incurred a one time loss on the disposal of its Homecare
Division. This will eliminate the need for large bad debt allowances found in
the financial statements, as incurred in 1997 and the first six months of 1998.
The loss is approximately $1 million.
As a result of the foregoing, the Company reported consolidated net losses
of approximately $2.9 million for the six months ended June 30, 1998 and $3.0
million for the quarter ended June 30, 1998 compared to net incomes of
approximately $0.2 million and $0.1 million for the same periods in 1997.
In June 1998, the Company implemented cost reductions to improve
profitability. These reductions included an 8% pay reduction for all employees,
an increase in employee contribution into health benefits, discontinuance of the
Company 401(k) matching contribution, plus other various internal cost cuts.
The Company believes that with the cost reductions implemented, the
completion of the Cybex manufacturing transition, and the disposal of the
Homecare division, the Company should be headed in the right direction.
10
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, the Company had cash and cash equivalents in the amount of
$1.3 million compared with cash and cash equivalents of $123,620 at December 31,
1997. The increase in cash and cash equivalents was primarily from the
acquisition of Enraf-Nonius. At June 30, 1998, the Company had a working capital
deficit of approximately $3.4 million and its current ratio was .88 to 1 as
compared to $2,637,000 and 1.2 to 1 at December 31, 1997. This decrease in the
current ratio is primarily due to the increase in the amount of outstanding debt
associated with the Enraf-Nonius purchase. At June 30, 1998, the Company had no
material capital expenditure commitments.
Between March and April 1998, the Company sold an aggregate of 2,500
shares of the Preferred Stock at $1,000 per share in private offerings,
resulting in gross proceeds of $2.5 million. The Preferred Stock is convertible
into the Company's common stock at the lesser of (i) 75% of the average closing
bid price for the Company's common stock as reported on The Nasdaq SmallCap
Market for the 5 trading days prior to conversion, or (ii) $7.125 for 1,825
shares and $6.375 for 675 shares. For so long as the Company is listed on The
Nasdaq SmallCap or National Markets or any national securities exchange, the
conversion price shall not be lower than $2.90. In addition, the Company may, at
its option, redeem the Preferred Stock by paying 130% of the purchase price. The
Preferred Stock shall pay an annual dividend of 4%, payable quarterly on each
subsequent March 31st, June 30th, September 30th and December 31st, in cash or
shares of Common Stock at the Company's option. In connection with the
agreement, the Company also issued to the investors 5-year warrants to purchase
an aggregate of 200,000 shares of the Company's Common Stock at exercise prices
ranging from $6.375 to $9.619. No value was assigned to the warrants as the
value was immaterial.
The Company has filed a registration statement covering the resale of the
shares of Common Stock issuable upon the conversion of the Preferred Stock and
exercise of the warrants sold to the investors described above. As a result of
the guaranteed discount, the Company will incur a deemed dividend in the future
for the conversion of the Preferred Stock. Such dividend is calculated as the
discount over fair market value as of the date the Preferred Stock was sold to
the investors. This discount amount of $833,000 will be treated as a dividend to
the holders of the Preferred Stock and will be recorded ratably over 120 days,
the earliest conversion date of the Preferred Stock.
The Company's current sources of liquidity consist primarily of (i) funds
from operations, (ii) proceeds from the sale of the Preferred Stock, (iii) funds
held at the end of fiscal year 1997 and (iv) the amounts, if any, available
under the Amended Loan Agreement with Comerica. As of June 30, 1998, the Company
had approximately $0 available for borrowing under a line of credit with
Comerica.
The Company is currently assessing the potential impact of the present
computer technology issue generally referred to as the "Year 2000 Problem." The
Year 2000 Problem, which is common to most corporations, relates to the
inability of information systems, primarily computer software programs, to
properly recognize and process date sensitive information related to the year
2000 and beyond. The Company is currently evaluating the expected costs to be
incurred in connection with the Year 2000 Problem, and expects that such costs
will not have a material adverse effect on the Company's results of operations
or financial condition.
The European Union's adoption of the Euro single currency raises a variety
of issues associated with the Company's Enraf operations. Although the
transition will be phased in over several years, the Euro will become Europe's
single currency on January 1, 1999. The Company is assessing Euro issues related
to its product pricing, contract, treasury operations and accounting systems.
Although the evaluation of these items is still in process, the Company believes
that the hardware and software systems it uses internally will accommodate this
transition and any required policy or operating changes will not have a material
adverse effect on future results.
Management believes that the funds generated from operations, along with
the Company's current working capital position, preferred stock offerings and
bank credit facilities will be sufficient to satisfy the Company's capital
requirements for the foreseeable future. However, the Company will need to
obtain significant
11
<PAGE>
additional capital to finance its acquisition strategy. If the Company's
operating cash flows are inadequate or if the Company is unable to obtain
sufficient financing, there can be no assurance that the Company will be able to
successfully fund its current operations or implement its acquisition strategy.
The Company believes that its success in obtaining the necessary financing will
depend upon, among other factors, successfully operating the recently acquired
businesses. Sources of additional financing may include additional bank debt or
the public or private sale of equity or debt securities. There can be no
assurance that the Company will be successful in arranging such financing at all
or on terms commercially acceptable to the Company.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES
The following sales of unregistered securities occurred during the quarter
ended June 30, 1998, in private transactions in which the Company relied on the
exemption from registration available under Section 4(2) of the Securities Act
of 1993, as amended:
During April 1998, the Company issued to certain accredited investors 675
shares of Series A Preferred Stock and 5-year warrants to purchase an aggregate
of 54,000 shares of common stock. (See Footnotes to Consolidated Financial
Statements).
On July 1, 1998, the Company sold in a private placement 2,500 units
("Series B Units") consisting of (i) one share of the Company's Series B
Convertible Preferred Stock, and (ii) a warrant to acquire 50 shares of Common
Stock, for a purchase price of $1,000 per unit, to Zanett Lombardier, Ltd.
("Lombardier"), an accredited investor. In addition, The Zanett Securities
Corporation, the placement agent, received warrants to acquire 67,308 shares
with the same terms as the warrants sold to Lombardier. (See Footnotes to
Consolidated Financial Statements).
On August 10, 1998, the Company sold in a private placement 2,200
additional Series B Units, for a purchase price of $1,000 per unit, to
Lombardier, Goldman Sachs Performance Partners, L.P. and Goldman Sachs
Performance Partners (Offshore), each an accredited investor. In addition, The
Zanett Securities Corporation, the placement agent, received warrants to acquire
59,231 shares with the same terms as the warrants sold to the other purchasers.
(See Footnotes to Consolidated Financial Statements).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on July 17, 1998.
The holders of 4,221,766 shares of the Company's common stock were present at
the meeting in person or by proxy and elected a board of six directors.
The shareholders voted as follows and elected the following persons to
serve as directors of the Company until the next annual meeting of stockholders
and until their successors are duly elected and qualified:
NUMBER OF NUMBER OF
NAME OF DIRECTOR VOTES FOR VOTES WITHHELD
- ------------------------ ------------- -------------
Michael M. Barbour 4,216,766 5,000
Chadwick F. Smith, MD 4,216,766 5,000
Dan D. Sudduth 4,216,631 5,135
Pedro A. Rubio, MD, Ph.D 4,216,766 5,000
Kenneth W. Davidson 4,216,766 5,000
Ernest J. Henley, Ph.D 4,216,766 5,000
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits, from which schedules and exhibits have been
omitted and will be furnished to the Commission upon its request, are filed with
this Current Report on Form 10-QSB:
EXHIBIT
NO. DESCRIPTION
- -------- -----------
2.1 Agreement for the Sale and Purchase of the Enraf-Nonius Companies, dated
March 6, 1998, by and between the Company on behalf of Henley Healthcare
B.V. and Delft Instruments Nederland B.V., Delft Instruments
2
<PAGE>
International B.V., Beheermaatschappij Elektroptik B.V., Delft Instruments
France S.A., B.V. Industriele Houdstermaatschappij Odelca, Enraf-Nonius
Technology B.V., Beheermaatschappij Oldelca B.V., Dimeq Medizinelektronik
GMBH Berlin and N.V. Verenigde Instrumentenfabrieken Enraf-Nonius.
(Incorporated herein by reference to Exhibit 2.1 of the Company's Current
Report on Form 8-K/A as filed on August 14, 1998.)
2.2 Amendment to the Agreement Regarding the Sale and Purchase of the
Enraf-Nonius Companies, dated May 29, 1998, by and between Henley
Healthcare B.V. and Delft Instruments Nederland B.V., Delft Instruments
International B.V., Beheermaatschappij Elektroptik B.V., Delft Instruments
France S.A., B.V. Industriele Houdstermaatschappij Odelca, Enraf-Nonius
Technology B.V., Beheermaatschappij Oldelca B.V., Dimeq Medizinelektronik
GMBH Berlin and N.V. Verenigde Instrumentenfabrieken Enraf-Nonius.
(Incorporated herein by reference to Exhibit 2.2 of the Company's Current
Report on Form 8-K/A as filed on August 14, 1998.)
*2.3 Asset Purchase Agreement by and between Rehabilicare Inc. ("Rehabilicare")
and the Company dated August 6, 1998.
3.1 Statement of Designation of Rights and Preferences of the Series A
Preferred Stock (as corrected). (Incorporated herein by reference to
Exhibit 3.1 of the Company's Quarterly Report on Form 10-QSB for the
period ended March 31, 1998 as filed on May 15, 1998.)
3.2 Statement of Designation of Rights and Preferences of the Series B
Preferred Stock (as corrected). (Incorporated herein by reference to
Exhibit 3.1 of the Company's Current Report on Form 8-K as filed on July
10, 1998.)
*3.3 Amendment to Articles of Incorporation Amending the Rights and Preferences
of the Series B Preferred Stock.
4.1 Form of Subscription Agreement between the Company and the Series A
Preferred Stock Investors. (Incorporated herein by reference to Exhibit
4.1 of the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1998 as filed on May 15, 1998.)
4.2 Form of Stock Purchase Warrant issued to Series A Preferred Stock
Investors. (Incorporated herein by reference to Exhibit 4.2 of the
Company's Quarterly Report on Form 10-QSB for the period ended March 31,
1998 as filed on May 15, 1998.)
4.3 Form of Registration Rights Agreement between the Company and the Series A
Preferred Stock Investors. (Incorporated herein by reference to Exhibit
4.3 of the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1998 as filed on May 15, 1998.)
4.4 Registration Rights Agreement dated as of July 1, 1998, by and among the
Company, Zanett Lombardier, Ltd. ("Lombardier") and The Zanett Securities
Corporation ("Zanett"). (Incorporated herein by reference to Exhibit 4.1
of the Company's Current Report on Form 8-K as filed on July 10, 1998.)
4.5 Form of Stock Purchase Warrant issued to Lombardier and Zanett dated July
1, 1998. (Incorporated herein by reference to Exhibit 4.2 of the Company's
Current Report on Form 8-K as filed on July 10, 1998.)
4.6 Securities Purchase Agreement dated as of July 1, 1998, between the
Company and Lombardier. (Incorporated herein by reference to Exhibit 10.1
of the Company's Current Report on Form 8-K as filed on July 10, 1998.)
*4.7 Registration Rights Agreement dated as of August 10, 1998, by and among
the Company, Lombardier, Goldman Sachs Performance Partners, L.P.
("Partners") and Goldman Sachs Performance Partners (Offshore), L.P.
("Offshore") and Zanett.
*4.8 Form of Stock Purchase Warrant issued to Lombardier, Partners, Offshore
and Zanett dated August 10, 1998.
*4.9 Securities Purchase Agreement dated as of August 10, 1998, between the
Company, Lombardier, Partners and Offshore.
3
<PAGE>
10.1 Subordinated Loan Agreement dated as of May 29, 1998, by and between Delft
Instruments Nederland B.V., Henley Healthcare B.V., and the Company.
(Incorporated herein by reference to Exhibit 10.1 of the Company's Current
Report on Form 8-K/A as filed on August 14, 1998.)
10.2 Fourth Amendment to Amended and Restated Loan Agreement, dated effective
May 29, 1998, by and between the Company and Comerica Bank-Texas.
(Incorporated herein by reference to Exhibit 10.2 of the Company's Current
Report on Form 8-K/A as filed on August 14, 1998.)
10.3 Amendment to Subordination Agreement dated as of May 29, 1998 by and
between Maxxim Medical, Inc. ("Maxxim"), the Company and Comerica
Bank-Texas. (Incorporated herein by reference to Exhibit 10.3 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
10.4 Joinder Agreement dated effective as of May 29, 1998, executed by Henley
Healthcare, B.V. (Incorporated herein by reference to Exhibit 10.4 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
10.5 Second Modification to Convertible Subordinated Promissory Note, dated as
of June 5, 1998, between the Company and Maxxim. (Incorporated herein by
reference to Exhibit 10.5 of the Company's Current Report on Form 8-K/A as
filed on August 14, 1998.)
10.6 Revolving Loan Agreement by and between the Company and the Bank of
Artesia. (Incorporated herein by reference to Exhibit 10.6 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
*10.7 Facilities and Services Agreement by and between Rehabilicare and the
Company dated August 6, 1998.
*27.1 Financial Data Schedule for the quarter ended June 30, 1998.
- ------------------
* Filed herewith
(b) REPORTS ON FORM 8-K
During the quarter ended June 30, 1998, the Company filed a Current Report
on Form 8-K dated June 15, 1998 in which it reported the consummation of its
acquisition of the Enraf-Nonius Companies. In addition, the Company filed a
Current Report on Form 8-K in which it reported the issuance of $2.2 million of
the Company's convertible Series B Preferred Stock on July 13, 1998.
4
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HENLEY HEALTHCARE, INC.
(Registrant)
Date: August 14, 1998 BY: /s/ DAN D. SUDDUTH
----------------------
Dan D. Sudduth
Executive Vice President,
Chief Financial Officer and Secretary
(on behalf of the Company and as
Chief Accounting Officer)
5
<PAGE>
INDEX OF EXHIBITS
EXHIBIT
NO. DESCRIPTION
2.1 Agreement for the Sale and Purchase of the Enraf-Nonius Companies, dated
March 6, 1998, by and between the Company on behalf of Henley Healthcare
B.V. and Delft Instruments Nederland B.V., Delft Instruments International
B.V., Beheermaatschappij Elektroptik B.V., Delft Instruments France S.A.,
B.V. Industriele Houdstermaatschappij Odelca, Enraf-Nonius Technology
B.V., Beheermaatschappij Oldelca B.V., Dimeq Medizinelektronik GMBH Berlin
and N.V. Verenigde Instrumentenfabrieken Enraf-Nonius. (Incorporated
herein by reference to Exhibit 2.1 of the Company's Current Report on Form
8-K/A as filed on August 14, 1998.)
2.2 Amendment to the Agreement Regarding the Sale and Purchase of the
Enraf-Nonius Companies, dated May 29, 1998, by and between Henley
Healthcare B.V. and Delft Instruments Nederland B.V., Delft Instruments
International B.V., Beheermaatschappij Elektroptik B.V., Delft Instruments
France S.A., B.V. Industriele Houdstermaatschappij Odelca, Enraf-Nonius
Technology B.V., Beheermaatschappij Oldelca B.V., Dimeq Medizinelektronik
GMBH Berlin and N.V. Verenigde Instrumentenfabrieken Enraf-Nonius.
(Incorporated herein by reference to Exhibit 2.2 of the Company's Current
Report on Form 8-K/A as filed on August 14, 1998.)
*2.3 Asset Purchase Agreement by and between Rehabilicare Inc. ("Rehabilicare")
and the Company dated August 6, 1998.
3.1 Statement of Designation of Rights and Preferences of the Series A
Preferred Stock (as corrected). (Incorporated herein by reference to
Exhibit 3.1 of the Company's Quarterly Report on Form 10-QSB for the
period ended March 31, 1998 as filed on May 15, 1998.)
3.2 Statement of Designation of Rights and Preferences of the Series B
Preferred Stock (as corrected). (Incorporated herein by reference to
Exhibit 3.1 of the Company's Current Report on Form 8-K as filed on July
10, 1998.)
*3.3 Amendment to Articles of Incorporation Amending the Rights and Preferences
of the Series B Preferred Stock.
4.1 Form of Subscription Agreement between the Company and the Series A
Preferred Stock Investors. (Incorporated herein by reference to Exhibit
4.1 of the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1998 as filed on May 15, 1998.)
4.2 Form of Stock Purchase Warrant issued to Series A Preferred Stock
Investors. (Incorporated herein by reference to Exhibit 4.2 of the
Company's Quarterly Report on Form 10-QSB for the period ended March 31,
1998 as filed on May 15, 1998.)
4.3 Form of Registration Rights Agreement between the Company and the Series A
Preferred Stock Investors. (Incorporated herein by reference to Exhibit
4.3 of the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1998 as filed on May 15, 1998.)
4.4 Registration Rights Agreement dated as of July 1, 1998, by and among the
Company, Zanett Lombardier, Ltd. ("Lombardier") and The Zanett Securities
Corporation ("Zanett"). (Incorporated herein by reference to Exhibit 4.1
of the Company's Current Report on Form 8-K as filed on July 10, 1998.)
4.5 Form of Stock Purchase Warrant issued to Lombardier and Zanett dated July
1, 1998. (Incorporated herein by reference to Exhibit 4.2 of the Company's
Current Report on Form 8-K as filed on July 10, 1998.)
4.6 Securities Purchase Agreement dated as of July 1, 1998, between the
Company and Lombardier. (Incorporated herein by reference to Exhibit 10.1
of the Company's Current Report on Form 8-K as filed on July 10, 1998.)
*4.7 Registration Rights Agreement dated as of August 10, 1998, by and among
the Company, Lombardier, Goldman Sachs Performance Partners, L.P.
("Partners") and Goldman Sachs Performance Partners (Offshore), L.P.
("Offshore") and Zanett.
6
<PAGE>
*4.8 Form of Stock Purchase Warrant issued to Lombardier, Partners, Offshore
and Zanett dated August 10, 1998.
*4.9 Securities Purchase Agreement dated as of August 10, 1998, between the
Company, Lombardier, Partners and Offshore.
10.1 Subordinated Loan Agreement dated as of May 29, 1998, by and between Delft
Instruments Nederland B.V., Henley Healthcare B.V., and the Company.
(Incorporated herein by reference to Exhibit 10.1 of the Company's Current
Report on Form 8-K/A as filed on August 14, 1998.)
10.2 Fourth Amendment to Amended and Restated Loan Agreement, dated effective
May 29, 1998, by and between the Company and Comerica Bank-Texas.
(Incorporated herein by reference to Exhibit 10.2 of the Company's Current
Report on Form 8-K/A as filed on August 14, 1998.)
10.3 Amendment to Subordination Agreement dated as of May 29, 1998 by and
between Maxxim Medical, Inc. ("Maxxim"), the Company and Comerica
Bank-Texas. (Incorporated herein by reference to Exhibit 10.3 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
10.4 Joinder Agreement dated effective as of May 29, 1998, executed by Henley
Healthcare, B.V. (Incorporated herein by reference to Exhibit 10.4 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
10.5 Second Modification to Convertible Subordinated Promissory Note, dated as
of June 5, 1998, between the Company and Maxxim. (Incorporated herein by
reference to Exhibit 10.5 of the Company's Current Report on Form 8-K/A as
filed on August 14, 1998.)
10.6 Revolving Loan Agreement by and between the Company and the Bank of
Artesia. (Incorporated herein by reference to Exhibit 10.6 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
*10.7 Facilities and Services Agreement by and between Rehabilicare and the
Company dated August 6, 1998.
*27.1 Financial Data Schedule for the quarter ended June 30, 1998.
- ------------------
* Filed herewith
7
EXHIBIT 2.3
ASSET PURCHASE AGREEMENT
by and between
REHABILICARE INC.
and
HENLEY HEALTHCARE, INC.
August 6 , 1998
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of August
6, 1998, is made and entered into by and between Rehabilicare Inc., a Minnesota
corporation ("Buyer"), and Henley Healthcare, Inc., a Texas
corporation ("Seller").
WHEREAS, Seller is engaged in the business of manufacturing,
licensing and distributing diversified products and services in the pain
management industry;
WHEREAS, as part of its business, Seller markets and sells to
patients of various providers, and to Kaiser Permanente, through its Homecare
business unit, electrotherapy pain management and wound care products for home
use, including, without limitation, nerve and muscle stimulators, portable
electrotherapy units, transcutaneous nerve stimulation units and drug delivery
gels and pads (such products being hereafter referred to as the "Products" and
the business of marketing and selling the Products, including the Kaiser
Business (as defined below), but not including the Current WholeSale Business
(as defined below), being hereafter referred to as the "Business");
WHEREAS, as part of the Business, Seller sells the Products to
Kaiser Permanente and its affiliates, patients and physicians (the "Kaiser
Business");
WHEREAS, Seller also distributes the Products through sale to the
distributors and dealers (such sales of the Products to such distributors, but
not including the Kaiser Business, being hereafter referred to as the "Current
Wholesale Business") and manufactures, licenses, markets and distributes
products that are not electrotherapy products to other markets, including
distribution of other products for third-party billing through its AMC division
(the distribution and sale through the Current Wholesale Business, together with
the manufacture, distribution and sale of such other products, being hereafter
referred to as the "Excluded Business");
WHEREAS, Seller desires to sell and assign to Buyer, and Buyer
desires to purchase and assume from Seller, on the terms and subject to the
conditions set forth in this Agreement, substantially all of the assets and
certain liabilities of Seller that are currently being used by Seller in the
conduct of the Business.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements and the conditions set forth in this
Agreement, Buyer and Seller hereby agree as follows:
ARTICLE I
TRANSFER OF ASSETS; ASSUMPTION OF LIABILITIES
1.01 TRANSFER OF ASSETS . On the terms and subject to the conditions
set forth in this Agreement, Seller shall, at the Closing (as defined in Section
3.01 hereof), sell, transfer and assign to Buyer, and Buyer shall purchase and
acquire from Seller, all of Seller's right, title and interest, as of the
Closing Date (as defined in Section 3.01 hereof), in and to all of the assets
set forth below (collectively, the "Assets"):
(a) The equipment, machinery, vehicles, furniture, fixtures,
furnishings and leasehold improvements owned by Seller and used by Seller
in the operation of the Business, which are identified in Schedule 1.01(a)
hereto;
(b) Seller's inventories of supplies, raw materials, parts, finished
goods, work-in-process, product labels and packaging materials used in
connection with the Business, including, without limitation, those
inventories described in Schedule 1.01(b) hereto;
1
<PAGE>
(c) Seller's interest in all orders or contracts for the purchase of
supplies, raw materials, parts, product labels and packaging materials
used in connection with the Business;
(d) Seller's interest in the licenses, contracts or agreements with
respect to the Business which are listed in Schedule 1.01(d);
(e) All unfilled or uncompleted customer contracts, commitments or
purchase or sales orders received and accepted by Seller in connection
with the Business in the ordinary course of business to the extent
assignable;
(f) Seller's documents or other tangible materials embodying
technology or intellectual property rights owned by, licensed to or
otherwise controlled by Seller and used in connection with the Business,
whether such properties are located on Seller's business premises or on
the business premises of Seller's suppliers or customers,including all
software programs used in or developed for support of the Business, and
Seller's rights in patents, patent applications, trademarks, service
marks, trade names, corporate names, copyrights, trade secrets, and other
intellectual property rights owned by, licensed to or otherwise controlled
by Seller or used in, developed for use in or necessary to the conduct of
the Business as now conducted or planned all of which are listed in
Schedule 1.01(f);
(g) All of Seller's books, records and other documents and
information relating to the Assets or the Business, including, without
limitation, all customer, and prospect lists, customer identities,
customer requirements and customer specifications, sales literature,
inventory records, purchase orders and invoices, sales orders and sales
order log books, customer information, commission records, correspondence,
employee payroll and personnel records, product data, material safety data
sheets, price lists, product demonstrations, quotes and bids and all
product catalogs and brochures;
(h) All accounts or notes receivable (excluding intra-company
accounts) owing to Seller that relate to the Business, as reflected in
electronic records delivered, or made available to Buyer, at the
facilities of Seller on the Closing Date and as reflected in the Closing
Date Trial Balance delivered to Buyer at Closing;
(i) The current telephone listings of the Business and the right to
use the telephone numbers currently being used at the principal offices
and other offices or facilities of the Business, to the extent they are
assignable;
(j) All permits, licenses and other governmental approvals held by
Seller with respect to the Business, to the extent they are assignable;
(k) All insurance policies of Seller obtained in connection with the
Business and all rights of Seller (including rights to receive dividends)
under or arising out of such insurance policies, to the extent they are
assignable;
(l) Goodwill, all related tangibles and intangibles which Seller
uses in the conduct of the Business and all rights to continue to use the
Assets in the conduct of a going business.
The parties hereto expressly agree that Buyer is not assuming any of the
liabilities, obligations or undertakings relating to the foregoing Assets,
except for those liabilities and obligations specifically assumed by Buyer in
Section 1.03 hereof.
1.02 EXCLUDED ASSETS . Notwithstanding the terms of Section 1.01,
the following assets shall be retained by Seller and shall not be sold,
transferred or assigned to Buyer in connection with the purchase of the Assets:
2
<PAGE>
(a) All bank accounts of Seller;
(b) All corporate certificates of authority and corporate minute
books and the corporate stock record or register of Seller;
(c) Such licenses, permits or other certificates of authority which,
by their terms, are nonassignable, all of which are identified in the
Disclosure Schedule under the caption referencing Section 4.14 or Section
4.24 as being retained by the Seller; and
(d) All assets not used in connection with the Business
1.03 ASSUMPTION OF LIABILITIES . Buyer shall assume, pay, perform in
accordance with their terms or otherwise satisfy, as of the Closing Date:
(a) The liabilities of Seller set forth in Exhibit A hereto; and
(b) Seller's obligations under the leases, agreements, contracts,
arrangements and licenses described in Exhibit B hereto.
1.04 EXCLUDED LIABILITIES . Other than as set forth above in Section
1.03, Seller shall retain, and Buyer shall not assume, and nothing contained in
this Agreement shall be construed as an assumption by Buyer of, any liabilities,
obligations or undertakings of Seller of any nature whatsoever, whether accrued,
absolute, fixed or contingent, known or unknown due or to become due,
unliquidated or otherwise. Seller shall be responsible for all of the
liabilities, obligations and undertakings of Seller not assumed by Buyer
pursuant to Section 1.03 hereof.
ARTICLE II
PURCHASE PRICE
2.01 AMOUNT . The total purchase price (the "Purchase Price") for
the Assets shall be Three Million, Six Hundred and Fifty Thousand Dollars
($3,650,000), plus the value of the liabilities and obligations of Seller to be
assumed by Buyer pursuant to Section 1.03 and plus the cost of any inventory
related to the Kaiser Business hereafter purchased by Buyer. Buyer shall not, in
any event, be required to pay for the inventory associated with the Kaiser
Business unless and until it has been provided with a list of such inventory,
has had a reasonable opportunity to inspect such inventory, and has found such
inventory acceptable.
2.02 MANNER OF PAYMENT . Buyer shall pay the cash portion of the
Purchase Price for the Assets to Seller on the Closing Date by wire transfer to
Seller's account at Comerica Bank--Texas, 6260 East Mockingbird, 2nd floor,
Dallas Texas 7541214 for credit to Henley Healthcare, ABA # 111000753 (account #
188-0444524).
2.03 ALLOCATION OF PURCHASE PRICE . The Buyer and Seller have
allocated the Purchase Price among the Assets as set forth on Exhibit C, which
exhibit shall be updated as of the Closing Date in such a manner as determined
by Buyer subject to Seller's consent (which shall not be unreasonably withheld),
after taking into account the applicable Treasury Regulations and the fair
market value of such items. Buyer shall prepare for filing all Returns (as
defined in Section 4.13(a)) that may be required with respect to the transaction
provided for herein pursuant to Section 1060 of the Internal Revenue Code of
1986, as amended (the "Code"), any Treasury Regulations promulgated thereunder,
any other similar provision of the Code and any other similar, applicable
foreign, state or local tax law or regulation. Seller shall provide information
that may be required by Buyer for the purpose of preparing such Returns, execute
and file such Returns as requested by Buyer and file all other returns and tax
information on a basis that is consistent with such Returns prepared by Buyer.
3
<PAGE>
ARTICLE III
CLOSING
3.01 CLOSING . The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Dorsey & Whitney,
220 South Sixth Street, Minneapolis, Minnesota at 12:00 p.m. on the date of this
Agreement or at such other place and on such other date as is mutually agreeable
to Buyer and Seller. The date on which the Closing occurs is referred to herein
as the "Closing Date," and the Closing shall be deemed effective as of 8:00
a.m., Minneapolis time, on the Closing Date.
3.02 GENERAL PROCEDURE . At the Closing, each party shall deliver to
the party entitled to receipt thereof the documents required to be delivered
pursuant to Article VIII hereof and such other documents, instruments and
materials (or complete and accurate copies thereof, where appropriate) as may be
reasonably required in order to effectuate the intent and provisions of this
Agreement, and all such documents, instruments and materials shall be
satisfactory in form and substance to counsel for the receiving party. The
conveyance, transfer, assignment and delivery of the Assets shall be effected by
Seller's execution and delivery to Buyer of a bill of sale substantially in the
form attached hereto as Exhibit D (the "Bill of Sale") and such other
instruments of conveyance, transfer, assignment and delivery as Buyer shall
reasonably request to cause Seller to transfer, convey, assign and deliver the
Assets to Buyer, and the assignment and assumption of Seller's Liabilities to
Buyer shall be effected by Seller's and Buyer's execution of an assignment and
assumption agreement substantially in the form attached hereto as Exhibit E (the
"Assignment and Assumption Agreement").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer that, except as set
forth in the Disclosure Schedule delivered by Seller to Buyer on the date hereof
(the "Disclosure Schedule") (which Disclosure Schedule sets forth the exceptions
to the representations and warranties contained in this Article IV under
captions referencing the Sections to which such exceptions apply):
4.01 INCORPORATION AND CORPORATE POWER . Seller is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Texas and has all requisite corporate power and authority and all
authorizations, licenses, permits and certifications necessary to carry on the
Business as now being conducted and to own, lease and operate the Assets. Seller
is qualified as a foreign corporation to do business in every jurisdiction in
which the nature of its business or its ownership of property requires it to be
qualified and in which the failure to be so qualified would have a material
adverse effect on the financial or operating condition of the Business.
4.02 SUBSIDIARIES . The Assets do not include any stock, partnership
interest, joint venture interest or any other security or ownership interest
issued by any other corporation, organization or entity.
4.03 EXECUTION, DELIVERY; VALID AND BINDING AGREEMENT . The
execution, delivery and performance of this Agreement by Seller and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Seller, and no other proceedings on its
part are necessary to authorize the execution, delivery and performance of this
Agreement. This Agreement has been duly executed and delivered by Seller and,
assuming that this Agreement is the valid and binding agreement of Buyer,
constitutes the valid and binding obligation of Seller, enforceable in
accordance with its terms.
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4.04 AUTHORITY; NO BREACH . Seller has the requisite corporate power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution, delivery and performance of this Agreement
by Seller and the consummation of the transactions contemplated hereby do not
conflict with or result in any breach of any of the provisions of, or constitute
a default under, result in a violation of, result in the creation of a right of
termination or acceleration or any lien, security interest, charge or
authorization, consent, approval, exemption or other action by or notice to any
court or other governmental body, under the provisions of the Articles of
Incorporation or Bylaws of Seller or any indenture, mortgage, lease, loan
agreement or other agreement or instrument by which Seller or the Assets are
bound or affected (other than consents required under Section 8.01(d) hereof,
which Seller undertakes to obtain prior to the Closing Date), or any law,
statute, rule or regulation or order, judgment or decree to which Seller or the
Assets are subject.
4.05 GOVERNMENTAL AUTHORITIES; CONSENTS . The Seller is not required
to submit any notice, report or other filing with any governmental authority in
connection with the execution or delivery by it of this Agreement or the
consummation of the transactions contemplated hereby. No consent, approval or
authorization of any governmental or regulatory authority is required to be
obtained by Seller in connection with its execution, delivery and performance of
this Agreement.
4.06 FINANCIAL STATEMENTS . Seller has delivered to Buyer copies of
(a) the unaudited balance sheet, as of June 30, 1998, of the Business (the
"Latest Balance Sheet") and the unaudited statements of earnings of the Business
for the six-month period ended June 30, 1998 (such statements and the Latest
Balance Sheet being herein referred to as the "Latest Financial Statements") and
(b) the unaudited balance sheets, as of December 31, 1997 of the Business and
the unaudited statements of earnings of the Business for the twelve-month period
ended December 31, 1997 (collectively, the "Annual Financial Statements"). The
Latest Financial Statements and the Annual Financial Statements are based upon
the information contained in the books and records of Seller and fairly present
the financial condition of the Business as of the dates thereof and results of
operations for the periods referred to therein.
4.07 ABSENCE OF UNDISCLOSED LIABILITIES . With respect to the Assets
or the operations of the Business, Seller has no liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become due,
whether known or unknown, and regardless of when asserted) arising out of
transactions or events heretofore entered into, or any action or inaction, or
any state of facts existing, with respect to or based upon transactions or
events heretofore occurring, except (i) as reflected in the Latest Balance
Sheet, or (ii) liabilities which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business (none of which is a material
uninsured liability for breach of contract, breach of warranty, tort,
infringement, claim or lawsuit).
4.08 NO MATERIAL ADVERSE CHANGES . Since the date of the Latest
Balance Sheet (the "Balance Sheet Date"), there has been no material adverse
change in the assets, financial condition, operating results, customer, employee
or supplier relations, business condition or prospects of Seller.
4.09 ABSENCE OF CERTAIN DEVELOPMENTS . Since the Balance Sheet Date,
Seller has not, in each case, with respect to the Business:
(a) mortgaged, pledged or subjected to any lien, charge or any other
encumbrance, any of the Assets except (i) liens for current property taxes not
yet due and payable, (ii) liens imposed by law and incurred in the ordinary
course of business for obligations not yet due to carriers, warehousemen,
laborers, materialmen and the like, or (iii) liens in respect of pledges or
deposits under workers' compensation laws;
(b) sold, assigned or transferred (including, without limitation,
transfers to any employees, affiliates or shareholders) any tangible assets of
the Business or canceled any debts or claims, in each case, except in the
ordinary course of business;
(c) sold, assigned or transferred (including, without limitation,
transfers to any employees, affiliates or shareholders) any patents, trademarks,
trade names, copyrights, trade secrets or other intangible assets used in or
held for use in the Business;
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(d) waived any rights of material value or suffered any
extraordinary losses or adverse changes in collection loss experience, whether
or not in the ordinary course of business or consistent with past practice;
(e) taken any other action or entered into any other transaction
other than in the ordinary course of business and in accordance with past custom
and practice, or entered into any transaction with any "insider" (as defined in
Section 4.21 hereof) other than transactions contemplated by this Agreement;
(f) suffered any material theft, damage, destruction or loss of or
to any property or properties owned or used by it in connection with the
Business, whether or not covered by insurance;
(g) made or granted any bonus or any wage, salary or compensation
increase to any employee or consultant of the Business, or made or granted any
increase in any employee benefit plan or arrangement, or amended or terminated
any existing employee benefit plan or arrangement, or adopted any new employee
benefit plan or arrangement or made any commitment or incurred any liability to
any labor organization;
4.10 TITLE TO PROPERTIES .
(a) Seller does not own any real property used in connection with
the Business. The real property leases (the "Leases") described under the
caption referencing this Section 4.10 in the Disclosure Schedule constitute all
of the real property used or occupied by Seller in connection with the Business
(the "Real Property").
(b) The Leases are in full force and effect, and Seller holds a
valid and existing leasehold interest under each of the Leases for the term set
forth under such caption in the Disclosure Schedule. Seller has delivered to
Buyer complete and accurate copies of each of the Leases, and none of the Leases
has been modified in any respect, except to the extent that such modifications
are disclosed by the copies delivered to Buyer. Seller is not in default, and no
circumstances exist which, if unremedied, would, either with or without notice
or the passage of time or both, result in such default under any of the Leases;
nor, to the best knowledge of Seller, is any other party to any of the Leases in
default.
(c) Seller owns good and indefeasible title to the Assets, including
each of the tangible assets reflected on the Latest Balance Sheet or acquired
since the date thereof, free and clear of all liens and encumbrances, except for
(i) liens for current taxes not yet due and payable, (ii) the properties subject
to the Leases, (iii) assets disposed of since the date of the Latest Balance
Sheet in the ordinary course of business, (iv) liens imposed by law and incurred
in the ordinary course of business for obligations not yet due to carriers,
warehousemen, laborers and materialmen and (v) liens in respect of pledges or
deposits under workers' compensation laws, all of which liens aggregate less
than $1,000.
(d) Schedule 1.01(a) sets forth a description of all the Assets
which constitute equipment, machinery, motor vehicles, furniture, fixtures,
furnishings and leasehold improvements. All of the buildings, machinery,
equipment and other tangible assets necessary for the conduct of the Business,
including those set forth in Schedule 1.01(a), are in good condition and repair,
ordinary wear and tear excepted, and are usable in the ordinary course of
business. There are no defects in such assets or other conditions relating
thereto which, in the aggregate, materially adversely affect the operation or
value of such assets. Seller owns, or leases under valid leases, all buildings,
machinery, equipment and other tangible assets necessary for the conduct of the
Business.
4.11 ACCOUNTS RECEIVABLE . The accounts receivable of the Business
reflected on the Latest Balance Sheet (the "Latest Balance Sheet Trial Balance")
and any additional accounts receivable accrued since the Balance Sheet Date,
each to the extent less than 360 days old (the "Current Year Receivables") are
valid receivables, are not subject to valid counterclaims or setoffs, and are
collectible in accordance with their terms, except to the extent of the bad debt
reserve reflected on the Latest Balance Sheet.
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4.12 INVENTORY . Seller's inventory of raw materials, work in
process and finished goods relating to the Business consists of items of a
quality and quantity usable and, with respect to finished goods only, salable at
the Seller's normal profit levels, in each case, in the ordinary course of the
business. As of the date of the Latest Balance Sheet, the values at which such
inventory is carried on the Latest Balance Sheet are in accordance with
generally accepted accounting principles. Schedule 1.01(b) is (i) a true and
correct list as of July 31, 1998 of the inventories of the portion of the
Business operated from Akron, Ohio (the "Ohio Inventories"), and (ii) a true and
correct list of the inventories of portion of the Business (operated as "Texas
T.E.N.S") operated from Houston, Texas as of January 12, 1998 (the "Texas
Inventories"). There has not been any increase or decrease in the Ohio
Inventories since July 31, 1998, or in the Texas Inventories since January 12,
1998 except increases resulting from purchase of inventory and decreases
resulting from sales of inventory, in each case in the ordinary course of
business. There has not, in either case, been any material increase or decrease
in the value of the Ohio Inventories or the Texas Inventories since such
respective dates. To the extent that Schedule 1.01(b) refers to "Henley
Healthcare Inventory by Group," such Schedule is referring to Ohio Inventories
and to the extent referred to therein (i) as "on hand," such Ohio Inventories
are maintained and on hand at the offices of Seller at 895 Home Avenue, Akron,
Ohio and (ii) as "Consgmt," such inventories are maintained at healthcare
providers on consignment, (iii) as "rental," such inventory was, as of July 30,
1998, rented to end-users, and (iv) as "trial" such inventory was demonstration
or trial inventory. To the extent that Schedule 1.01(b) is referring to "Texas
Tens" such inventory represent Texas Inventories and to the extent listed
therein (i) as rental and consigned, is located with providers or renters, (ii)
as "physical inventory," is located at the Seller's premises in Sugar Land,
Texas.
4.13 TAX MATTERS .
(a) Each of Seller and any subsidiary, any affiliated, combined or
unitary group of which the Company or any subsidiary is or was a member, any
"Plans" (as defined in Section 4.19 hereof), as the case may be (each, a "Tax
Affiliate" and, collectively, the "Tax Affiliates"), has: (i) timely filed (or
has had timely filed on its behalf) all returns, declarations, reports,
estimates, information returns, and statements ("Returns") required to be filed
or sent by it in respect of any "Taxes" (as defined in subsection (p) below) or
required to be filed or sent by it by any taxing authority having jurisdiction;
(ii) timely and properly paid (or has had paid on its behalf) all Taxes shown to
be due and payable on such Returns; (iii) established on its Latest Balance
Sheet, in accordance with generally accepted accounting principles, reserves
that are adequate for the payment of any Taxes not yet due and payable; (iv)
complied with all applicable laws, rules, and regulations relating to the
withholding of Taxes and the payment thereof (including, without limitation,
withholding of Taxes under Sections 1441 and 1442 of the Internal Revenue Code
of 1986, as amended (the "Code"), or similar provisions under any foreign laws),
and timely and properly withheld from individual employee wages and paid over to
the proper governmental authorities all amounts required to be so withheld and
paid over under all applicable laws.
(b) There are no liens for Taxes upon any of the Assets, except for
current taxes not yet due and payable.
(c) Seller represents and warrants that the tangible personal
property being transferred in Texas to Buyer pursuant to this Agreement
constitutes the entire operating assets of a separate identifiable segment of a
business for purposes of ss. 151.304(b)(2) of the Texas Tax Code and ss.
3.316(d) of Title 34 of the Texas Administrative Code. Therefore, Buyer's
acquisition of such tangible personal property (excluding motor vehicles) is
exempt from Texas sales and use taxes as an occassional sale pursuant to ss.
151.304 of the Texas Code and ss. 3.316(d) of the Texas Administrative Code.
(d) Seller represents and warrants that the tangible personal
property being transferred in Ohio to Buyer pursuant to this Agreement is
property that was obtained by Seller, through purchase or otherwise, for
Seller's own use in Ohio and that was previously subject to Ohio's taxing
jurisdiction on its sale or use. Therefore, Buyer's acquisition of such tangible
personal property (excluding motor vehicles, is exempt from Ohio sales and use
taxes as a casual sale pursuant to ss.ss. 5739.01(L) and 5739.02(B)(8) of the
Ohio Code.
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4.14 CONTRACTS AND COMMITMENTS .
(a) Schedule 1.01(d) lists all agreements, whether oral or written,
to which Seller is a party, which are currently in effect, and which relate to
the operation of the Business or the Assets, including, without limitation: (i)
each contract for the employment of any officer, individual employee or other
person on a full-time or consulting basis who performs functions in connection
with the Business or relating to severance pay for any such person; (ii) each
confidentiality agreement; (iii) each agreement or indenture relating to the
borrowing of money or to mortgaging, pledging or otherwise placing a lien on any
of the Assets; (iv) each lease or agreement relating to the Business under which
Seller is lessee of, or holds or operates any property, real or personal, owned
by any other party, for which the annual rental exceeds $2,000; (v) each
contract or group of related contracts (including purchase orders) with the same
party for the purchase of products or services under which the undelivered
balance of such products or services of the Business is in excess of $2,000;
(vi) each contract or group of related contracts with the same party for the
sale of products or services of the Business under which the undelivered balance
of such products or services has a sales price in excess of $2,000; (vii) each
contract or group of related contracts relating to the Business with the same
party (other than any contract or group of related contracts for the purchase or
sale of products or services) continuing over a period of more than six months
from the date or dates thereof, not terminable by it on 30 days' or less notice
without penalty and involving more than $2,000; (viii) each contract which
prohibits Seller from freely engaging in business anywhere in the world; (ix)
each contract for the sale or distribution of any of the products of the
Business (including any distributor, sales and original equipment manufacturer
contract); (x) each franchise agreement relating to the Business; (xi) each
license agreement or agreement providing for the payment or receipt of royalties
or other compensation by Seller in connection with the intellectual property
rights listed in Schedule 1.01(g); (vii) each contract or commitment for capital
expenditures of the Business in excess of $2,000; (xviii) agreement for the sale
of any Asset; or (xix) other agreement which is either material to the Business
or was not entered into in the ordinary course of business.
(b) Seller has performed all obligations required to be performed by
it in connection with the contracts or commitments contained in Schedule 1.01(d)
and is not in receipt of any claim of default under any contract or commitment
required to be disclosed under such caption; Seller has no present expectation
or intention of not fully performing any material obligation pursuant to any
contract or commitment required to be disclosed under such caption; and Seller
has no knowledge of any breach or anticipated breach by any other party to any
contract or commitment required to be disclosed under such caption.
(c) Prior to the date of this Agreement, Buyer has been supplied
with a true and correct copy of each written contract or commitment, and a
written description of each oral contract or commitment, contained in Schedule
1.01(d), together with all amendments, waivers or other changes thereto.
4.15 INTELLECTUAL PROPERTY RIGHTS . Schedule 1.01(f) describes all
rights in patents, patent applications, trademarks, service marks, trade names,
corporate names, copyrights, trade secrets, know-how or other intellectual
property rights owned by, licensed to or otherwise controlled by Seller in
connection with the conduct of the Business or used in, developed for use in or
necessary to the conduct of the Business as now conducted or planned to be
conducted. Seller owns and possesses all right, title and interest, or holds a
valid license, in and to the rights set forth under such caption. Schedule
1.01(g) describes all intellectual property rights which have been licensed to
third parties and those intellectual property rights which are licensed from
third parties. Seller has taken all necessary action to protect the intellectual
property rights set forth under such caption. Seller has not received any notice
of, nor are there any facts known to Seller which indicate a likelihood of, any
infringement or misappropriation by, or conflict from, any third party with
respect to the intellectual property rights listed in the Disclosure Schedule;
no claim by any third party contesting the validity of any intellectual property
rights listed under such caption has been made, is currently outstanding or, to
the best knowledge of the Company, is threatened; Seller has not received any
notice of any infringement, misappropriation or violation by Seller of any
intellectual property rights of any third parties and Seller has not infringed,
misappropriated or otherwise violated any such intellectual property rights; and
no infringement, illicit copying, misappropriation or violation has occurred or
will occur with respect to products currently being sold by Seller or with
respect to the products currently under development (in their present state of
development) or with respect to the conduct of the Business as now conducted.
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4.16 LITIGATION . There are no actions, suits, proceedings, orders
or investigations pending or, to the best knowledge of Seller, threatened
against Seller, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, and there is no reasonable basis known to
Seller for any of the foregoing, in each case that materially effect the
Business, or that would or could constitute an encumbrance on the Assets or
effect the Seller's ability to consummate the transactions contemplated by this
Agreement.
4.17 WARRANTIES . The Disclosure Schedule summarizes under the
caption referencing this Section 4.17 all claims outstanding, pending or, to the
best knowledge of Seller, threatened for breach of any warranty relating to any
products of the Business sold by Seller prior to the date hereof. The
description of Seller's product warranties set forth under the caption
referencing this Section 4.17 is correct and complete. The reserves for warranty
claims on the Latest Balance Sheet are consistent with Seller's prior practices
and are fully adequate to cover all warranty claims made or to be made against
any products of the Business sold prior to the date thereof.
4.18 EMPLOYEES . The Disclosure Schedule, under the caption
referencing this Section 4.18, lists, as of the date set forth in the Disclosure
Schedule, each employee of Seller who performs functions in connection with the
Business (the "Business Employees") and the position, title, remuneration
(including any scheduled salary or remuneration increases), date of employment
and accrued vacation pay of each such employee. With respect to such employees
of Seller who perform functions in connection with the Business: (a) to the best
knowledge of Seller, no such employee or group of employees has any plans to
terminate his or its employment; (b) Seller has complied with all laws relating
to the employment of labor, including provisions thereof relating to wages,
hours, equal opportunity, collective bargaining and the payment of social
security and other taxes; (c) Seller has no material labor relations problem
pending and its labor relations are satisfactory; (d) there are no workers'
compensation claims pending against Seller nor is Seller aware of any facts that
would give rise to such a claim; (e) to the best knowledge of Seller, no
employee of Seller is subject to any secrecy or noncompetition agreement or any
other agreement or restriction of any kind that would impede in any way the
ability of such employee to carry out fully all activities of such employee in
furtherance of the Business; and (f) no employee or former employee of Seller
has any claim with respect to any intellectual property rights of Seller set
forth under the caption referencing Section 4.18 hereof in the Disclosure
Schedule.
4.19 EMPLOYEE BENEFIT PLANS .
(a) Except as set forth under the caption referencing Section 4.19
hereof in the Disclosure Schedule, with respect to all employees and former
employees of Seller who perform or performed functions in connection with the
Business and all dependents and beneficiaries of such employees and former
employees: (i) Seller does not maintain or contribute to any nonqualified
deferred compensation or retirement plans, contracts or arrangements; (ii)
Seller does not maintain or contribute to any qualified defined contribution
plans (as defined in Section 3(34) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or Section 414(i) of the Code; (iii) Seller
does not maintain or contribute to any qualified defined benefit plans (as
defined in Section 3(35) of ERISA or Section 414(j) of the Code); and (iv)
Seller does not maintain or contribute to any employee welfare benefit plans (as
defined in Section 3(1) of ERISA).
(b) To the extent required (either as a matter of law or to obtain
the intended tax treatment and tax benefits), all employee benefit plans (as
defined in Section 3(3) of ERISA) which Seller does maintain or to which it does
contribute (collectively, the "Plans") comply in all material respects with the
requirements of ERISA and the Code. With respect to the Plans, (i) all required
contributions which are due have been made and a proper accrual has been made
for all contributions due in the current fiscal year; (ii) there are no actions,
suits or claims pending, other than routine uncontested claims for benefits; and
(iii) there have been no prohibited transactions (as defined in Section 406 of
ERISA or Section 4975 of the Code).
(c) Buyer has received true and complete copies of (i) the most
recent determination letter, if any, received by Seller from the Internal
Revenue Service regarding the Plans which Seller maintains or to which it
contributes and any amendment to any Plan made subsequent to any Plan amendments
covered by any such determination letter; (ii) the most recent financial
statements and annual report or return for the Plans; and (iii) the most
recently prepared actuarial valuation reports.
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(d) Seller does not contribute (and has not ever contributed) to any
multi-employer plan, as defined in Section 3(37) of ERISA. Seller has no actual
or potential liabilities under Section 4201 of ERISA for any complete or partial
withdrawal from a multi-employer plan. Seller has no actual or potential
liability for death or medical benefits after separation from employment, other
than (i) death benefits under the employee benefit plans or programs (whether or
not subject to ERISA) set forth under the caption referencing this Section 4.19
in the Disclosure Schedule and (ii) health care continuation benefits described
in Section 4980B of the Code.
(e) Neither Seller nor any of its directors, officers, employees or
other "fiduciaries", as such term is defined in Section 3(21) of ERISA, has
committed any breach of fiduciary responsibility imposed by ERISA or any other
applicable law with respect to the Plans which would subject Seller, Buyer,
Buyer's subsidiaries or any of their respective directors, officers or employees
to any liability under ERISA or any applicable law.
(f) Seller has not incurred any liability for any tax or civil
penalty or any disqualification of any employee benefit plan (as defined in
Section 3(3) of ERISA) imposed by Sections 4980B and 4975 of the Code and Part 6
of Title I and Section 502(i) of ERISA.
4.20 INSURANCE . The Disclosure Schedule, under the caption
referencing this Section 4.20, lists and briefly describes each insurance policy
maintained by Seller with respect to the Assets and operations of the Business
and sets forth the date of expiration of each such insurance policy. All of such
insurance policies are in full force and effect and are issued by insurers of
recognized responsibility. Seller is not in default with respect to its
obligations under any of any insurance policies relating to the Assets or the
Business.
4.21 AFFILIATE TRANSACTIONS . No officer, director or employee of
Seller or any member of the immediate family of any such officer, director or
employee, or any entity in which any of such persons owns any beneficial
interest (other than any publicly-held corporation whose stock is traded on a
national securities exchange or in the over-the-counter market and less than one
percent of the stock of which is beneficially owned by any of such persons)
(collectively "insiders"), has any agreement with Seller (other than normal
employment arrangements) or any interest in any property, real, personal or
mixed, tangible or intangible, used in or pertaining to the Business of Seller
(other than ownership of capital stock of Seller). None of the insiders has any
direct or indirect interest in any competitor, supplier or customer of the
Business or in any person, firm or entity from whom or to whom Seller leases any
property used in the Business, or in any other person, firm or entity with whom
the Business transacts business of any nature.
4.22 CUSTOMERS AND SUPPLIERS . The Disclosure Schedule, under the
caption referencing this Section 4.22, lists the 10 largest suppliers of Seller
relating to the Business for the fiscal year ended December 31, 1997 and for the
six-month period ended June 30, 1998 and sets forth opposite the name of each
such supplier the approximate percentage of net sales to, or purchases by, the
Business attributable to such customer or supplier for each such period. Since
the Balance Sheet Date, no supplier listed on the Disclosure Schedule under the
caption referencing this Section 4.22 has indicated that it will stop or
decrease the rate of business done with Seller except for changes in the
ordinary course of Seller's business.
4.23 COMPLIANCE WITH LAWS; PERMITS .
(a) Seller and its officers, directors, agents and employees have
complied in all material respects with all applicable laws, regulations and
other requirements, including, but not limited to, federal, state, local and
foreign laws, ordinances, rules, regulations and other requirements pertaining
to product labeling, consumer products safety, equal employment opportunity,
employee retirement, affirmative action and other hiring practices, occupational
safety and health, workers' compensation, unemployment and building and zoning
codes, which materially affect the Business, the Assets or the Real Property and
to which Seller may be subject, and, to Seller's knowledge, no claims have been
filed against Seller alleging a violation of any such laws, regulations or other
requirements. Seller has no knowledge of any action, pending or threatened, to
change the zoning or building ordinances or any other laws, rules, regulations
or ordinances affecting the Assets or the Real Property. Seller is not relying
on any exemption from or deferral of any such applicable law, regulation or
other requirement that would not be available to Buyer after it acquires the
Assets.
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(b) Seller has, in full force and effect, all licenses, permits and
certificates, from federal, state, local and foreign authorities (including,
without limitation, federal and state agencies regulating occupational health
and safety) necessary to conduct its Business and own and operate Assets
(collectively, the "Permits") for which the failure to have such Permits would
singly or in the aggregate have a material adverse effect on the Business or the
Assets. A true, correct and complete list of all the Permits is set forth under
the caption referencing this Section 4.23 in the Disclosure Schedule, with an
indication as to whether the Permit is assignable to Buyer. Seller has conducted
its business in compliance with all material terms and conditions of the
Permits.
(c) In connection with the Business, Seller has not made or agreed
to make gifts of money, other property or similar benefits (other than
incidental gifts of articles of nominal value) to any actual or potential
customer, supplier, governmental employee or any other person in a position to
assist or hinder Seller in connection with any actual or proposed transaction.
4.24 ENVIRONMENTAL MATTERS . Seller, with respect to the Business
and the Real Property, is in material compliance with all applicable all
applicable laws, rules, directives, permits, licenses and judgments relating to
pollution, contamination or protection of the environment ("Environmental
Laws"). Seller has not received notice alleging in any manner that Seller is, or
might be potentially responsible for, any release of hazardous materials, or any
costs arising under or violation of Environmental Laws with respect to the
Business or the Assets. No expenditure will be required in order for Buyer to
comply with any Environmental Laws in effect at the time of the Closing in
connection with the operation or continued operation of the Business or the Real
Property in a manner consistent with the current operation thereof by Seller.
Seller, on behalf of itself and its successors and assigns, hereby waives,
releases and agrees not to bring any claim, demand, cause of action or
proceeding, including without limitation any cost recovery action, against Buyer
under any Environmental Law in connection with the Buyer's purchase, ownership
or operation of the Business and the Assets.
4.25 BROKERAGE . No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for financial advisory services or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of Seller.
4.26 DISCLOSURE . Neither this Agreement nor any of the Exhibits
hereto nor any of the documents delivered by or on behalf of Seller pursuant to
Article VIII hereof nor the Disclosure Schedule nor any of the financial
statements referred to in Section 4.06 hereof, taken as a whole, contain any
untrue statement of a material fact regarding Seller or the Business or any of
the other matters dealt with in this Article IV relating to Seller or the
transactions contemplated by this Agreement. This Agreement, the Exhibits
hereto, the documents delivered to Buyer by or on behalf of Seller pursuant to
Article VIII hereof, the Disclosure Schedule and the financial statements
referred to in Section 4.06 hereof, taken as a whole, do not omit any material
fact necessary to make the statements contained herein or therein, in light of
the circumstances in which they were made, not misleading, and there is no fact
which has not been disclosed to Buyer of which any officer or director of Seller
is aware which materially affects adversely or could reasonably be anticipated
to materially affect adversely the Assets or the Business.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller that:
5.01 INCORPORATION AND CORPORATE POWER . Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Minnesota, with the requisite corporate power and authority to enter into
this Agreement and perform its obligations hereunder.
5.02 EXECUTION, DELIVERY; VALID AND BINDING AGREEMENT . The
execution, delivery and performance of this Agreement by Buyer and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all requisite corporate action, and no other corporate proceedings
on its part are necessary to authorize the execution, delivery or performance of
this Agreement. This Agreement has been duly executed and delivered by Buyer and
constitutes the valid and binding obligation of Buyer, enforceable in accordance
with its terms.
5.03 NO BREACH . The execution, delivery and performance of this
Agreement by Buyer and the consummation by Buyer of the transactions
contemplated hereby do not conflict with or result in any breach of any of the
provisions of, constitute a default under, result in a violation of, result in
the creation of a right of termination or acceleration or any lien, security
interest, charge or encumbrance upon any assets of Buyer, or require any
authorization, consent, approval, exemption or other action by or notice to any
court or other governmental body, under the provisions of the Articles of
Incorporation or Bylaws of Buyer or any indenture, mortgage, lease, loan
agreement or other agreement or instrument by which Buyer is bound or affected,
or any law, statute, rule or regulation or order, judgment or decree to which
Buyer is subject.
5.04 GOVERNMENTAL AUTHORITIES; CONSENTS . Buyer is not required to
submit any notice, report or other filing with any governmental authority in
connection with the execution or delivery by it of this Agreement or the
consummation of the transactions contemplated hereby. No consent, approval or
authorization of any governmental or regulatory authority or any other party or
person is required to be obtained by Buyer in connection with its execution,
delivery and performance of this Agreement or the transactions contemplated
hereby.
5.05 BROKERAGE . No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for financial advisory services or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of Buyer.
ARTICLE VI
COVENANTS OF SELLER
6.01 CONDUCT OF THE BUSINESS . In connection with the Assets or the
Business, Seller agrees to observe each term set forth in this Section 6.01 and
agrees that, from the date hereof until the Closing Date, unless otherwise
consented to by Buyer in writing:
(a) The Business shall be conducted only in, and Seller shall not
take any action except in, the ordinary course of Seller's business, on an
arm's-length basis and in accordance in all material respects with all
applicable laws, rules and regulations and Seller's past custom and practice;
(b) Seller shall not, directly or indirectly, do or permit to occur
any of the following insofar as they relate to Business or the Assets: (i) sell,
pledge, dispose of or encumber any of the Assets, except in the ordinary course
of business; (ii) acquire (by merger, exchange, consolidation, acquisition of
stock or assets or otherwise) any corporation, partnership, joint venture or
other business organization or division or material assets thereof; (iii) incur
any indebtedness for borrowed money or issue any debt securities except the
borrowing of working capital in the ordinary course of business and consistent
with past practice; (iv) permit any accounts payable owed to trade creditors to
remain outstanding more than 60 days; (v) accelerate, beyond the normal
collection cycle, collection of accounts receivable; or (vi) enter into or
propose to enter into, or modify or propose to modify, any agreement,
arrangement or understanding with respect to any of the matters set forth in
this Section 6.01(b);
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(c) Seller shall not, directly or indirectly, enter into or modify
any employment, severance or similar agreements or arrangements with, or grant
any bonuses, salary increases, severance or termination pay to, any Business
Employee, other than in accordance with contractual obligations in existence on
the date of this Agreement;
(d) Seller shall not cancel or terminate its current insurance
policies covering the Assets and the Business, or cause any of the coverage
thereunder to lapse, unless simultaneously with such termination, cancellation
or lapse, replacement policies providing coverage equal to or greater than the
coverage under the canceled, terminated or lapsed policies for substantially
similar premiums are in full force and effect;
(e) Seller shall (i) use its best efforts to preserve intact the
organization and goodwill of the Business, keep available the services of
Seller's officers and employees as a group and maintain satisfactory
relationships with suppliers, distributors, customers and others having business
relationships with Seller in connection with the Business; (ii) confer on a
regular and frequent basis with representatives of Buyer to report operational
matters and the general status of ongoing operations with respect to the
Business; (iii) not intentionally take any action which would render, or which
reasonably may be expected to render, any representation or warranty made by it
in this Agreement untrue at the Closing; (iv) notify Buyer of any emergency or
other change in the normal course of the Business or in the operation of the
properties of the Business and of any governmental or third party complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) if such emergency, change, complaint, investigation or hearing
would be material, individually or in the aggregate, to the business, operations
or financial condition of Seller or to Seller's or Buyer's ability to consummate
the transactions contemplated by this Agreement; and (v) promptly notify Buyer
in writing if Seller shall discover that any representation or warranty made by
it in this Agreement was when made, or has subsequently become, untrue in any
respect;
(f) Seller shall (i) file any Tax returns, elections or information
statements with respect to any liabilities for Taxes of Seller or other matters
relating to Taxes of Seller which affect the Assets and pursuant to applicable
law must be filed prior to the Closing Date; (ii) promptly upon filing provide
copies of any such Tax returns, elections or information statements to Buyer;
(iii) make any such Tax elections or other discretionary positions with respect
to Taxes taken by or affecting Seller only upon prior consultation with and
consent of Buyer; and (iv) not amend any Return;
(g) Neither Seller nor any of its Affiliates shall make any election
without respect to Taxes, change an annual accounting period, adopt or change
any accounting method or file any amended return, report or form, if such
election, adoption, change or filing would have the effect of increasing the Tax
liability of the Buyer with respect to any period ending after the Closing Date;
and
(h) Seller shall not perform any act referenced by (or omit to
perform any act which omission is referenced by) the terms of Section 4.09.
6.02 ACCESS TO BOOKS AND RECORDS . Between the date hereof and the
Closing Date, Seller shall afford to Buyer and its authorized representatives
(the "Buyer's Representatives") full access at all reasonable times and upon
reasonable notice to the offices, properties, books, records, officers,
employees and other items of the Business, and the work papers of Arthur
Andersen LLP, Seller's independent accountants, relating to work done by Arthur
Andersen LLP for Seller (insofar as the work relates to the Business or the
Assets) for the fiscal year ended December 31, 1997, and otherwise provide such
assistance as is reasonably requested by Buyer in order that Buyer may have a
full opportunity to make such investigation and evaluation as it shall
reasonably desire to make of the Business and the Assets. In addition, Seller
and its officers and directors shall cooperate fully (including providing
introductions where necessary) with Buyer to enable Buyer to contact such third
parties, including customers, prospective customers, specifying agencies,
vendors or suppliers of the Business, as Buyer deems reasonably necessary to
complete its due diligence; PROVIDED THAT Buyer agrees not to initiate such
contacts without the prior approval of Seller, which approval will not be
unreasonably withheld.
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6.03 REGULATORY FILINGS . As promptly as practicable after the
execution of this Agreement, Seller shall make or cause to be made all filings
and submissions under any laws or regulations applicable to the Business for the
consummation of the transactions contemplated herein. Seller will coordinate and
cooperate with Buyer in exchanging such information, will not make any such
filing without providing to Buyer a final copy thereof for its review and
consent at least two full business days in advance of the proposed filing and
will provide such reasonable assistance as Buyer may request in connection with
all of the foregoing.
6.04 CONDITIONS . Seller shall take all commercially reasonable
actions necessary or desirable to cause the conditions set forth in Section 8.01
to be satisfied and to consummate the transactions contemplated herein as soon
as reasonably possible after the satisfaction thereof (but in any event within
three business days of such date).
6.05 NO NEGOTIATIONS, ETC. Seller shall not directly or indirectly,
through any officer, director, agent or otherwise, solicit, initiate or
encourage submission of any proposal or offer from any person or entity
(including any of its or their officers or employees) relating to the
acquisition or purchase of the Business or any of the Assets.
6.06 BUSINESS EMPLOYEES.
(a) Seller agrees that Buyer may hire effective as of the Closing Date all
of the Business Employees except the two employees covered by the Facilities and
Services Agreement. Seller agrees to cooperate with Buyer in providing notice of
termination to such Business Employees as of the Closing Date.
(b) All Employees who accept employment with Buyer as of the Closing Date
shall be eligible to participate in the employee benefit plans and other fringe
benefits of Buyer on the same basis as such plans and benefits are offered to
employees of Buyer with comparable positions with Buyer. For purposes of this
Section, "employee benefit plans and other fringe benefits," includes, without
limitation, health insurance benefits, disability, life and accident insurance,
sickness benefits, and vacation. All eligibility waiting periods and
pre-existing condition exclusions shall be waived under Buyer's employee benefit
plans with respect to such Business Employees and their dependents to the extent
they had been waived or satisfied under similar plans of the Seller immediately
prior to the Closing Date. Notwithstanding anything in this Section 6.06(b) or
elsewhere in this Section 6.06, Buyer shall not be obligated to provide an
Employee with any pension, medical, vacation or other benefits that are not
currently provided by Buyer to its existing employees or with any benefits that
exceed the level of benefits provided by Buyer to its existing employees.
(c) Seller shall be responsible for payments for accrued vacation not
taken by a Business Employee prior to the Closing Date and for all earned
incentive compensation including bonuses, if any, with respect to service
completed prior to the Closing Date. Seller shall offer Employees who accept
positions with Buyer the option to receive cash or to transfer to Buyer their
accrued vacation days or fractions thereof earned but unused while employed by
Seller. In the event any Employee elects to receive cash upon employment by
Buyer, Seller shall make a cash payment to such Employee within 10 days after
the Closing Date. In the event any such Employee elects to have his or her
accrued vacation transferred upon employment by Buyer, Buyer shall give such
Employee credit after the Closing Date for the same number of vacation days or
fractions thereof he or she has accrued with Seller as of the Closing Date. In
the event Employees elect to have their accrued vacation carried over to Buyer,
Seller shall pay to Buyer within 10 days after the Closing Date an amount equal
to the cash value of each such Employee's accrued vacation before payroll
deductions. In subsequent calendar years, Employees will be eligible to earn
vacation according to the schedule specified in Buyer's vacation policy.
(d) Seller shall retain the responsibility for payment of all medical,
dental, health and disability claims incurred by any Employee on or prior to the
Closing Date, and Buyer shall not assume any liability with respect to such
claims, including liability for continuing payments after Closing for claims
incurred at or prior to the Closing. Buyer agrees to use its best efforts to
ensure that any preexisting condition clause in any of Buyer's health or
disability insurance coverage shall not be applicable to Employees who accept
employment with Buyer. Buyer assumes responsibility for payment of all medical,
dental, health and disability claims incurred by Employees in its employ after
the Closing Date.
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(e) Seller shall be responsible for providing any Employee whose
"qualifying event," within the meaning of Section 4980B(f) of the Code, occurs
on or prior to the Closing Date (and such Employee's "qualified beneficiaries"
within the meaning of Section 4980B(f) of the Code) with the continuation of
group health coverage required by Section 4980B(f) of the Code ("Continuation
Coverage") under the terms of the health plan maintained by Seller. Buyer shall
be responsible for Continuation Coverage to any Employee who accepts employment
with Buyer (and each Employee's qualified beneficiaries) whose qualifying event
occurs after the Closing Date to the extent required by law.
6.07 AGENTS. Immediately after execution of this Agreement, Seller shall
notify the sales agents, sales representatives or other persons who sell any
products or services offered by the Business on behalf of Seller (collectively,
"Agents") of the execution of this Agreement and its intention to assign its
rights and obligations under any agreement with such Agents to Buyer. Subject to
any existing agreement with the same, and at the direction of Buyer, Seller
shall cancel any contract with an Agent who refuses such assignment in
accordance with its obligations under Section 10.03. Seller shall cooperate with
Buyer in negotiating new arrangements between such agents, distributors and
dealers and Buyer.
6.08 SERVICES AND PREMISES AGREEMENT. Seller shall, at the request of
Buyer, obtain the consent of the lessors of the Real Property in Akron, Ohio to
the Facilities and Services Agreement set forth in the attached Exhibit F( the
"Services Agreement") .
ARTICLE VII
COVENANTS OF BUYER
Buyer covenants and agrees with Seller as follows:
7.01 REGULATORY FILINGS . As promptly as practicable after the
execution of the Agreement, Buyer shall make or cause to be made all filings and
submissions under any laws or regulations applicable to Buyer for the
consummation of the transactions contemplated herein. Buyer will coordinate and
cooperate with Seller in exchanging such information, will not make any such
filing without providing to Seller a final copy thereof for its review and
consent at least two full business days in advance of the proposed filing and
will provide such reasonable assistance as Seller may request in connection with
all of the foregoing.
7.02 CONDITIONS. Buyer shall take all commercially reasonable
actions necessary or desirable to cause the conditions set forth in Section 8.02
to be satisfied and to consummate the transactions contemplated herein as soon
as reasonably possible after the satisfaction thereof (but in any event within
three business days of such date).
7.03 EMPLOYEES. Buyers shall offer employment to substantially all
of the Business Employees and shall not dismiss employees so hired during the
ninety days after closing to the extent that the number of employees of Seller
that have been dismissed by Buyer during such ninety day period, plus the number
of Business Employees not offered employment by Buyer, exceeds fifty.
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ARTICLE VIII
CONDITIONS TO CLOSING
8.01 CONDITIONS TO BUYER'S OBLIGATIONS. The obligation of Buyer to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions on or before the Closing Date:
(a) The representations and warranties set forth in Article IV
hereof shall be true and correct in all material respects at and as of the
Closing Date as though then made and as though the Closing Date had been
substituted for the date of this Agreement throughout such representations and
warranties (without taking into account any disclosures by Seller of
discoveries, events or occurrences arising on or after the date hereof), except
that any such representation or warranty made as of a specified date (other than
the date hereof) shall only need to have been true on and as of such date;
(b) Seller shall have performed in all material respects all of the
covenants and agreements required to be performed and complied with by it under
this Agreement prior to the Closing;
(c) Seller shall have assigned to Buyer the agreements and permits
specified in the Disclosure Schedule under the captions referencing Sections
4.14 and 4.23 (except as otherwise noted thereon);
(d) Seller shall have obtained, or caused to be obtained, each
consent and approval necessary in order that the transactions contemplated
herein not constitute a breach or violation of, or result in a right of
termination or acceleration of, or creation of any encumbrance on any of the
Assets pursuant to the provisions of, any agreement, arrangement or undertaking
of or affecting Seller or any license, franchise or permit of or affecting
Seller, regardless of whether assigned to Seller pursuant to Section 8.01(c);
(e) Buyer shall have been successful in obtaining the agreement of
such of Seller's Business Employees, sales agents, sales representatives,
distributors and dealers to become employees, sales agents, sales
representatives, distributors and dealers of Buyer as Buyer reasonably concludes
are necessary for the continued operation of the Business.
(f) There shall not be threatened, instituted or pending any action
or proceeding, before any court or governmental authority or agency, domestic or
foreign, (i) challenging or seeking to make illegal, or to delay or otherwise
directly or indirectly restrain or prohibit, the consummation of the
transactions contemplated hereby or seeking to obtain material damages in
connection with such transactions, (ii) seeking to prohibit direct or indirect
ownership or operation by Buyer of all or a material portion of the Assets, or
to compel Buyer or any of its subsidiaries to dispose of or to hold separately
all or a material portion of the business or assets of Buyer and its
subsidiaries, as a result of the transactions contemplated hereby, (iii) seeking
to invalidate or render unenforceable any material provision of this Agreement
or any of the other agreements attached as exhibits hereto (collectively, and
including the Services Agreement, the "Related Agreements"), or (iv) otherwise
relating to and materially adversely affecting the transactions contemplated
hereby;
(g) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated hereby
by any federal, state or foreign court, government or governmental authority or
agency, which would reasonably be expected to result, directly or indirectly, in
any of the consequences referred to in Section 8.01(f) hereof;
(h) There shall be no material difference between the Latest Balance
Sheet Trial Balance and the Closing Date Trial Balance (as defined in subsection
(k)(vii) below);
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(i) Buyer shall not have discovered any fact or circumstance
existing as of the date of this Agreement which has not been disclosed to Buyer
as of the date of this Agreement regarding the Business or Assets, which is,
individually or in the aggregate with other such facts and circumstances,
materially adverse to the value of the Assets or the Business, as determined by
the Buyer in its reasonable discretion;
(j) There shall have been no damage, destruction or loss of or to
any of the Assets, whether or not covered by insurance, which, in the aggregate,
has, or would be reasonably likely to have, a material adverse effect on the
Assets or the Business;
(k) On the Closing Date, Seller shall have delivered to Buyer all of
the following:
(i) the Bill of Sale and such other instruments of conveyance,
transfer, assignment and delivery as Buyer shall have reasonably requested
pursuant to Section 3.02 hereof;
(ii) the Assignment and Assumption Agreement;
(iii) certificates of the officers of Seller with the best
knowledge of the Company or other persons satisfactory to Buyer
substantially in the form set forth in Exhibit G attached hereto, dated
the Closing Date, stating that the conditions precedent set forth in
subsections (a) and (b) above have been satisfied;
(iv) copies of the third party and governmental consents and
approvals referred to in subsections (c) and (d) above;
(v) a copy of the text of the resolutions adopted by the board
of directors of Seller authorizing the execution, delivery and performance
of this Agreement and the consummation of all of the transactions
contemplated by this Agreement; along with a certificate executed on
behalf of Seller, by its corporate secretary certifying to Buyer that such
copy is a true, correct and complete copy of such resolutions, and that
such resolutions were duly adopted and have not been amended or rescinded;
(vi) an executed copy of each of the Related Agreements;
(vii) a trial balance of accounts receivable of the Business
dated as of the close of business on the day before the Closing certified
by the Chief Financial Officer of Seller (the "Closing Date Trial
Balance"); and
(ix) such other certificates, documents and instruments as
Buyer reasonably requests related to the transactions contemplated hereby.
8.02 CONDITIONS TO SELLER'S OBLIGATIONS. The obligations of Seller
to consummate the transactions contemplated by this Agreement are subject to the
satisfaction of the following conditions on or before the Closing Date:
(a) The representations and warranties set forth in Article V hereof
will be true and correct in all material respects at and as of the Closing as
though then made and as though the Closing Date had been substituted for the
date of this Agreement throughout such representations and warranties;
(b) Buyer shall have performed in all material respects all the
covenants and agreements required to be performed by it under this Agreement
prior to the Closing;
(c) There shall not be threatened, instituted or pending any action
or proceeding, before any court or governmental authority or agency, domestic or
foreign, (i) challenging or seeking to make illegal, or to delay or otherwise
directly or indirectly restrain or prohibit, the consummation of the
transactions contemplated hereby or seeking to obtain material damages in
connection with such transactions, (ii) seeking to invalidate or render
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unenforceable any material provision of this Agreement or any of the Related
Agreements, or (iii) otherwise relating to and materially adversely affecting
the transactions contemplated hereby;
(e) There shall not be any action taken, or any statue, rule,
regulation, judgment, order or injunction, enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated hereby
by any federal, state or foreign court, governmental authority or agency, which
would reasonably be expected to result, directly or indirectly, in any of the
consequences referred to in Section 8.02(d) hereof;
(f) On the Closing Date, Buyer will have delivered to Seller:
(i) a wire transfer in immediately available funds in the
amount of the Purchase Price,
(ii) a certificate of appropriate officer(s) of Buyer
substantially in the form set forth as Exhibit H attached hereto, dated
the Closing Date, stating that the conditions precedent set forth in
subsections (a) and (b) above have been satisfied,
(iii) an executed copy of the Assignment and Assumption
Agreement and of each of the Related Agreements, and
(iv) a copy of the text of the resolutions adopted by the
board of directors of Buyer authorizing the execution, delivery and
performance of this Agreement and the consummation of all of the
transactions contemplated by this Agreement, along with a certificate
executed on behalf of Buyer by its corporate secretary certifying to
Seller that such copy is a true, correct and complete copy of such
resolutions, and that such resolutions were duly adopted and have not been
amended or rescinded.
ARTICLE IX
TERMINATION
9.01 TERMINATION. This Agreement may be terminated at any time prior
to the Closing:
(a) by the mutual consent of Buyer and Seller;
(b) by either Buyer or Seller if there has been a material
misrepresentation, breach of warranty or breach of covenant on the part of the
other in the representations, warranties and covenants set forth in this
Agreement;
(c) by either Buyer or Seller if the transactions contemplated
hereby have not been consummated by September 30, 1998; PROVIDED THAT, neither
Buyer nor Seller will be entitled to terminate this Agreement pursuant to this
Section 9.01(c) if such party's willful breach of this Agreement has prevented
the consummation of the transactions contemplated hereby; or
(d) by Buyer if, after the date hereof, there shall have been a
material adverse change in the financial condition or business of the Business
or if, after the date hereof, an event shall have occurred which, so far as
reasonably can be foreseen, would result in any such change, except to the
extent such change is directly caused by Buyer.
9.02 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Buyer or Seller as provided in Section 9.01, this Agreement
shall become void and there shall be no liability on the part of either
Buyer or Seller, or their respective stockholders, officers, or directors,
except that Sections 12.01, 12.02 and 12.10 hereof shall survive indefinitely,
and except with respect to willful breaches of this Agreement prior to the time
of such termination.
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ARTICLE X
ADDITIONAL AGREEMENTS
10.01 CONSULTING SERVICES. Seller shall retain in its employ, and
make available to Buyer in accordance with and subject to the terms set forth in
the Services Agreement, the services of Leo J. Wood and Barbara Woody (the
"Leased Employees") for such proportion of their respective work time as shall
be reasonably requested by Buyer. The Leased Employees shall at all times remain
employees of Seller and Seller shall be solely responsible for all compensation,
benefits, insurance and other expenses related to the Leased Employees.
10.02 OLD RECEIVABLES. Buyer covenants and agrees to use its best
efforts to collect the receivables of the Business outstanding on the Closing
Date that are older than 360 days ("Old Receivables"). With respect to any Old
Receivable actually collected by Buyer within one year after the Closing
Date, Buyer shall pay to Seller, within 30
days of the end of any month in which it receives payment on such Old
Receivable, one hundred percent (100%) of the cash amount actually collected,
provided, however, that Buyer's aggregate obligation to pay Seller for any Old
Receivable so collected shall be limited to $300,000 and Buyer shall retain any
and all payments in excess of such amount and any and all payments actually
received more than one year after the Closing Date.
10.03 NONCOMPETITION COVENANT.
(a) During the three-year period commencing on the Closing Date,
Seller shall not directly or indirectly engage in, invest in, finance, own,
manage, operate, control or participate in the ownership, management, operation
or control of, or be in any way connected with, render services to or assist any
business activities that are competitive with the Business as conducted prior to
the consummation of the transactions contemplated hereby. Seller understands
that Buyer would not have agreed to purchase the Assets without having received
this noncompetition covenant from Seller, and Seller acknowledges that it has
entered into this noncompetition covenant as a material inducement to Buyer to
consummate the transactions contemplated hereby. Notwithstanding this Section
10.03(a), Seller may continue to distribute Products through sales to the
distributors and dealers for which it does not have ongoing supply agreements,
but not through third party or direct billing, in accordance with the Excluded
Business.
(b) Except as contemplated by Section 6.06, 6.07, and 10.01, during
the three-year period commencing on the Closing Date, neither Seller nor Buyer
shall, without the written consent of the other party, directly or indirectly,
either as principal, agent, independent contractor, consultant, director,
officer, employee, employer, advisor, stockholder, partner or in any other
individual capacity whatsoever, either for their own benefit or for the benefit
of any other person, solicit or cause to be solicited for employment any
employee of the other party, or hire any such employee with whom it has had
contact in the course of the transaction contemplated by this Agreement. Any
such consent granted by the Company is revocable at any time. For purposes of
this paragraph, solicitation shall not include solicitation of employees (i) who
first solicit employment from the party in question, or (ii) who are solicited
(A) by advertising in periodicals of general circulation, or (B) by an employee
search firm on behalf of the party in question, so long as such party did not
direct or encourage such firm to solicit such employee or any other employees of
the other party. In addition, and without limiting the generality of the
foregoing, Seller shall not, without the written consent of Buyer, directly or
indirectly, solicit , cause to be solicited or hire any Business Employee
(except those Business Employees referenced in the Services Agreement) for a
period of three years after the date of this Agreement.
(c) REMEDIES. Seller acknowledges that it would be difficult to
fully compensate the Buyer for damages resulting from any breach by Seller of
the provisions of this Section 10.03. Accordingly, in the event of any actual or
threatened breach of such provisions, the Buyer shall (in addition to any other
remedies which it may have) be entitled to temporary and/or permanent injunctive
relief to enforce such provisions, and such relief may be granted without the
necessity of proving actual damages. Seller further acknowledges that this
Agreement constitutes a material inducement to the Buyer to complete the
purchase of the Assets and Buyer will be relying on the enforceability of this
Section 10.03 in completing such acquisition.
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ARTICLE XI
SURVIVAL; INDEMNIFICATION
11.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding
any investigation made by or on behalf of any of the parties hereto or the
results of any such investigation and notwithstanding the participation of such
party in the Closing, the representations and warranties contained in Article IV
and Article V hereof shall survive the Closing for a period of two years
following the Closing Date.
11.02 INDEMNIFICATION BY SELLER. (a) Subject to the limitations of
Section 11.02(b), Seller agrees to indemnify in full Buyer and its officers,
directors, employees, agents and stockholders (collectively, the "Buyer
Indemnified Parties") and hold them harmless against any loss, liability,
deficiency, damage, expense or cost (including reasonable legal expenses),
whether or not actually incurred or paid prior to the third anniversary of the
Closing Date (collectively, "Losses"), which Buyer Indemnified Parties may
suffer, sustain or become subject to, as a result of (i) any misrepresentation
in any of the representations and warranties of Seller contained in this
Agreement or in any exhibits, schedules, certificates or other documents
delivered or to be delivered by or on behalf of Seller pursuant to the terms of
this Agreement or otherwise referenced or incorporated in this Agreement
(collectively, the "Related Documents"), (ii) any breach of, or failure to
perform, any agreement of Seller contained in this Agreement or any of the
Related Documents, or (iii) any "Claims" (as defined in Section 11.04(a) hereof)
or threatened Claims against Buyer arising out of the actions or inactions of
Seller with respect to the assets or the Business prior to the Closing
(collectively, "Buyer Losses").
(b) seller shall be liable to buyer indemnified parties for any
buyer losses only if the aggregate amount of all buyer losses exceeds $36,500
(the "basket amount"), in which case seller shall be obligated to indemnify the
buyer indemnified parties only for the excess of the aggregate amount of all
such buyer losses over the basket amount; provided, however, that losses of
buyer resulting from breach of the covenants and warranties contained in
sections 6.06(a), 6.06(c), article x or from liabilities of seller not expressly
assumed by this agreement shall not be subject to such basket amount.
11.03 INDEMNIFICATION BY BUYER. (a) Subject to the limitations of
Section 11.03(b), Buyer agrees to indemnify in full the Seller, and its
officers, directors, employees, agents and stockholders (collectively, the
"Seller Indemnified Parties") and hold them harmless against any Losses which
any of
the Seller Indemnified Parties may suffer,
sustain or become subject to as a result of (i) any misrepresentation in any of
the representations and warranties of Buyer contained in this Agreement or in
any of the Related Documents, (ii) any breach of, or failure to perform, any
agreement of Buyer contained in this Agreement or any of the Related Documents
(including, without limitation, any WARN Act liability incurred by Buyer for
violation of the covenant contained in section 7.03), or (iii) any Claims or
threatened Claims against Seller arising out of the actions or inactions of
Buyer with respect to the Assets or the Business after the Closing
(collectively, "Seller Losses").
(b) Buyer shall be liable to the Seller Indemnified Parties for any
Seller Losses only if the aggregate amount of all Seller Losses exceeds the
Basket Amount, in which case Buyer shall be obligated to indemnify the Seller
Indemnified Parties only for the excess of the aggregate amount of all such
Seller Losses over the Basket Amount; provided, however, that Losses of Seller
resulting from breach of the covenant contained in section 7.03 shall not be
subject to such Basket Amount.
11.04 METHOD OF ASSERTING CLAIMS. As used herein, an "Indemnified
Party" shall refer to a "Buyer Indemnified Party" or "Seller Indemnified Party,"
as applicable, the "Notifying Party" shall refer to the party hereto whose
Indemnified Parties are entitled to indemnification hereunder, and the
"Indemnifying Party" shall refer to the party hereto obligated to indemnify such
Notifying Party's Indemnified Parties.
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<PAGE>
(a) In the event that any of the Indemnified Parties is made a
defendant in or party to any action or proceeding, judicial or administrative,
instituted by any third party for the liability or the costs or expenses of
which are Losses (any such third party action or proceeding being referred to as
a "Claim"), the Notifying Party shall give the Indemnifying Party prompt notice
thereof. The failure to give such notice shall not affect any Indemnified
Party's ability to seek reimbursement unless such failure has materially and
adversely affected the Indemnifying Party's ability to defend successfully a
Claim. The Indemnifying Party shall be entitled to contest and defend such
Claim; PROVIDED, that the Indemnifying Party (i) has a reasonable basis for
concluding that such defense may be successful and (ii) diligently contests and
defends such Claim. Notice of the intention so to contest and defend shall be
given by the Indemnifying Party to the Notifying Party within 20 business days
after the Notifying Party's notice of such Claim (but, in all events, at least
five business days prior to the date that an answer to such Claim is due to be
filed). Such contest and defense shall be conducted by reputable attorneys
employed by the Indemnifying Party. The Notifying Party shall be entitled at any
time, at its own cost and expense (which expense shall not constitute a Loss
unless the Notifying Party reasonably determines that the Indemnifying Party is
not adequately representing or, because of a conflict of interest, may not
adequately represent, any interests of the Indemnified Parties, and only to the
extent that such expenses are reasonable), to participate in such contest and
defense and to be represented by attorneys of its or their own choosing. If the
Notifying Party elects to participate in such defense, the Notifying Party will
cooperate with the Indemnifying Party in the conduct of such defense. Neither
the Notifying Party nor the Indemnifying Party may concede, settle or compromise
any Claim without the consent of the other party, which consents will not be
unreasonably withheld. Notwithstanding the foregoing, (i) if a Claim seeks
equitable relief or (ii) if the subject matter of a Claim relates to the ongoing
business of any of the Indemnified Parties, which Claim, if decided against any
of the Indemnified Parties, would materially adversely affect the ongoing
business or reputation of any of the Indemnified Parties, then, in each such
case, the Indemnified Parties alone shall be entitled to contest, defend and
settle such Claim in the first instance and, if the Indemnified Parties do not
contest, defend or settle such Claim, the Indemnifying Party shall then have the
right to contest and defend (but not settle) such Claim.
(b) In the event any Indemnified Party should have a claim against
any Indemnifying Party that does not involve a Claim, the Notifying Party shall
deliver a notice of such claim with reasonable promptness to the Indemni fying
Party. If the Indemnifying Party notifies the Notifying Party that it does not
dispute the claim described in such notice or fails to notify the Notifying
Party within 30 days after delivery of such notice by the Notifying Party
whether the Indemnifying Party disputes the claim described in such notice, the
Loss in the amount specified in the Notifying Party's notice will be
conclusively deemed a liability of the Indemnifying Party and the Indemnifying
Party shall pay the amount of such Loss to the Indemnified Party on demand. If
the Indemnifying Party has timely disputed its Liability with respect to such
claim, the Chief Executive Officers of each of the Indemnifying Party and the
Notifying Party will proceed in good faith to negotiate a resolution of such
dispute, and if not resolved through the negotiations of such Chief Executive
Officers within 60 days after the delivery of the Notifying Party's notice of
such claim, such dispute shall be resolved fully and finally in Kansas City,
Missouri by an arbitrator selected pursuant to, and an arbitration governed by,
the Commercial Arbitration Rules of the American Arbitration Association. The
arbitrator shall resolve the dispute within 30 days after selection and judgment
upon the award rendered by such arbitrator may be entered in any court of
competent jurisdiction.
(c) After the Closing, the rights set forth in this Article XI shall
be each party's sole and exclusive remedies against the other party hereto for
misrepresentations or breaches of convenants contained in this Agreement and the
related documents, other than those covenants contained in Article X.
Notwithstanding the foregoin, nothing herein shall prevent any of the
Indemnified Parties form bringing an action based upon allegations of fraud or
other intentional breach of an obligation of or with respect to either party in
connection with this Agreement and the Related Documents. In the event such
action is brought, the prevailing party's attorney's fees and costs shall be
paid by the nonprevailing party.
ARTICLE XII
MISCELLANEOUS
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<PAGE>
12.01 PRESS RELEASES AND ANNOUNCEMENTS. Prior to the Closing Date,
neither party hereto shall issue any press release (or make any other public
announcement) related to this Agreement or the transactions contemplated hereby
or make any announcement to the employees, customers or suppliers of Seller
without prior written approval of the other party hereto, except as may be
necessary, in the opinion of counsel to the party seeking to make disclosure, to
comply with the requirements of this Agreement or applicable law. If any such
press release or public announcement is so required, the party making such
disclosure shall consult with the other party prior to making such disclosure,
and the parties shall use all reasonable efforts, acting in good faith, to agree
upon a text for such disclosure which is satisfactory to both parties.
12.02 EXPENSES. Except as otherwise expressly provided for herein,
Seller and Buyer will pay all of their own expenses (including attorneys' and
accountants' fees, in connection with the negotiation of this Agreement, the
performance of their respective obligations hereunder and the consummation of
the transactions contemplated by this Agreement (whether consummated or not).
12.03 FURTHER ASSURANCES. Seller agrees that, on and after the
Closing Date, it shall take all appropriate action and execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the provisions hereof, including, without
limitation, putting Buyer in possession and operating control of the Assets and
transferring all Permits and environmental permits to Buyer that are
transferable.
12.04 COOPERATION AND EXCHANGE OF INFORMATION. Buyer and Seller
shall provide each other with such cooperation and information as either of them
reasonably may request of the other in filing any Tax return, amended return or
claim for refund, determining a liability for Taxes or a right to a refund of
Taxes or in conducting any audit or proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of relevant Tax
returns or portions thereof, together with accompanying schedules and related
work papers and documents relating to rulings or other determinations by Taxing
authorities. Each party shall make its employees available on a mutually
convenient basis to provide explanation of any documents or information provided
hereunder. The Seller upon written request by the Buyer, will provide to the
Buyer such factual information reasonably necessary for filing Tax returns, Tax
planning and contesting any Tax audit that the Seller possesses as the Buyer may
reasonably request with respect to the Assets (which information the Seller
agrees to maintain and preserve for so long as it may be needed by the Buyer).
12.05 AMENDMENT AND WAIVER. This Agreement may not be amended or
waived except in a writing executed by the party against which such amendment or
waiver is sought to be enforced. No course of dealing between or among any
persons having any interest in this Agreement will be deemed effective to modify
or amend any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement.
12.06 NOTICES. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when personally delivered or
three business days after being mailed by first class U.S. mail, return receipt
requested, or when receipt is acknowledged, if sent by facsimile, telecopy or
other electronic transmission device. Notices, demands and communications to
Buyer and Seller will, unless another address is specified in writing, be sent
to the address indicated below:
NOTICES TO BUYER: WITH A COPY TO:
Mr. David B. Kaysen Dorsey & Whitney LLP
Rehabilicare Inc. 220 South Sixth Street
1811 Old Highway 8 Minneapolis, Minnesota 55402
New Brighton, MN 55112 Attention: Thomas Martin
Fax: (612) 340-8738
NOTICES TO SELLER:
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<PAGE>
Mr. Michael M. Barbour
Henley Healthcare, Inc.
120 Industrial Boulevard
Sugar Land, TX 77478
WITH A COPY TO:
Porter & Hedges, L.L.P.
700 Lousiana
Houston, TX 77002
Attention: Robert G. Reedy
Fax: (713) 226-0274
12.07 ASSIGNMENT. This Agreement and all of the provisions hereof
will be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that neither this Agreement
nor any of the rights, interests or obligations hereunder may be assigned by
either party hereto without the prior written consent of the other party hereto.
12.08 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
12.09 COMPLETE AGREEMENT. This Agreement and the Related Agreements
and the Exhibits hereto, the Disclosure Schedule and the other documents
referred to herein contain the complete agreement between the parties and
supersede any prior understandings, agreements or representations by or between
the parties, written or oral, which may have related to the subject matter
hereof in any way.
12.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument.
12.11 GOVERNING LAW. The internal law, without regard to conflicts
of laws principles, of the State of Minnesota will govern all questions
concerning the construction, validity and interpretation of this Agreement and
the performance of the obligations imposed by this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
REHABILICARE INC.
By /s/ DAVID B. KAYSEN
Its PRESIDENT AND COO
HENLEY HEALTHCARE, INC.
By /s/ DAN D. SUDDUTH
Its EXECUTIVE VICE PRESIDENT, CFO
AND SECRETARY
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EXHIBIT 3.3
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
HENLEY HEALTHCARE, INC.
Henley Healthcare, Inc. (the "Corporation"), pursuant to the provisions
of Article 4.04 of the Texas Business Corporation Act (the "TBCA"), hereby
adopts the following Articles of Amendment to its Articles of Incorporation.
ARTICLE ONE
The name of the Corporation is Henley Healthcare, Inc.
ARTICLE TWO
The Articles of Incorporation of the Corporation are amended as follows:
Article III.J of the Statement of Designation of Rights and Preferences of the
Series B Convertible Preferred Stock, Par Value $.10 Per Share, filed with the
Secretary of State on July 1, 1998, as corrected, is deleted in its entirety and
the following Article III.J is substituted in its place:
J. "PREMIUM" means an amount equal to (X) x (N/365) x (1,000), where "X"
means four hundredths (.04), provided, however, that X shall mean ten
hundredths (.10) for the period beginning as of the last day of any
Trading Volume Valuation Period (defined below) and thereafter in which
the Trading Volume Value (defined below) shall not equal or exceed
$250,000, in which event X shall remain four hundredths (.04) with respect
to calculating the amount of the Premium accrued prior to such day. The
term "TRADING VOLUME VALUATION PERIOD" shall mean any twenty (20)
consecutive trading day period during the period beginning on the
twentieth trading day prior to August 10, 1999 and continuing thereafter.
The term "TRADING VOLUME VALUE" shall mean, for any Trading Volume
Valuation Period, the average of the products obtained by multiplying (i)
the Closing Bid Price for the Common Stock on a trading day by (ii) the
total number of shares of Common Stock traded on such trading day for each
trading day in such Trading Volume Valuation Period.
<PAGE>
ARTICLE THREE
These Articles of Amendment were duly adopted by the sole shareholder of
the Series B Convertible Preferred Stock on August 7, 1998.
ARTICLE FOUR
The number of shares of Series B Convertible Preferred Stock outstanding
at the time of the adoption of these Articles of Amendment was 2,500; and the
number of shares entitled to consent thereto was 2,500.
ARTICLE FIVE
The number of shares of the Series B Convertible Preferred Stock which
consented to these Articles of Amended was 2,500; and the number of shares which
did not consent to these Articles of Amendment was 0. The sole shareholder of
all of the shares of Series B Preferred Stock outstanding and entitled to vote
on said amendment has signed a consent in writing pursuant to Article 9.10(A) of
the TBCA adopting these Articles of Amendment and any written notice required by
Article 9.10(A)(4) of the TBCA has been given.
IN WITNESS WHEREOF, the undersigned Vice President of the Corporation
hereby executes these Articles of Amendment on this 10th day of August, 1998.
HENLEY HEALTHCARE, INC.
/s/ DANIEL M. LAVELLE
Daniel M. Lavelle,
VICE PRESIDENT
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EXHIBIT 4.7
EXHIBIT C
TO SECURITIES
PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of August 10,
1998, by and among HENLEY HEALTHCARE, INC., a corporation organized under the
laws of the State of Texas (the "COMPANY"), and the undersigned (together with
affiliates, the "INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement of even date
herewith by and between the Company and the Initial Investors (the "SECURITIES
PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors (i)
shares of its Series B Convertible Preferred Stock (the "PREFERRED STOCK") that
are convertible into shares (the "CONVERSION SHARES") of the Company's common
stock, par value $.01 per share (the "COMMON STOCK"), upon the terms and subject
to the limitations and conditions set forth in the Statement of Designation of
Rights and Preferences with respect to such Preferred Stock (the "STATEMENT OF
DESIGNATION") and (ii) warrants (the "INVESTOR WARRANTS") to acquire shares (the
"WARRANT SHARES") of Common Stock;
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"SECURITIES ACT"), and applicable state securities laws;
C. The Company has agreed to issue to The Zanett Securities Corporation
(the "PLACEMENT AGENT") warrants (the "PLACEMENT WARRANTS" and, collectively
with the Investor Warrants, the "WARRANTS") to purchase shares of Common Stock
pursuant to that certain Placement Agency Agreement, dated as of even date
herewith, by and between the Company and the Placement Agent and has agreed to
provide the Placement Agent the rights set forth herein. For purposes of this
Agreement, the Placement Agent shall be deemed an "INITIAL INVESTOR" and the
shares of Common Stock issuable upon the exercise of, or otherwise pursuant to,
the Placement Agent Warrants shall be deemed "WARRANT SHARES"; and
<PAGE>
D. The Company and one of the Initial Investors previously entered into a
(i) Securities Purchase Agreement dated as of July 1, 1998 pursuant to which the
Company agreed, upon the terms and subject to the conditions contained therein,
to issue and sell to such Initial Investor shares of its Preferred Stock and
related warrants to acquire shares of Common Stock and (ii) Registration Rights
Agreement dated as of July 1, 1998 (the "FIRST REGISTRATION RIGHTS AGREEMENT")
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and applicable state securities laws to such Initial
Investor.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "INVESTORS" means the Initial Investors and any
transferees or assignees who agree to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means the Conversion Shares and
the Warrant Shares (including any Conversion Shares issuable in redemption of
any Preferred Stock and any Warrant Shares issuable with respect to Exercise
Default Payments under the Warrants) issued or issuable with respect to the
Preferred Stock and the Warrants and any shares of capital stock issued or
issuable, from time to time (with any adjustments), as a distribution on or in
exchange for or otherwise with respect to any of the foregoing.
(iv) "REGISTRATION STATEMENT" means a registration statement
of the Company under the Securities Act.
b. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
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<PAGE>
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare, and, on or
before August 17, 1998 (the "FILING DATE"), file with the SEC a Registration
Statement on Form S-3 (or, if Form S-3 is not then available, on such form of
Registration Statement as is then available to effect a registration of all of
the Registrable Securities, subject to the consent of the Initial Investors (as
determined pursuant to Section 11(j) hereof)) covering the resale of at least
1,156,055 Registrable Securities and shall also cover the resale of at least
1,279,265 "Registrable Securities" as that term is defined in the First
Registration Rights Agreement. The Registration Statement filed hereunder, to
the extent allowable under the Securities Act and the Rules promulgated
thereunder (including Rule 416), shall state that the Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of the Preferred Stock and exercise of the
Warrants (i) to prevent dilution resulting from stock splits, stock dividends or
similar transactions or (ii) by reason of reductions in the Conversion Price of
the Preferred Stock or the Exercise Price of the Warrants in accordance with the
terms thereof (including, but not limited to, in the case of the Preferred
Stock, the terms which cause the Conversion Price to decrease to the extent the
Closing Sale Price of the Common Stock decreases). The Registrable Securities
included in the Registration Statement filed hereunder shall be allocated to the
Investors as set forth in Section 11(k) hereof. The Registration Statement filed
hereunder (and each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided to (and subject to the
approval of) the Initial Investors and their counsel prior to its filing or
other submission.
b. UNDERWRITTEN OFFERING. If any offering pursuant to the
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of the
Initial Investors, shall have the right to select one legal counsel to represent
the Investors and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company. In the event that any
Investors elect not to participate in such underwritten offering, the
Registration Statement covering all of the Registrable Securities shall contain
appropriate plans of distribution reasonably satisfactory to the Investors
participating in such underwritten offering and the Investors electing not to
participate in such underwritten offering (including, without limitation, the
ability of nonparticipating Investors to sell from time to time and at any time
during the effectiveness of such Registration Statement).
c. PAYMENTS BY THE COMPANY. The Company shall cause the Registration
Statement required to be filed pursuant to Section 2(a) hereof to become
effective as soon as practicable, but in no event later than the one hundred and
twentieth (120th) day following the date hereof (the "REGISTRATION DEADLINE").
If (i) (A) the Registration Statement required to be filed by the Company
pursuant to Section 2(a) hereof is not declared effective by the SEC on or
before the Registration Deadline or (B) any Registration Statement required to
be filed by the Company pursuant to Section 3(b) hereof is not declared
effective by the SEC within sixty (60) days after the
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<PAGE>
applicable Registration Trigger Date (as defined in Section 3(b) hereof), or
(ii) if, after any such Registration Statement has been declared effective by
the SEC, sales of all of the Registrable Securities required to be covered by
such Registration Statement (including any Registrable Securities required to be
registered pursuant to Section 3(b) hereof) cannot be made pursuant to such
Registration Statement (by reason of a stop order or the Company's failure to
update the Registration Statement or any other reason outside the control of the
Investors) or (iii) the Common Stock is not listed or included for quotation on
the Nasdaq SmallCap Market ("SMALLCAP") , the American Stock Exchange (the
"AMEX"), the New York Stock Exchange (the "NYSE") or the Nasdaq National Market
("NNM") at any time after the initial Registration Deadline hereunder, then the
Company will make payments to the Investors in such amounts and at such times as
shall be determined pursuant to this Section 2(c) as partial relief for the
damages to the Investors by reason of any such delay in or reduction of their
ability to sell the Registrable Securities (which remedy shall not be exclusive
of any other remedies available at law or in equity). The Company shall pay to
each Investor an amount equal to the product of (i) the aggregate Purchase Price
of the Preferred Stock and Warrants held by such Investor (including, without
limitation, Preferred Stock that has been converted into Conversion Shares and
Warrants that have been exercised for Warrant Shares then held by such Investor)
(the "AGGREGATE SHARE PRICE"), multiplied by (ii) fifteen thousandths (.015),
for each thirty (30) day period (or portion thereof) (A) after the Registration
Deadline and prior to the date the Registration Statement filed pursuant to
Section 2(a) is declared effective by the SEC, (B) after the sixtieth (60th) day
following a Registration Trigger Date (as defined in Section 3(b)) and prior to
the date the Registration Statement filed pursuant to Section 3(b) hereof is
declared effective by the SEC, and (c) during which sales of any Registrable
Securities cannot be made pursuant to any such Registration Statement after the
Registration Statement has been declared effective or the Common Stock is not
listed or included for quotation on the AMEX, NYSE or NNM; PROVIDED, HOWEVER,
that there shall be excluded from each such period any delays which are solely
attributable to changes (other than corrections of Company mistakes with respect
to information previously provided by the Investors) required by the Investors
in the Registration Statement with respect to information relating to the
Investors, including, without limitation, changes to the plan of distribution.
(For example, if the Registration Statement is not effective by the Registration
Deadline, the Company would pay $15,000 for each thirty (30) day period
thereafter with respect to each $1,000,000 of Aggregate Share Price until the
Registration Statement becomes effective.) Such amounts shall be paid in cash
or, at each Investor's option, may be convertible into Common Stock at the
"CONVERSION PRICE" (as defined in the Statement of Designation) then in effect.
Any shares of Common Stock issued upon conversion of such amounts shall be
Registrable Securities. If any Investor desires to convert the amounts due
hereunder into Registrable Securities it shall so notify the Company in writing
within two (2) business days after the date on which such amounts are first
payable in cash and such amounts shall be so convertible (pursuant to the
mechanics set forth under Article IV of the Statement of Designation), beginning
on the last day upon which the cash amount would otherwise be due in accordance
with the following sentence. Payments of cash pursuant hereto shall be made
within five (5) days after the end of each period that gives rise to such
obligation, provided that, if any such period extends for more than thirty (30)
days, interim payments shall be made for each such thirty (30) day period.
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<PAGE>
d. PIGGY-BACK REGISTRATIONS. If at any time prior to the expiration
of the Registration Period (as hereinafter defined) the Company shall file with
the SEC a Registration Statement relating to an offering for its own account or
the account of others under the Securities Act of any of its equity securities
(other than on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with stock option or
other employee benefit plans), the Company shall send to each Investor who is
entitled to registration rights under this Section 2(d) written notice of such
determination and, if within fifteen (15) days after the date of such notice,
such Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering, the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be included in the
Registration Statement because, in such underwriter(s)' judgment, marketing or
other factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which such Investor has requested inclusion hereunder as the
underwriter shall permit. Any exclusion of Registrable Securities shall be made
pro rata among the Investors seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Investors; PROVIDED, HOWEVER, that the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities, the
holders of which are not entitled to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with the
Registrable Securities; and PROVIDED, FURTHER, HOWEVER, that, after giving
effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having the
right to include such securities in the Registration Statement other than
holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No right to
registration of Registrable Securities under this Section 2(d) shall be
construed to limit any registration required under Section 2(a) hereof. If an
offering in connection with which an Investor is entitled to registration under
this Section 2(d) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
e. ELIGIBILITY FOR FORM S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of the
sale by the Initial Investors and any other Investors of the Registrable
Securities and the Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
f. RULE 416. The Company and the Investors each acknowledge that an
indeterminate number of Registrable Securities shall be registered pursuant to
Rule 416 under the Securities Act so as to include in such Registration
Statement any and all Registrable Securities which
5
<PAGE>
may become issuable (i) to prevent dilution resulting from stock splits, stock
dividends or similar transactions and (ii) by reason of reductions in the
Conversion Price of the Preferred Stock or the Exercise Price of the Warrants in
accordance with the terms thereof, including, but not limited to, in the case of
the Preferred Stock, the terms which cause the Conversion Price to decrease to
the extent the Closing Sale Price of the Common Stock decreases (collectively,
the "RULE 416 SECURITIES"). In this regard, the Company agrees to take all steps
necessary to ensure that all Registrable Securities are registered pursuant to
Rule 416 under the Securities Act in the Registration Statement and, absent
guidance from the SEC or other definitive authority to the contrary, the Company
shall affirmatively support and not take any action adverse to the position that
the Registration Statements filed hereunder cover all of the Rule 416
Securities. If the Company determines that the Registration Statement(s) filed
hereunder do not cover all of the Rule 416 Securities, the Company shall
immediately provide to each Investor written notice (a "RULE 416 NOTICE")
setting forth the basis for the Company's position and the authority therefor.
The Company acknowledges that the number of shares of Common Stock initially
included in any Registration Statement relating to the Registrable Securities
represents a good faith estimate of the maximum number of shares issuable upon
conversion of the Preferred Stock and exercise of the Warrants.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare and file with the SEC the Registration
Statement required by Section 2(a) (but in no event later than the Filing Date),
and cause such Registration Statement relating to Registrable Securities to
become effective as soon as practicable after such filing (but in no event later
than the Registration Deadline), and keep such Registration Statement effective
pursuant to Rule 415 at all times until such date as is the earlier of (i) the
date on which all of the Registrable Securities have been sold and (ii) the date
on which all of the Registrable Securities (in the reasonable opinion of counsel
to the Initial Investors) may be immediately sold to the public without
registration or restriction pursuant to Rule 144(k) under the Securities Act or
any successor provision (the "REGISTRATION PERIOD"), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein and all documents incorporated by reference therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein not
misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement. In the event (i) the Company
delivers a Rule 416
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Notice to the Investors or the Investors who hold a majority in interest of the
Registrable Securities shall reasonably determine, or the SEC shall state
formally or informally, that Rule 416 under the Securities Act does not permit a
registration statement to cover securities which may become issuable upon
conversion or exercise of convertible or exercisable securities by reason of
reductions in the conversion or exercise price of such securities and (ii) the
number of shares available under a Registration Statement filed pursuant to this
Agreement is, for any three (3) consecutive trading days (the last of such three
(3) trading days being the "REGISTRATION TRIGGER DATE"), insufficient to cover
one hundred thirty-five percent (135%) of the Registrable Securities issued or
issuable upon conversion (without giving effect to any limitations on conversion
contained in Article IV.C of the Statement of Designation) of the Preferred
Stock and exercise of the Warrants (without giving effect to any limitations on
exercise contained in Section 7 of the Warrants), the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover two hundred percent
(200%) of the Registrable Securities issued or issuable (without giving effect
to any limitations on conversion or exercise contained in the Statement of
Designation or the Warrants) as of the Registration Trigger Date, in each case,
as soon as practicable, but in any event within fifteen (15) days after the
Registration Trigger Date (based on the market price then in effect of the
Common Stock and other relevant factors on which the Company reasonably elects
to rely). The Company shall cause such amendment(s) and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof. In the event the Company fails to obtain the effectiveness of any such
Registration Statement within seventy-five (75) days after a Registration
Trigger Date, each Investor shall thereafter have the option, exercisable in
whole or in part at any time and from time to time by delivery of a written
notice to the Company (a "MANDATORY REDEMPTION NOTICE"), to require the Company
to purchase for cash, at an amount per share equal to the Redemption Amount (as
defined in Article VIII.B of the Statement of Designation), a portion of the
Investor's Preferred Stock such that the total number of Registrable Securities
included on the Registration Statements for resale by such Investor exceeds 135%
of the Registrable Securities issued or issuable upon conversion (without giving
effect to any limitations on conversion contained in Article IV.C of the
Statement of Designation) of such Investor's Preferred Stock and exercise of
such Investor's Warrants. If the Corporation fails to redeem any of such shares
within five (5) business days after its receipt of a Mandatory Redemption
Notice, then such Investor shall be entitled to the remedies provided in Article
VIII.C of the Statement of Designation.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC (including, without limitation, any request to
accelerate the effectiveness of the Registration Statement or amendment
thereto), and each item of correspondence from the SEC or the staff of the SEC,
in each case relating to the Registration Statement (other than any portion, if
any, thereof which contains information for which the Company has sought
confidential treatment), (ii) on the date of
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effectiveness of the Registration Statement or any amendment thereto, a notice
stating that the Registration Statement or amendment has been declared
effective, and (iii) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor.
d. The Company shall use its commercially reasonable best efforts to
(i) register and qualify the Registrable Securities covered by the Registration
Statement under such other securities or "blue sky" laws of such jurisdictions
in the United States as each Investor who holds Registrable Securities being
offered reasonably requests, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; PROVIDED, HOWEVER, that the Company shall not be
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause the Company undue expense
or burden, or (e) make any change in its charter or bylaws, which in each case
the Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
e. In the event the Investors who hold a majority in interest of the
Registrable Securities being offered in an offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor of the happening of any event, of which
the Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its
commercially reasonable best efforts promptly to prepare a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver such number of copies of such supplement or amendment to
each Investor as such Investor may reasonably request.
g. The Company shall use its commercially reasonable best efforts to
prevent the issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest practicable moment (including in each
case by amending or supplementing such Registration Statement) and to notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the
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managing underwriters) of the issuance of such order and the resolution thereof
(and if such Registration Statement is supplemented or amended, deliver such
number of copies of such supplement or amendment to each Investor as such
Investor may reasonably request).
h. The Company shall permit a single firm of counsel designated by
the Initial Investors to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time prior to its filing with the
SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of the effectiveness of any
Registration Statement without prior notice to such counsel.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish, on the
date of effectiveness of the Registration Statement (i) an opinion, dated as of
such date, from counsel representing the Company addressed to the Investors and
in form, scope and substance as is customarily given in an underwritten public
offering and (ii) in the case of an underwriting, a letter, dated such date,
from the Company's independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; PROVIDED, HOWEVER, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3(k). Each Investor agrees
that it shall, upon learning
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that disclosure of such Records is sought in or by a court or governmental body
of competent jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, the Records
deemed confidential. Nothing herein shall be deemed to limit the Investors'
ability to sell Registrable Securities in a manner which is otherwise consistent
with applicable laws and regulations.
l. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement, or (v) such Investor
consents to the form and content of any such disclosure. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall use its commercially reasonable best efforts to
promptly either (i) cause all of the Registrable Securities covered by the
Registration Statement to be listed on the SmallCap, AMEX, NNM or the NYSE or
another national securities exchange and on each additional national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure the designation and
quotation of all of the Registrable Securities covered by the Registration
Statement on the NNM and, without limiting the generality of the foregoing, to
arrange for or maintain at least two market makers to register with the National
Association of Securities Dealers, Inc. ("NASD") as such with respect to such
Registrable Securities.
n. The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after the Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the
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transfer agent for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement) an
opinion of such counsel in the form attached hereto as EXHIBIT 1.
p. At the request of any Investor, the Company shall prepare and
file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.
q. The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the SEC.)
r. The Company shall take all such other actions as any Investor or
the underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of the Registrable Securities.
s. From and after the date of this Agreement, the Company shall not,
and shall not agree to, allow the holders of any securities of the Company to
include any of their securities in the Registration Statement under Section 2(a)
hereof or any amendment or supplement thereto under Section 3(b) hereof without
the consent of the holders of a majority in interest of the Registrable
Securities.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five (5)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified
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<PAGE>
the Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from such Registration Statement.
c. In the event Investors holding a majority in interest of the
Registrable Securities being offered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election not to participate in such
underwritten distribution.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Sections 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Sections 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten distribution
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and commissions
and costs of counsel to Investors, incurred in connection with registrations,
filings or qualifications pursuant to Sections 2 and 3, including, without
limitation, all registration, listing and qualifications fees, printers and
accounting fees, the fees and disbursements of counsel for the Company and the
fees and disbursements contemplated by Section 3(k) hereof shall be borne by the
Company. In addition, the Company shall pay all of the Investors' costs and
expenses (including legal fees) incurred in connection with the enforcement of
the rights of the Investors hereunder.
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6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities, and
(ii) the directors, officers, partners, members, employees, agents and each
person who controls any Investor within the meaning of Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), if any, and underwriters for Investors and such
underwriters' directors, officers, partners, members, employees, agents and each
person who controls any such underwriter within the meaning of Section 15 of the
Exchange Act (each, an "INDEMNIFIED PERSON"), against any joint or several
losses, claims, damages, liabilities or expenses (collectively, together with
actions, proceedings or inquiries by any regulatory or self-regulatory
organization, whether commenced or threatened, in respect thereof, "CLAIMS") to
which any of them may become subject insofar as such Claims arise out of or are
based upon: (i) any untrue statement or alleged untrue statement of a material
fact in a Registration Statement or any filing made in connection with
qualification under state securities laws or the omission or alleged omission to
state therein a material fact required to be stated or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, (iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any other applicable securities law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities or (iv) any material breach of this Agreement (the matters in the
foregoing clauses (i) through (iv) being, collectively, "VIOLATIONS"). Subject
to the restrictions set forth in Section 6(c) with respect to the number of
legal counsel, the Company shall reimburse the Investors and each other
Indemnified Person, promptly as such expenses are incurred and are due and
payable, for any reasonable legal fees or other reasonable out of pocket
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not apply to
a Claim arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by such
Indemnified Person expressly for use in the Registration Statement or any such
amendment thereof or supplement thereto; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld; and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, if such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly
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advised in writing not to use the incorrect prospectus prior to the use giving
rise to a Violation and such Indemnified Person, notwithstanding such advice,
used it. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9 hereof.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, its employees, agents and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act (collectively and
together with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim
to which any of them may become subject, under the Securities Act, the Exchange
Act or otherwise, insofar as such Claim arises out of or is based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and subject to Section 6(c) such Investor will
reimburse any legal or other out of pocket expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; PROVIDED, HOWEVER, that the
indemnity agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; PROVIDED, FURTHER, HOWEVER, that any Investor shall be liable under
this Agreement (including this Section 6(b) and Section 7) for only that amount
as does not exceed the net proceeds actually received by such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by any Investor pursuant to
Section 9 hereof. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, and the Indemnified Party failed to utilize such
corrected prospectus.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; PROVIDED, HOWEVER, that such indemnifying party shall not be
entitled to assume such defense and an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid
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by the indemnifying party, if, in the reasonable opinion of counsel retained by
the indemnifying party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential conflicts of interest between such Indemnified Person
or Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified Person or the Indemnified Party and the
indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in addition
to those available to such indemnifying party. The indemnifying party shall pay
for only one separate legal counsel for the Indemnified Persons or the
Indemnified Parties, as applicable, and such legal counsel shall be selected by
Investors holding a majority-in-interest of the Registrable Securities included
in the Registration Statement to which the Claim relates (with the approval of
the Initial Investors if they hold Registrable Securities included in such
Registration Statement), if the Investors are entitled to indemnification
hereunder, or by the Company, if the Company is entitled to indemnification
hereunder, as applicable. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; PROVIDED, HOWEVER, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation, and (iii) contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant to
the Registration Statement.
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the Securities Act or any other similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
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a. file with the SEC in a timely manner and make and keep available
all reports and other documents required of the Company under the Securities Act
and the Exchange Act so long as the Company remains subject to such requirements
(it being understood that nothing herein shall limit the Company's obligations
under Section 4(c) of the Securities Purchase Agreement) and the filing and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
b. furnish to each Investor so long as such Investor owns shares of
Preferred Stock, Warrants or Registrable Securities, promptly upon request, (i)
a written statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested to permit the Investors to sell such securities
under Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any transferee of all or any
portion of the shares of Preferred Stock, the Warrants or the Registrable
Securities if: (i) shares of Preferred Stock are transferred in increments of
$100,000 of face amount of the Preferred Stock and the Warrants and Registrable
Securities are transferred in increments of that number of shares of Common
Stock issuable in relation to such increments of $100,000 of face amount of the
Preferred Stock, (ii) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company after such assignment, (iii) the Company is furnished with written
notice of (a) the name and address of such transferee or assignee, and (b) the
securities with respect to which such registration rights are being transferred
or assigned, (iv) following such transfer or assignment, the further disposition
of such securities by the transferee or assignee is restricted under the
Securities Act and applicable state securities laws, (v) the transferee or
assignee agrees in writing for the benefit of the Company to be bound by all of
the provisions contained herein, and (vi) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company and Investors who
hold a majority in interest of the Registrable Securities; PROVIDED, HOWEVER,
that no amendment hereto which restricts the ability of an Investor to elect not
to participate in an underwritten offering shall be effective against any
Investor which does not consent in writing to such amendment; PROVIDED, FURTHER,
HOWEVER, that no consideration shall be paid to an Investor by the Company in
connection with an amendment hereto unless each Investor similarly affected by
such amendment receives a pro-rata amount of consideration from the Company.
Unless
16
<PAGE>
an Investor otherwise agrees, each amendment hereto must similarly affect each
Investor. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the terms of
this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective upon receipt or refusal of receipt, if delivered personally
or by courier or confirmed telecopy, in each case addressed to a party.
The addresses for such communications shall be:
If to the Company:
HENLEY HEALTHCARE, INC.
120 Industrial Boulevard
Sugarland, Texas 77478
Telecopy: (281) 276-7038
Attn: Chief Financial Officer
and if to any Investor, at such address as such shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 11(b).
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed in the State of New York without regard to principles of choice of law
or conflicts of law that would defer to the substantive law of another
jurisdiction. The Company irrevocably consents to the jurisdiction of the United
States federal courts and the state courts located in the State of New York in
any suit or proceeding based on or arising under this Agreement and irrevocably
agrees that all claims in respect of such suit or proceeding shall be determined
exclusively in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
further agrees that service of process upon the Company, mailed by first class
mail shall be deemed in every respect effective service of process upon the
Company in any such suit or
17
<PAGE>
proceeding. Nothing herein shall affect the Investors' right to serve process in
any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
e. This Agreement, the Securities Purchase Agreement (including all
schedules and exhibits thereto) and the Warrants constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
This Agreement, the Securities Purchase Agreement and the Warrants supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents, approvals and other determinations to be made by
the Investors or the Initial Investors pursuant to this Agreement shall be made
by the Investors or the Initial Investors holding a majority in interest of the
Registrable Securities (determined as if all shares of Preferred Stock and
Warrants then outstanding had been converted into or exercised for Registrable
Securities) held by all Investors or Initial Investors, as the case may be.
k. The initial number of Registrable Securities included on any
Registration Statement and each increase (if any) to the number of Registrable
Securities included thereon shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each Investor at the time
of such establishment or increase, as the case may be. In the event an Investor
shall sell or otherwise transfer any of such holder's Registrable Securities,
each transferee shall be allocated a pro rata portion of the number of
Registrable Securities included on a Registration Statement for such transferor.
Any shares of Common Stock included on a Registration Statement and which remain
allocated to any person or entity which does not hold any Registrable Securities
18
<PAGE>
shall be allocated to the remaining Investors, pro rata based on the number of
shares of Registrable Securities then held by such Investors. For the avoidance
of doubt, the number of Registrable Securities held by any Investor shall be
determined as if all shares of Preferred Stock and Warrants then outstanding
were converted into or exercised for Registrable Securities.
l. Each party to this Agreement has participated in the negotiation
and drafting of this Agreement. As such, the language used herein shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party to
this Agreement.
m. For purposes of this Agreement, the term "business day" means any
day other than a Saturday or Sunday or a day on which banking institutions in
the State of New York are authorized or obligated by law, regulation or
executive order to close.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
19
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
HENLEY HEALTHCARE, INC.
By: /s/ DANIEL M. LAVELLE
Name: DANIEL M. LAVELLE
Its: VICE PRESIDENT
INITIAL INVESTORS:
ZANETT LOMBARDIER, LTD.
By: _____________________
Name: ___________________
Its: ____________________
GOLDMAN SACHS PERFORMANCE PARTNERS, L.P.
By: ____________________
Name: __________________
Its: ___________________
GOLDMAN SACHS PERFORMANCE PARTNERS (OFFSHORE), L.P.
By: ___________________
Name: _________________
Its: __________________
<PAGE>
EXHIBIT 1
TO
REGISTRATION
RIGHTS
AGREEMENT
[Date]
[Name and address
of transfer agent]
RE: HENLEY HEALTHCARE, INC.
Ladies and Gentlemen:
We are counsel to HENLEY HEALTHCARE, INC., a corporation organized under
the laws of the State of Texas (the "COMPANY"), and we understand that [Name of
Investor] (the "HOLDER") has purchased from the Company (i) shares of the
Company's Series B Convertible Preferred Stock (the "PREFERRED STOCK") that are
convertible into shares of the Company's common stock, par value $.01 per share
(the "COMMON STOCK"), and (ii) warrants (the "WARRANTS") to acquire shares of
Common Stock. Pursuant to a Registration Rights Agreement, dated as of June ___,
1998, by and among the Company and the signatories thereto (the "REGISTRATION
RIGHTS AGREEMENT"), the Company agreed with the Holder, among other things, to
register the Registrable Securities (as that term is defined in the Registration
Rights Agreement) under the Securities Act of 1933, as amended (the "SECURITIES
ACT"), upon the terms provided in the Registration Rights Agreement. In
connection with the Company's obligations under the Registration Rights
Agreement, on June __, 1998, the Company filed a Registration Statement on Form
S-___ (File No. 333- _____________) (the "REGISTRATION STATEMENT") with the
Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities, which names the Holder as a selling stockholder thereunder. The
Registration Statement was declared effective by the SEC on _____________, 1998.
[Other customary introductory and scope of examination language to be
inserted]
Based on the foregoing, we are of the opinion that the resale of the
Registrable Securities have been registered under the Securities Act.
[Other customary language to be included.]
Very truly yours,
cc: [Name of Investor]
[FORM OF WARRANT] EXHIBIT 4.8
EXHIBIT A
TO SECURITIES
PURCHASE
AGREEMENT
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON DECEMBER 10, 2001
(UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE
OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase __________ Shares of
Common Stock, par value $.01 per share
Date: August 10, 1998
HENLEY HEALTHCARE, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _________________________, or its
registered assigns, is entitled to purchase from HENLEY HEALTHCARE, INC., a
corporation organized under the laws of the State of Texas (the "COMPANY"), at
any time or from time to time during the period specified in Section 2 hereof,
_______________________ (__________) fully paid and nonassessable shares of the
Company's common stock, par value $.01 per share (the "COMMON STOCK"), at an
exercise price per share (the "EXERCISE PRICE") equal to $5.78. The number of
shares of Common Stock purchasable hereunder (the "WARRANT SHARES") and the
Exercise Price are subject to adjustment as provided in Section 4 hereof. The
term "WARRANTS" means this Warrant and the other warrants of the Company issued
pursuant to that certain Securities Purchase Agreement, dated as of August 10,
1998, by and among the Company and the other signatories thereto (the
"SECURITIES PURCHASE AGREEMENT") and that certain Placement Agency Agreement
dated as of the date hereof.
<PAGE>
This Warrant is subject to the following terms, provisions and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. Subject
to the provisions hereof, including, without limitation, the limitations
contained in Section 7 hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "EXERCISE
AGREEMENT"), to the Company by 11:59 p.m. New York time on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof). The Warrant Shares
so purchased shall be deemed to be issued to the holder hereof or such holder's
designee, as the record owner of such shares, as of the close of business on the
date on which this Warrant shall have been surrendered and the completed
Exercise Agreement shall have been delivered or, if such date is not a business
date, on the next succeeding business date. The Warrant Shares so purchased,
representing the aggregate number of shares specified in the Exercise Agreement,
shall be delivered to the holder hereof within a reasonable time, not exceeding
three business days, after this Warrant shall have been so exercised (the
"DELIVERY PERIOD"). If the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, and
so long as the certificates therefor do not bear a legend and the holder is not
obligated to return such certificate for the placement of a legend thereon, the
Company shall cause its transfer agent to electronically transmit the Warrant
Shares so purchased to the holder by crediting the account of the holder or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DTC
TRANSFER"). If the aforementioned conditions to a DTC Transfer are not
satisfied, the Company shall deliver to the holder physical certificates
representing the Warrant Shares so purchased. Further, the holder may instruct
the Company to deliver to the holder physical certificates representing the
Warrant Shares so purchased in lieu of delivering such shares by way of DTC
Transfer. Any certificates so delivered shall be in such denominations as may be
reasonably requested by the holder hereof, shall be registered in the name of
such holder or such other name as shall be designated by such holder and,
following the date on which the Warrant Shares have been registered under the
Securities Act pursuant to that certain Registration Rights Agreement, dated as
of July 1, 1998, by and between the Company and the other signatories thereto
(the "REGISTRATION RIGHTS AGREEMENT") or otherwise may be sold by the holder
pursuant to Rule 144 promulgated under the Securities Act (or a successor rule),
shall not bear any restrictive legend. If this Warrant shall have been exercised
only in part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to the holder a
new Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
If, at any time, a holder of this Warrant submits this Warrant and an
Exercise Agreement, and the Company fails for any reason to deliver, on or prior
to the fifth business day following the expiration of the Delivery Period for
such exercise, the number of shares of Common Stock to which the holder is
entitled upon such exercise (an "EXERCISE DEFAULT"), then the Company shall pay
to the holder payments ("EXERCISE DEFAULT PAYMENTS") for an Exercise Default in
the amount of (a) (N/365), multiplied by (b) the Market Price (as defined in
Section 4(l) hereof) on the date the Exercise Agreement giving rise to the
Exercise Default is transmitted in accordance with this Section
2
<PAGE>
1 (the "EXERCISE DEFAULT DATE"), multiplied by (c) the number of shares of
Common Stock the Company failed to so deliver in such Exercise Default,
multiplied by (d) .24, where N = the number of days from the Exercise Default
Date to the date that the Company effects the full exercise of this Warrant
which gave rise to the Exercise Default. The accrued Exercise Default Payment
for each calendar month shall be paid in cash or shall be convertible into
Common Stock, at the holder's option, as follows:
(a) In the event holder elects to take such payment in cash, cash payment
shall be made to holder by the fifth day of the month following the month in
which it has accrued; and
(b) In the event holder elects to take such payment in Common Stock, the
holder may convert such payment amount into Common Stock (in accordance with the
terms contained in Article IV of the Statement of Designation of Rights and
Preferences (the "STATEMENT OF DESIGNATION") governing the Company's Series B
Convertible Preferred Stock (the "SERIES B PREFERRED STOCK")) at the lower of
the Exercise Price or the Market Price (as defined in Section 4(l)) (as in
effect at the time of conversion) at any time after the fifth day of the month
following the month in which it has accrued.
Nothing herein shall limit the holder's right to pursue actual damages
for the Company's failure to maintain a sufficient number of authorized shares
of Common Stock as required pursuant to the terms of Section 3(b) hereof or to
otherwise issue shares of Common Stock upon exercise of this Warrant in
accordance with the terms hereof, and the holder shall have the right to pursue
all remedies available at law or in equity (including a decree of specific
performance and/or injunctive relief).
2. PERIOD OF EXERCISE.
(a) This Warrant is immediately exercisable, at any time or from time to
time on or after the date of initial issuance of this Warrant (the "ISSUE DATE")
and before 5:00 p.m., New York City time, on that date which is forty (40)
months after the Issue Date (the "EXERCISE PERIOD"). The Exercise Period shall
automatically be extended (i) by one (1) day for each day on which the Company
does not have a number of shares of Common Stock reserved for issuance upon
exercise hereof at least equal to the number of shares of Common Stock issuable
upon exercise hereof and (ii) for so long as (A) a Redemption Event (as defined
in the Statement of Designation) shall have occurred and be continuing or (B)
any event shall have occurred and be continuing which, with the passage of time
or the giving of notice and the failure to cure, would result in a Redemption
Event.
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, claims and encumbrances.
3
<PAGE>
(b) RESERVATION OF SHARES. During the Exercise Period, the Company shall
at all times have authorized, and reserved for the purpose of issuance upon
exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise in full of this Warrant (without giving effect to the
limitations on exercise set forth in Section 7(g) hereof).
(c) LISTING. The Company shall promptly secure the listing of the shares
of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed or become listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all shares of Common
Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system; PROVIDED, HOWEVER,
that the holder of this Warrant acknowledges and agrees that the Company will be
required to obtain shareholder approval for the issuance of the shares of Common
Stock issuable upon exercise of this Warrant in excess of the Cap Amount (as
defined in the Statement of Designation).
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the economic benefit inuring to the holder hereof
and the exercise privilege of the holder of this Warrant against dilution or
other impairment, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any entity
succeeding to the Company by merger, consolidation, or acquisition of all or
substantially all of the Company's assets.
(f) BLUE SKY LAWS. The Company shall, on or before the date of issuance of
any Warrant Shares, take such actions as the Company shall reasonably determine
are necessary to qualify the Warrant Shares for, or obtain exemption for the
Warrant Shares for, sale to the holder of this Warrant upon the exercise hereof
under applicable securities or "blue sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the holder of
this Warrant prior to such date; provided, however, that the Company shall not
be required to qualify as a foreign corporation or file a general consent to
service of process in any such jurisdiction.
4
<PAGE>
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the Exercise Price
and the number of Warrant Shares issuable hereunder and for which this Warrant
is then exercisable pursuant to Section 2 hereof shall be subject to adjustment
from time to time as provided in this Section 4.
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up or down
to the nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE. Except as otherwise provided in Sections
4(c) and 4(e) hereof, if and whenever during the Exercise Period the Company
issues or sells, or in accordance with Section 4(b) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Dilutive Price (as defined in this
subparagraph) on the date of issuance (a "DILUTIVE ISSUANCE"), then effective
immediately upon the Dilutive Issuance, the Exercise Price will be adjusted in
accordance with one of the two formulas below. For purposes of this
subparagraph, "DILUTIVE PRICE" means (i) the Floor Price (as defined in the
Statement of Designation) if, prior to the date of the Dilutive Issuance, the
Company has met both Performance Milestones (as defined in the Statement of
Designation), or (ii) otherwise, the Market Price (as hereinafter defined). If
the Company has met both Performance Milestones (as defined in the Statement of
Designation), the Exercise Price will be adjusted in accordance with the
following formula:
E' = E x O + P/F ;
----------
CSDO
or otherwise in accordance with the following formula:
E' = E x O + P/M ;
----------
CSDO
where:
E'= the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price (as defined in Section 4(1)(ii));
F = the Floor Price (as defined in the Statement of Designation)
O = the number of shares of Common Stock outstanding immediately prior
to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in Section
4(b) hereof, received by the Company upon such Dilutive Issuance;
and
CSDO = the total number of shares of Common Stock deemed outstanding
immediately after the Dilutive Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
5
<PAGE>
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any manner issues
or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
exercisable, convertible into or exchangeable for Common Stock ("CONVERTIBLE
SECURITIES") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "OPTIONS") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Dilutive Price in effect on the date of issuance of such
Options ("BELOW MARKET OPTIONS"), then the maximum total number of shares of
Common Stock issuable upon the exercise of all such Below Market Options
(assuming full exercise, conversion or exchange of Convertible Securities, if
applicable) will, as of the date of the issuance or grant of such Below Market
Options, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For purposes of the preceding sentence, the
"price per share for which Common Stock is issuable upon the exercise of such
Below Market Options" is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the issuance or
granting of all such Below Market Options, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise of
all such Below Market Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Below Market Options, the minimum aggregate
amount of additional consideration payable upon the exercise, conversion or
exchange thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the exercise of all such Below Market
Options (assuming full conversion of Convertible Securities, if applicable). No
further adjustment to the Exercise Price will be made upon the actual issuance
of such Common Stock upon the exercise of such Below Market Options or upon the
exercise, conversion or exchange of Convertible Securities issuable upon
exercise of such Below Market Options.
(ii)ISSUANCE OF CONVERTIBLE SECURITIES.
(A) If the Company in any manner issues or sells any Convertible
Securities, whether or not immediately convertible (other than where the same
are issuable upon the exercise of Options) and the price per share for which
Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less than the
Dilutive Price in effect on the date of issuance of such Convertible Securities,
then the maximum total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible Securities will, as of
the date of the issuance of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of the preceding sentence, the "price per share for
which Common Stock is issuable upon such exercise, conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities.
6
<PAGE>
No further adjustment to the Exercise Price will be made upon the actual
issuance of such Common Stock upon exercise, conversion or exchange of such
Convertible Securities.
(B) If the Company in any manner issues or sells any Convertible
Securities with a fluctuating conversion or exercise price or exchange ratio (a
"VARIABLE RATE CONVERTIBLE SECURITY"), then the "price per share for which
Common Stock is issuable upon such exercise, conversion or exchange" for
purposes of the calculation contemplated by Section 4(b)(ii)(A) shall be deemed
to be the lowest price per share which would be applicable (assuming all holding
period and other conditions to any discounts contained in such Convertible
Security have been satisfied) if the Dilutive Price on the date of issuance of
such Convertible Security was 75% of the Dilutive Price on such date (the
"ASSUMED VARIABLE MARKET PRICE"). Further, if the Dilutive Price at any time or
times thereafter is less than or equal to the Assumed Variable Market Price last
used for making any adjustment under this Section 4 with respect to any Variable
Rate Convertible Security, the Exercise Price in effect at such time shall be
readjusted to equal the Exercise Price which would have resulted if the Assumed
Variable Market Price at the time of issuance of the Variable Rate Convertible
Security had been 75% of the Dilutive Price existing at the time of the
adjustment required by this sentence.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If there is a change at
any time in (i) the amount of additional consideration payable to the Company
upon the exercise of any Options; (ii) the amount of additional consideration,
if any, payable to the Company upon the exercise, conversion or exchange of any
Convertible Securities; or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock (in each such case, other
than under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE SECURITIES.
If, in any case, the total number of shares of Common Stock issuable upon
exercise of any Option or upon exercise, conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock, Options
or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale. In case
any Common Stock, Options
7
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or Convertible Securities are issued or sold for a consideration part or all of
which shall be other than cash, the amount of the consideration other than cash
received by the Company will be the fair market value of such consideration,
except where such consideration consists of securities, in which case the amount
of consideration received by the Company will be the Market Price thereof as of
the date of receipt. In case any Common Stock, Options or Convertible Securities
are issued in connection with any merger or consolidation in which the Company
is the surviving corporation, the amount of consideration therefor will be
deemed to be the fair market value of such portion of the net assets and
business of the non-surviving corporation as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair market
value of any consideration other than cash or securities will be determined in
good faith by an investment banker or other appropriate expert of national
reputation selected by the Company and reasonably acceptable to the holder
hereof, with the costs of such appraisal to be borne by the Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No adjustment to the
Exercise Price will be made (i) upon the exercise of any warrants, options or
convertible securities issued and outstanding on the Issue Date and set forth on
Schedule 3(c) of the Securities Purchase Agreement in accordance with the terms
of such securities as of such date or (ii) upon the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
benefit plan of the Company now existing or to be implemented in the future, so
long as the issuance of such stock or options is approved by a majority of the
non-employee members of the Board of Directors of the Company or a majority of
the members of a committee of non-employee directors established for such
purpose; or (iii) upon the issuance of securities pursuant to an underwritten
public offering.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company, at any
time during the Exercise Period, subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a greater number of shares, then, after the date of record for
effecting such subdivision, the Exercise Price in effect immediately prior to
such subdivision will be proportionately reduced. If the Company, at any time
during the Exercise Period, combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) its shares of Common Stock into a
smaller number of shares, then, after the date of record for effecting such
combination, the Exercise Price in effect immediately prior to such combination
will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Section 4, the number of shares of
Common Stock issuable upon exercise of this Warrant and for which this Warrant
is or may become exercisable shall be adjusted by multiplying a number equal to
the Exercise Price in effect immediately prior to such adjustment by the number
of shares of Common Stock issuable or for which this Warrant is or may become
exercisable (as applicable) upon exercise of this Warrant immediately prior to
such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
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<PAGE>
(e) CONSOLIDATION, MERGER OR SALE. In case of any consolidation of the
Company with, or merger of the Company into, any other corporation, or in case
of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company at any time during the Exercise Period, then as a condition of such
consolidation, merger or sale or conveyance, adequate provision will be made
whereby the holder of this Warrant will have the right to acquire and receive
upon exercise of this Warrant in lieu of the shares of Common Stock immediately
theretofore acquirable upon the exercise of this Warrant, such shares of stock,
securities, cash or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
acquirable and receivable upon exercise of this Warrant had such consolidation,
merger or sale or conveyance not taken place. In any such case, the Company will
make appropriate provision to insure that the provisions of this Section 4
hereof will thereafter be applicable as nearly as may be in relation to any
shares of stock or securities thereafter deliverable upon the exercise of this
Warrant. The Company will not effect any consolidation, merger or sale or
conveyance unless prior to the consummation thereof, the successor corporation
(if other than the Company) assumes by written instrument the obligations under
this Warrant and the obligations to deliver to the holder of this Warrant such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the holder may be entitled to acquire. Notwithstanding the
foregoing, in the event of any consolidation of the Company with, or merger of
the Company into, any other corporation, or the sale or conveyance of all or
substantially all of the assets of the Company, at any time during the Exercise
Period, the holder of the Warrant shall, at its option, have the right to
receive, in connection with such transaction, cash consideration equal to the
fair market value of this Warrant as determined in accordance with customary
valuation methodology used in the investment banking industry.
(f) DISTRIBUTION OF ASSETS. In case the Company shall declare or make any
distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, stock repurchase by way of
return of capital or otherwise (including any dividend or distribution to the
Company's shareholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "DISTRIBUTION"), at any time during the
Exercise Period, then the holder of this Warrant shall be entitled upon exercise
of this Warrant for the purchase of any or all of the shares of Common Stock
subject hereto, to receive the amount of such assets (or rights) which would
have been payable to the holder had such holder been the holder of such shares
of Common Stock on the record date for the determination of shareholders
entitled to such Distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which requires
any adjustment of the Exercise Price, then, and in each such case, the Company
shall give notice thereof to the holder of this Warrant, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
9
EXHIBIT 4.9
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of August 10,
1998, between HENLEY HEALTHCARE, INC., a corporation organized under the laws of
the State of Texas (the "COMPANY"), and each of the purchasers (the
"PURCHASERS") set forth on the execution pages hereof (the "EXECUTION PAGES").
WHEREAS:
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT").
B. The Company desires to sell, and each Purchaser desires to purchase
severally and not jointly, upon the terms and conditions stated in this
Agreement, units (the "UNITS"), each Unit consisting of (i) one share of the
Company's Series B Convertible Preferred Stock, par value $.10 per share (the
"PREFERRED SHARES"), convertible into shares of the Company's common stock, par
value $.01 per share (the "COMMON STOCK"), and (ii) a warrant, in the form
attached hereto as EXHIBIT A (the "WARRANT"), to acquire 50 shares of Common
Stock. The rights, preferences and privileges of the Preferred Shares, including
the terms upon which such Preferred Shares are convertible into shares of Common
Stock, are set forth in the Statement of Designation of Rights and Preferences
of the Series B Convertible Preferred Stock of the Company filed in the Office
of the Secretary of State of Texas on July 1, 1998, as corrected by the Articles
of Correction filed in the Office of the Secretary of State of Texas on July 15,
1998, and as shall be amended pursuant to the form of amendment attached hereto
as EXHIBIT B-1. Such amendment is referred to herein as the "SERIES B
AMENDMENT," the consent by the Purchaser to the Series B Amendment attached
hereto as EXHIBIT B-2 is referred to herein as the "SERIES B CONSENT" and such
Statement of Designation, as so filed, corrected and amended, is referred to
herein as the "STATEMENT OF DESIGNATION". The shares of Common Stock issuable
upon conversion of the Preferred Shares or otherwise pursuant to the Statement
of Designation are referred to herein as the "CONVERSION SHARES" and the shares
of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants
are referred to herein as the "WARRANT SHARES." The Preferred Shares, the
Warrants, the Conversion Shares and the Warrant Shares are collectively referred
to herein as the "SECURITIES" and each of them may individually be referred to
herein as a "SECURITY."
C. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as EXHIBIT C, (the "REGISTRATION RIGHTS AGREEMENT")
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.
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<PAGE>
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF UNITS.
(a) PURCHASE OF UNITS AND CLOSING. Subject to the satisfaction (or waiver)
of the conditions set forth in Section 6 and Section 7 below, the Purchasers,
severally but not jointly, agree to purchase, that number of the Units set forth
on such Purchaser's Execution Page. The purchase price (the "PURCHASE PRICE")
per Unit shall be equal to One Thousand Dollars ($1,000.00). The issuance and
sale of the Units shall take place, subject to the satisfaction or waiver of the
conditions precedent thereto, in a closing, referred to herein as the "FIRST
CLOSING"or the "CLOSING". The aggregate purchase price of the Units being
acquired by each Purchaser at the Closing is set forth on such Purchaser's
Execution Page. The Closing of the purchase, sale and exchange of the Units to
be acquired by the Purchasers from the Company under this Agreement shall take
place at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers, 1401 Walnut
Street, 8th Floor, Philadelphia, PA 19102. The date and time of the Closing (the
"CLOSING DATE") shall be August 10, 1998, or in each case at such time and date
thereafter as the Purchasers and the Company may agree. Each Purchaser's
obligation to purchase Units hereunder is distinct and separate from each other
Purchaser's obligation to purchase Units and no Purchaser shall be required to
purchase hereunder more than the number of Units set forth on such Purchaser's
Execution Page hereto notwithstanding any failure by any other Purchaser to
purchase Units hereunder nor shall any Purchaser have any liability by reason of
any such failure by any other Purchaser.
(b) FORM OF PAYMENT. On the Closing Date, each Purchaser shall pay the
aggregate Purchase Price for the Units being purchased by such Purchaser on the
Closing Date by wire transfer to the Company, in accordance with the Company's
written wiring instructions, against delivery of duly executed certificates
representing the Preferred Shares and duly executed Warrants being purchased by
such Purchaser and the Company shall deliver such certificates and Warrants
against delivery of such aggregate Purchase Price.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally and not jointly represents and warrants to the
Company as follows:
(a) PURCHASE FOR OWN ACCOUNT, ETC. Purchaser is purchasing the Units for
Purchaser's own account and not with a present view towards the public sale or
distribution thereof, except pursuant to sales that are exempt from the
registration requirements of the Securities Act and/or sales registered under
the Securities Act. Purchaser understands that Purchaser must bear the economic
risk of this investment indefinitely, unless the Securities are registered
pursuant to the Securities Act and any applicable state securities or blue sky
laws or an exemption from such registration is available, and that the Company
has no present intention of registering the resale of any such Securities other
than as contemplated by the Registration Rights Agreement. Notwithstanding
anything in this Section 2(a) to the contrary, by making the representations
herein, the Purchaser does not agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with or pursuant to a registration statement or an exemption
from the registration requirements under the Securities Act.
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<PAGE>
(b) ACCREDITED INVESTOR STATUS. Purchaser is an "ACCREDITED INVESTOR" as
that term is defined in Rule 501(a) of Regulation D.
(c) RELIANCE ON EXEMPTIONS. Purchaser understands that the Units are being
offered and sold to Purchaser in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and Purchaser's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of Purchaser to acquire the
Units.
(d) INFORMATION. Purchaser and its counsel, if any, have been furnished
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Units which have been
specifically requested by Purchaser or its counsel. Purchaser and its counsel
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other investigation conducted by Purchaser or its counsel or
any of its representatives shall modify, amend or affect Purchaser's right to
rely on the Company's representations and warranties contained in Section 3
below. Purchaser understands that Purchaser's investment in the Units involves a
high degree of risk.
(e) GOVERNMENTAL REVIEW. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Units.
(f) TRANSFER OR RESALE. Purchaser understands that (i) except as provided
in the Registration Rights Agreement, the sale or resale of the Securities have
not been and are not being registered under the Securities Act or any state
securities laws, and the Securities may not be transferred unless (a) the resale
of the Securities has been registered thereunder; or (b) Purchaser shall have
delivered to the Company an opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from such registration; or (c) the
Securities are sold under Rule 144 promulgated under the Securities Act (or a
successor rule) ("RULE 144"); or (d) the Securities are sold or transferred to
an affiliate of Purchaser who agrees to sell or otherwise transfer the
Securities only in accordance with the provisions of this Section 2(f) and who
is an Accredited Investor; and (ii) neither the Company nor any other person is
under any obligation to register such Securities under the Securities Act or any
state securities laws (other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement.
(g) LEGENDS. Purchaser understands that the certificates for the Preferred
Shares and the Warrants and, until such time as the Conversion Shares and
Warrant Shares have been registered under the Securities Act (including
registration pursuant to Rule 416 thereunder) as contemplated by the
Registration Rights Agreement or otherwise may be sold by Purchaser under Rule
144, the certificates for the Conversion Shares and Warrant Shares may bear a
restrictive legend in substantially the following form:
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<PAGE>
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of
any state of the United States. The securities represented hereby may not
be offered, sold or transferred in the absence of an effective
registration statement for the securities under applicable securities laws
unless offered, sold or transferred under an available exemption from the
registration requirements of those laws.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped if, unless otherwise required by state securities laws, (a) the sale of
such Security is registered under the Securities Act (including registration
pursuant to Rule 416 thereunder) as contemplated by the Registration Rights
Agreement; (b) such holder provides the Company with an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Security may
be made without registration under the Securities Act; or (c) such holder
provides the Company with reasonable assurances that such Security can be sold
under Rule 144(k). Purchaser agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, pursuant
to an effective registration statement, under an exemption from the registration
requirements of the Securities Act or in accordance with Rule 144(k). In the
event the above legend is removed from any Security and thereafter the
securities are not sold or the effectiveness of a registration statement
covering such Security is suspended or the Company determines that a supplement
or amendment thereto is required by applicable securities laws, then upon
reasonable advance notice to Purchaser the Company may require that the above
legend be placed on any such Security that cannot then be sold pursuant to an
effective registration statement or under Rule 144(k) and Purchaser shall
cooperate in the replacement of such legend. Such legend shall thereafter be
removed when such Security may again be sold pursuant to an effective
registration statement or under Rule 144(k).
(h) AUTHORIZATION; ENFORCEMENT. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable against Purchaser in accordance with their terms.
(i) RESIDENCY. Purchaser is a resident of the jurisdiction set forth under
Purchaser's name on the Execution Page hereto executed by Purchaser.
(j) ACKNOWLEDGMENTS REGARDING PLACEMENT AGENT. Purchaser acknowledges that
The Zanett Securities Corporation is acting as placement agent (the "PLACEMENT
AGENT") for the Securities being offered hereby and will be compensated by the
Company for acting in such capacity. Purchaser further acknowledges that the
Placement Agent has acted solely as placement agent in connection with the
offering of the Securities by the Company, that the information and data
provided to Purchaser and referred to in subsection (d) above or otherwise in
connection with the transactions contemplated hereby have not been subjected to
independent verification by the Placement Agent, and that the Placement Agent
makes no representation or warranty with respect to the accuracy or completeness
of such information, data or other related disclosure material. Purchaser
further acknowledges that in making its decision to enter into this Agreement
and purchase the Securities it has relied on the Company's representations and
warranties contained in Section 3 below and on its own examination of the
Company and the terms of, and consequences of holding, the Securities.
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<PAGE>
Purchaser further acknowledges that the provisions of this Section 2(j) are for
the benefit of, and may be enforced by, the Placement Agent.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each as follows:
(a) ORGANIZATION AND QUALIFICATION. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership of property or the nature of the business conducted by it
makes such qualification necessary and where the failure so to qualify would
have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material
adverse effect on (i) the Securities, (ii) the ability of the Company to perform
its obligations hereunder or under the Statement of Designation, the Warrants or
the Registration Rights Agreement or (iii) the business, operations, properties
or financial condition of the Company and its subsidiaries, taken as a whole.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Warrants and the Registration Rights Agreement, to issue and
sell the Units in accordance with the terms hereof, to issue the Conversion
Shares upon conversion of the Preferred Shares in accordance with the terms of
the Statement of Designation and to issue the Warrant Shares upon exercise of
the Warrants in accordance with the terms of such Warrants; (ii) the execution,
delivery and performance of this Agreement, the Warrants and the Registration
Rights Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Preferred Shares and Warrants and the issuance and reservation for issuance
of the Conversion Shares and Warrant Shares) have been duly authorized by the
Company's Board of Directors and no further consent or authorization of the
Company, its Board of Directors, any committee of the Board of Directors or,
except as set forth on SCHEDULE 3(B), the Company's shareholders is required,
and (iii) this Agreement constitutes, and, upon execution and delivery by the
Company of the Warrants and the Registration Rights Agreement, such agreements
will constitute, valid and binding obligations of the Company enforceable
against the Company in accordance with their terms.
(c) STOCKHOLDER AUTHORIZATION. Except as set forth on SCHEDULE 3(C), the
Company believes that neither the execution, delivery or performance of this
Agreement, the Warrants or the Registration Rights Agreement by the Company nor
the consummation by it of the transactions contemplated hereby or thereby
(including, without limitation, the issuance of the Preferred Shares or Warrants
or the issuance, reservation for issuance or listing of the Conversion Shares or
Warrant Shares) requires any consent, approval or authorization of the Company's
stockholders.
(d) CAPITALIZATION. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares
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<PAGE>
issuable and reserved for issuance pursuant to securities (other than the
Preferred Shares and Warrants) exercisable or exchangeable for, or convertible
into, any shares of capital stock and the number of shares to be reserved for
issuance upon conversion of the Preferred Shares and exercise of the Warrants is
set forth on SCHEDULE 3(D). All of such outstanding shares of capital stock have
been, or upon issuance in accordance with the terms of any such warrants,
options or preferred stock, will be, validly issued, fully paid and
non-assessable. No shares of capital stock of the Company (including the
Preferred Shares, the Conversion Shares and the Warrant Shares) are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances. Except for the Securities and as set forth on
SCHEDULE 3(D), as of the date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exercisable or exchangeable for, any shares of capital stock of the Company or
any of its subsidiaries, or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of its or their securities under the Securities Act
(except the Registration Rights Agreement). Except as set forth on SCHEDULE
3(D), (i) there are no securities or instruments containing Antidilution or
similar provisions that will be triggered by the issuance of the Securities in
accordance with the terms of this Agreement, the Statement of Designation or the
Warrants, (ii) there are no outstanding securities or instruments of the Company
or any of its subsidiaries which contain any redemption or similar provisions,
and there are no contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to redeem a
security of the Company or any of its subsidiaries, and (iii) the Company does
not have any stock appreciation rights or "phantom stock" plans or agreements or
any similar plan or agreement. The Company has furnished to the Purchasers true
and correct copies of the Company's Certificate of Incorporation as in effect on
the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-laws as in
effect on the date hereof (the "BY-LAWS"), and all other instruments and
agreements governing securities convertible into or exercisable or exchangeable
for capital stock of the Company. The Statement of Designation, in the form
attached hereto, will be duly filed prior to Closing with the Secretary of State
of the State of Texas and, upon the issuance of the Preferred Shares in
accordance with the terms hereof, each Purchaser shall be entitled to the rights
set forth therein.
(e) ISSUANCE OF SHARES. The Preferred Shares are duly authorized and, upon
issuance in accordance with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, and free from all taxes, liens, claims and
encumbrances and will not be subject to preemptive rights or other similar
rights of stockholders of the Company and will not impose personal liability on
the holders thereof. The Conversion Shares and Warrant Shares are duly
authorized and, in accordance with the Statement of Designation, reserved for
issuance, and, upon conversion of the Preferred Shares and exercise of the
Warrants in accordance with the terms thereof, will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and encumbrances
and will not be subject to preemptive rights or other similar rights of
stockholders of the Company and will not impose personal liability upon the
holder thereof.
(f) NO CONFLICTS. Except as set forth on SCHEDULE 3(F), the execution,
delivery and performance of this Agreement, the Warrants and the Registration
Rights Agreement by the
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Company, the performance by the Company of its obligations under the Statement
of Designation, and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
reservation for issuance, as applicable, of the Preferred Shares, Warrants,
Conversion Shares and Warrant Shares) will not (i) result in a violation of the
Certificate of Incorporation or By-laws or (ii) conflict with, or constitute a
default (or an event which, with notice or lapse of time or both, would become a
default) under, or give to others any rights of termination, amendment
(including, without limitation, the triggering of any anti-dilution provisions),
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and rules or regulations of any
self-regulatory organizations to which either the Company or its securities are
subject) applicable to the Company or any of its subsidiaries or by which any
property or asset of the Company or any of its subsidiaries is bound or affected
(except, with respect to clause (ii), for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations that would
not, individually or in the aggregate, have a Material Adverse Effect). Neither
the Company nor any of its subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its subsidiaries is in default (and no event has occurred which, with
notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, except for actual or possible
violations, defaults or rights that would not, individually or in the aggregate,
have a Material Adverse Effect. The businesses of the Company and its
subsidiaries are not being conducted, and shall not be conducted so long as a
Purchaser owns any of the Securities, in violation of any law, ordinance or
regulation of any governmental entity, except for possible violations the
sanctions for which either singly or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and
SCHEDULE 3(F) and the Registration Rights Agreement, the Company is not required
to obtain any consent, approval, authorization or order of, or make any filing
or registration with, any court or governmental agency or any regulatory or self
regulatory agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Warrants or the Registration Rights
Agreement or to perform its obligations under the Statement of Designation, in
each case in accordance with the terms hereof or thereof. The Company is not in
violation of the listing requirements of the NASDAQ SmallCap market and does not
reasonably anticipate that the Common Stock will be delisted by NASDAQ for the
foreseeable future.
(g) SEC DOCUMENTS, FINANCIAL STATEMENTS. Since December 31, 1995, the
Company has timely filed (within applicable extension periods) all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT") (all of the foregoing and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein and the comment letter received by the Company
from the SEC relating to the Company's Registration Statement dated April 22,
1998 on Form S-3 (No. 333-50769) and to the Company's 10-K and 10-Q reports (the
"SEC COMMENT LETTER"), being hereinafter referred to herein as the "SEC
DOCUMENTS"). The Company has delivered to the Purchasers true and complete
copies of the SEC Documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act or
the Securities Act, as the case may
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be, and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Except as provided in the SEC Comment Letter, none of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings made prior to the date hereof). Except
as provided in the SEC Comment Letter, as of their respective dates, the
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC applicable with respect thereto. Such
financial statements have been prepared in accordance with U.S. generally
accepted accounting principles ("GAAP"), consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements or (iii) as provided in the SEC Comment Letter) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to immaterial year-end
audit adjustments). Except as set forth in the financial statements of the
Company included in the SEC Documents filed prior to the date hereof and the
liabilities of Enraf Nonius as described on SCHEDULE 3(H) hereto, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to the date of such financial
statements, (ii) liabilities not required by GAAP to be disclosed on a balance
sheet prepared in accordance with GAAP, and (iii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under GAAP to be reflected in such financial statements, which liabilities and
obligations referred to in clauses (i), (ii) and (iii), individually or in the
aggregate, are not material to the financial condition or operating results of
the Company. Neither the Company nor any of its subsidiaries or any of their
officers, directors, employees or agents have provided the Purchasers with any
material, nonpublic information.
(h) ABSENCE OF CERTAIN CHANGES. Since December 31, 1997, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, except as disclosed in SCHEDULE
3(H) or in the SEC Documents filed prior to the date hereof.
(i) ABSENCE OF LITIGATION. Except as expressly disclosed in the SEC
Documents filed prior to the date hereof, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its subsidiaries, threatened against or affecting the Company,
any of its subsidiaries, or any of their respective directors or officers in
their capacities as such. There are no facts which, if known by a potential
claimant or governmental authority, could give rise to a claim or proceeding
which, if asserted or conducted with results unfavorable to the Company or any
of its subsidiaries, could reasonably be expected to have a Material Adverse
Effect.
(j) INTELLECTUAL PROPERTY. Each of the Company and its subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service
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marks, copyrights, copyright applications, licenses, permits, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "INTANGIBLES") which are material to the
conduct of its business as now being conducted and as described in the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997. To the
best knowledge of the Company, neither the Company nor any subsidiary of the
Company infringes or is in conflict with any right of any other person with
respect to any Intangibles which, individually or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect. Neither the Company nor any of its subsidiaries has received
written notice of any pending conflict with or infringement upon such third
party Intangibles, which alleged pending conflict or alleged infringement, if
adversely determined, would result in a Material Adverse Effect. Except as
disclosed in the SEC Documents filed prior to the date hereof hereto, the
termination of the Company's ownership of, or right to use, any single
Intangible would not result in a Material Adverse Effect on the Company. Neither
the Company nor any of its subsidiaries has entered into any consent agreement,
indemnification agreement, forbearance to sue or settlement agreement with
respect to the validity of the Company's or its subsidiaries' ownership or right
to use its Intangibles and, to the best knowledge of the Company, there is no
reasonable basis for any such claim to be successful. The Intangibles which are
material to the conduct of the Company's business are valid and enforceable and
no registration relating thereto has lapsed, expired or been abandoned or
canceled or is the subject of cancellation or other adversarial proceedings, and
all applications therefor are pending and in good standing. The Company and its
subsidiaries have complied, in all material respects, with their respective
contractual obligations relating to the protection of the Intangibles used
pursuant to licenses. To the best knowledge of the Company, no person is
infringing on or violating the Intangibles owned or used by the Company or its
subsidiaries.
(k) FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
(l) DISCLOSURE. All information relating to or concerning the Company set
forth in this Agreement or provided to the Purchasers pursuant to Section 2(d)
hereof or otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
operations or financial conditions, which has not been publicly disclosed but,
under applicable law, rule or regulation, would be required to be disclosed by
the Company in a registration statement filed on the date hereof by the Company
under the Securities Act with respect to the primary issuance of the Company's
securities.
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(m) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF THE UNITS. The
Company acknowledges and agrees that none of the Purchasers or the Placement
Agent is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement or the transactions
contemplated hereby, the relationship between the Company and the Purchasers and
the Placement Agent is "arms-length" and any statement made by any Purchaser or
the Placement Agent or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby is not
advice or a recommendation and is merely incidental to such Purchaser's purchase
of Securities or such Placement Agent's role as a placement agent and has not
been relied upon by the Company, its officers or its directors in any way. The
Company further acknowledges that the Company's decision to enter into this
Agreement has been based solely on an independent evaluation by the Company and
its representatives.
(n) FORM S-3 ELIGIBILITY. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. Except as disclosed on SCHEDULE 3(N), there exist no facts or
circumstances that would prohibit or delay the preparation and filing of a
registration statement on Form S-3 with respect to the Registrable Securities
(as defined in the Registration Rights Agreement).
(o) NO GENERAL SOLICITATION. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
(p) NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act or any applicable stockholder
approval provisions.
(q) NO BROKERS. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby, except for The Zanett Securities Corporation.
(r) ACKNOWLEDGMENT OF DILUTION. The number of Conversion Shares issuable
upon conversion of the Preferred Shares may increase in certain circumstances,
including if the trading price of the Common Stock declines. The Company's
executive officers have studied and fully understand the nature of the
Securities being sold hereunder. The Company acknowledges that its obligation to
issue Conversion Shares upon conversion of the Preferred Shares in accordance
with the Statement of Designation is absolute and unconditional, regardless of
the dilution that such issuance may have on the ownership interests of other
stockholders. Taking the foregoing into account, the Company's Board of
Directors has determined in its good faith business judgment that
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<PAGE>
the issuance of the Preferred Shares and Warrants hereunder and the consummation
of the other transactions contemplated hereby are in the best interests of the
Company and its stockholders.
(s) TITLE. The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and merchantable title to all
personal property owned by them that is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in the SEC Documents or such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of 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 with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries.
(t) TAX STATUS. The Company and each of its subsidiaries has made or filed
all foreign, federal, state and local income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to any statute of limitations relating to the assessment or
collection of any federal, state or local tax. None of the Company's tax returns
is presently being audited by any taxing authority.
(u) ENVIRONMENTAL LAWS. The Company and each of its subsidiaries (i) are
in compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), except where noncompliance with such
Environmental Laws would not constitute a Material Adverse Effect, (ii) have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws which are material to the conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any such
permit, license or approval. No contaminant, pollutant or toxic or hazardous
waste has been generated, used, treated, stored or disposed of at, or
transported to or from, or released into the air, soil, surface or ground waters
at, on or under any real property while such real property has been owned,
leased, operated or used by the Company which would constitute or give rise to a
Material Adverse Effect. The Company is not currently involved in and no person
or entity has taken any action or threatened or proposed to involve the Company
in any environmental clean-up or remediation or sought to expose the Company to
contribution or liability for such remediation.
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<PAGE>
(v) REGULATORY PERMITS. The Company and each of its subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities which are material to the conduct of
their respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(w) NO OTHER AGREEMENTS. The Company has not, directly or indirectly, made
any agreements with any Purchasers relating to the terms or conditions of the
transactions contemplated by this Agreement, the Statement of Designation, the
Registration Rights Agreement and the Warrants except as set forth in such
documents.
4. COVENANTS.
(a) BEST EFFORTS. The parties shall use their commercially reasonable best
efforts timely to satisfy each of the conditions described in Section 6 and
Section 7 of this Agreement.
(b) FORM D: BLUE SKY LAWS. The Company shall file with the SEC a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Purchaser promptly after such filing. The Company shall, on
or before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchasers
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to the Purchasers on or prior to the
Closing Date.
(c) REPORTING STATUS. So long as any Purchaser beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination. In addition, the Company shall take all actions necessary to
continue to be eligible to register the resale of its Common Stock on a
registration statement on Form S-3 under the Securities Act.
(d) USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Preferred Shares and Warrants for general corporate purposes and working
capital.
(e) EXPENSES. Except as otherwise provided herein, in the Placement Agency
Agreement and in the Registration Rights Agreement, each party hereto shall be
responsible for its own expenses incurred in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
agreements to be executed in connection herewith.
(f) FINANCIAL INFORMATION. The Company shall send the following reports to
each Purchaser until such Purchaser transfers, assigns or sells all of its
Securities: (i) within 10 days after
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the filing with the SEC, a copy of its Annual Report on Form 10-KSB, its
Quarterly Reports on Form 10-QSB, its proxy statements and any Current Reports
on Form 8-K; (ii) within one day after release, copies of all press releases
issued by the Company or any of its subsidiaries; and (iii) copies of any
notices and other information made available or given to shareholders of the
Company generally, contemporaneously with making available or giving thereof to
such shareholders.
(g) RESERVATION OF SHARES. The Company shall at all times have authorized
and reserved for the purpose of issuance a sufficient number of shares of Common
Stock to provide for the full conversion of the outstanding Preferred Shares and
issuance of the Conversion Shares in connection therewith and the full exercise
of the Warrants and the issuance of the Warrant Shares in connection therewith,
subject to and as otherwise required by the Statement of Designation and the
Warrants.
(h) LISTING. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any Purchaser (or any of their affiliates) own any Securities, such listing of
all Conversion Shares and Warrant Shares from time to time issuable upon
conversion of the Preferred Shares and exercise of the Warrants; PROVIDED,
HOWEVER, that the Purchasers acknowledge and agree that the Company will be
required to obtain Shareholder approval for the issuance of the Conversion
Shares and the Warrant Shares subsequent to the First Closing in order to secure
such listing with respect to listing a number of shares in excess of the Cap
Amount (as defined in the Statement of Designation). The Company will use its
commercially reasonable best efforts to continue the listing and trading of its
Common Stock on the NASDAQ Small Cap Market ("NSCM"), the NASDAQ National Market
("NNM"), the New York Stock Exchange ("NYSE") or the American Stock Exchange
("AMEX") and will comply in all respects with the reporting, filing and other
obligations under the bylaws or rules of the NSCM, NNM, NYSE or AMEX as
applicable. The Company shall promptly provide to each holder of Preferred
Shares or Warrants copies of any notices it receives regarding the continued
eligibility of the Common Stock for trading on the NSCM or, if applicable, any
other securities exchange or automated quotation system on which securities of
the same class or series issued by the Company are then listed or quoted, if
any.
(i) CORPORATE EXISTENCE. So long as a Purchaser beneficially owns any
Securities, the Company shall maintain its corporate existence, and in the event
of a merger, consolidation or sale of all or substantially all of the Company's
assets, the Company shall ensure that the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
Statement of Designation, the Warrants (except as otherwise provided therein)
and the agreements and instruments entered into in connection herewith
regardless of whether or not the Company would have had a sufficient number of
shares of Common Stock authorized and available for issuance in order to effect
the conversion of all Preferred Shares and exercise in full of all Warrants
outstanding as of the date of such transaction and (ii) is a publicly traded
corporation whose common stock is listed for trading on the NSCM, NNM, NYSE or
AMEX. Notwithstanding the foregoing, the Company covenants and agrees that it
will not engage in any merger, consolidation or sale of all or substantially all
of its assets at any time prior to the effectiveness of the registration
statement
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required to be filed pursuant to the Registration Rights Agreement without (A)
providing each Purchaser with written notice of such transaction at least 60
days prior to the consummation of such transaction, (B) obtaining the written
consent of the Purchasers holding a majority-in-interest of the then outstanding
Preferred Shares on or before the 10th day after the delivery of such notice by
the Company, and (C) publicly announcing such transaction.
(j) NO INTEGRATED OFFERINGS. The Company shall not make any offers or
sales of any security (other than pursuant to this Agreement and the
Registration Rights Agreement) under circumstances that would require
registration of the Securities being offered or sold hereunder under the
Securities Act or cause the offering of the Securities to be integrated with any
other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities.
(k) LEGAL COMPLIANCE. The Company shall conduct its business and the
business of its subsidiaries in compliance with all laws, ordinances or
regulations of governmental entities applicable to such businesses, except where
the failure to do so would not have a Material Adverse Effect.
(l) FILING OF FORM 8-K; AMEND STATEMENT OF DESIGNATION. On or before the
fifth (5th) business day following the Closing Date, the Company shall (a) file
a Current Report on Form 8-K with the SEC describing the terms of the
transactions contemplated by this Agreement, the Statement of Designation, the
Registration Rights Agreement and the Warrants in the form required by the
Exchange Act and (b) amend the Statement of Designation so that references to
the "Securities Purchase Agreement" contained therein shall include this
Agreement and to make any other similar conforming changes.
(m) CAPITAL AND SURPLUS; SPECIAL RESERVES. The amount to be represented in
the capital account for the Series B Preferred Stock at all times for each
outstanding share of Series B Preferred Stock shall be an amount equal to the
Redemption Amount therefor.
(n) NO MANIPULATION. So long as a Purchaser beneficially owns any
Preferred Shares, neither the Purchaser nor any person acting on behalf of such
Purchaser shall take any action intended to decrease the trading price of the
Company's Common Stock during any period in which the Conversion Price (as
defined in the Statement of Designation) is being computed for purposes of any
conversion of Preferred Shares under the Statement of Designation. For as long
as the Preferred Shares are outstanding, each Purchaser agrees not to effect
"short" sales in the Common Stock, loan shares or otherwise participate in any
transaction which could be considered as a "short sale" under the rules and
regulations promulgated under the Exchange Act (a "SHORT SALE") and agrees to
prohibit each stockholder, executive, employee, representative, affiliate,
officer, director or control person of the Purchaser from effecting any Short
Sale. Notwithstanding the foregoing, the provisions of this subsection (n) shall
not prohibit a sale, including a Short Sale, by a Purchaser of shares of Common
Stock effected within two business days of the date on which a notice of
conversion of Preferred Shares is delivered to the Company entitling such
Purchaser to receive a number of shares of Common Stock at least equal to the
number of shares so sold.
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(o) NO FIVE PERCENT HOLDERS. As more fully provided in the Statement of
Designation and subject to the terms and limitations provided in the Statement
of Designation, a holder of the Preferred Shares shall not be entitled to
receive shares of Common Stock upon conversion where receipt of such Common
Stock would result in such holder of Preferred Shares beneficially owning more
than 4.99% of the Company's outstanding Common Stock.
(p) ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST OFFER. The Company agrees
that, during the period beginning on the date hereof and ending on that date on
which the Purchasers no longer own twenty percent (20%) or more of the Preferred
Shares purchased at the First Closing (the "LOCK-UP PERIOD"), it will not,
without the prior written consent of the holders of a majority of the Preferred
Shares purchased at the First Closing, contract with any other party to obtain
additional financing in which any equity or equity-linked securities are issued
("FUTURE OFFERINGS"); provided, however, the limitation contained in this
sentence shall not apply to any transaction if at the time of such transaction
the aggregate number of Conversion Shares issuable on conversion of Preferred
Shares issued at the First Closing is less than twenty percent (20%) of the
average daily trading volume for shares of Common Stock on the principal
exchange or market on which such shares are traded for the ten (10) trading days
immediately preceding the date of such determination. The Company agrees from
the date of this Agreement until the end of the Lock-Up Period it will not
conduct any Future Offering unless it shall have first delivered to each
Purchaser at least ten (10) business days prior to the closing of such Future
Offering, written notice describing the proposed Future Offering, including the
terms and conditions thereof, and providing each Purchaser and its affiliates,
an option during the ten (10) business day period following delivery of such
notice to purchase up to the Applicable Portion (as defined below) of the
securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this and
the immediately preceding sentence are collectively referred to as the "CAPITAL
RAISING LIMITATIONS"). The Capital Raising Limitations shall not apply to any
transaction involving issuances of securities as consideration in a merger,
consolidation or acquisition of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or as consideration for the acquisition of a business, product
or license by the Company, provided such shares are not covered by an effective
registration statement within one year of the date of consummation thereof. The
Capital Raising Limitations also shall not apply to (i) the issuance of
securities pursuant to an underwritten public offering, (ii) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof, or (iii) the
grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option, bonus plan or restricted stock plan
for the benefit of the Company's employees, consultants or directors pursuant to
plans approved by a majority of the Board of Directors who are not officers of
the Company or a majority of the Board's compensation committee, if any. The
"APPLICABLE PORTION" shall mean a fraction, the numerator of which is the number
of Units purchased by such Purchaser hereunder and the denominator of which is
the total number of Units purchased by all of the Purchasers hereunder.
(q) STOCKHOLDERS' MEETING. The Company shall call a meeting of its
stockholders to be held as promptly as practicable and in any event within one
hundred fifty (150) days of the date of
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the Closing for the purpose of voting upon and approving this Agreement and the
transactions contemplated hereby and the Securities Purchase Agreement dated as
of July 1, 1998 between the Company and Zanett Lombardier, Ltd. and the
transactions contemplated thereby. The Company shall, through its Board of
Directors, recommend to its stockholders approval of such matters. The Company
shall use its best efforts to solicit from its stockholders proxies in favor of
such matters sufficient to comply with all relevant legal requirements,
including, without limitation, Rule 4460(i) promulgated by the NASD.
5. TRANSFER AGENT INSTRUCTIONS.
(a) The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Conversion
Shares and the Warrant Shares in such amounts as specified from time to time by
such Purchaser to the Company upon conversion of the Preferred Shares or
exercise of the Warrants, as applicable.
(b) The Company warrants that no instruction other than such instructions
referred to in this Section 5, and stop transfer instructions to give effect to
Section 2(f) and (g) hereof in the case of the transfer of the Conversion Shares
or Warrant Shares prior to registration of the Conversion Shares and Warrant
Shares under the Securities Act or without an exemption therefrom, will be given
by the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section shall affect in any way each Purchaser's obligations and agreement
set forth in Section 2(g) hereof to resell the Securities pursuant to an
effective registration statement or under an exemption from the registration
requirements of applicable securities law.
(c) If a Purchaser provides the Company and the transfer agent with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration, or a Purchaser provides the Company
with reasonable assurances that such Securities may be sold under Rule 144(k),
the Company shall permit the transfer and, in the case of the Conversion Shares
and Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such
Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Units to a
Purchaser at the Closing is subject to the satisfaction, at or before the
Closing, of each of the following conditions, provided that such conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing prior written notice to each Purchaser. The
obligation of the Company to issue and sell the Units to any Purchaser hereunder
is distinct and separate from its obligation to issue and sell Units to any
other Purchaser hereunder and any failure by one or more
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Purchasers to fulfill the conditions set forth herein or to consummate the
purchase of Units hereunder will not relieve the Company of its obligations with
respect to any other Purchaser.
(a) In the case of the First Closing, the applicable Purchaser shall have
executed this Agreement, the Series B Consent and the Registration Rights
Agreement, and delivered executed copies to the Company.
(b) The applicable Purchaser shall have delivered the Purchase Price for
the Units in accordance with Section 1(b) above.
(c) The representations and warranties of the applicable Purchaser shall
be true and correct in all material respects as of the date when made and as of
the date and time of such closing as though made at that time (except for
representations and warranties that relate to a different date, which shall be
true and correct as of such date), and the applicable Purchaser shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the applicable Purchaser at or prior to the Closing Date.
(d) No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby that prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder to purchase the Units to be
purchased by it at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that such conditions
are for such Purchaser's sole benefit and may be waived by such Purchaser at any
time in such Purchaser's sole discretion:
(a) The Company shall have executed this Agreement and the Registration
Rights Agreement, and delivered executed copies to such Purchaser.
(b) The Series B Amendment shall have been accepted for filing with the
Secretary of State of the State of Texas and a copy thereof certified by the
Secretary of State of the State of Texas shall have been delivered to such
Purchaser and the Statement of Designation shall remain in full force and
effect, in the form described in the definition thereof.
(c) The Company shall have delivered to such Purchaser duly executed
certificates and Warrant agreements (each in such denominations as such
Purchaser shall request) representing the Preferred Shares and Warrants being so
purchased by such Purchaser in accordance with Section 1(b) above.
-17-
<PAGE>
(d) The Common Stock shall be authorized for quotation and listed on the
NSCM and trading in the Common Stock (or the NSCM generally) shall not have been
suspended by the SEC or the NSCM.
(e) The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
relate to a different date, which shall be true and correct as of such date) and
the Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. Such Purchaser
shall have received a certificate, executed by the Chief Executive Officer of
the Company, dated as of the Closing Date to the foregoing effect and as to such
other matters as such Purchaser may reasonably request.
(f) No litigation, statute, rule, regulation, executive order, decree,
ruling, injunction, action or proceeding shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby that questions the validity of, or challenges or
prohibits the consummation of, any of the transactions contemplated by this
Agreement.
(g) Such Purchaser shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of EXHIBIT D
attached hereto.
(h) The Company shall have delivered evidence reasonably satisfactory to
the Purchasers that the Company's transfer agent has agreed to act in accordance
with irrevocable instructions in the form attached hereto as EXHIBIT E.
(i) There shall have been no material adverse changes and no material
adverse developments in the business, properties, operations, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole, since the date hereof, and no information, of which the Purchasers are
not currently aware, shall come to the attention of the Purchasers that is
materially adverse to the Company.
(j) The Board of Directors of the Company shall have adopted resolutions
consistent with Section 3(b)(ii) above and in a form reasonably acceptable to
such Purchaser.
(k) The Company shall have delivered to such Purchaser a certificate
evidencing the incorporation and good standing of the Company and each of its
subsidiaries in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within ten days
of the Closing Date.
-18-
<PAGE>
(l) The Company shall have delivered to such Purchaser a certified copy of
the Articles of Incorporation as certified by the Secretary of State of the
State of Texas within ten days of the Closing Date.
(m) The Company shall have delivered to such Purchaser a secretary's
certificate, dated as of the Closing Date, as to (i) the resolutions described
in Section 7(k), (ii) the Certificate of Incorporation and (iii) the Bylaws,
each as in effect at the Closing.
(n) The Company shall have delivered to the Purchasers executed voting
agreements of the holders of not less than thirty nine percent (39%) of the
shares of Common Stock entitled to vote at a meeting of the shareholders of the
Company agreeing to vote in favor of the transactions contemplated hereby and in
the Statement of Designation at any meeting of the shareholders of the Company.
8. GOVERNING LAW; MISCELLANEOUS.
(a) GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of choice of law or conflicts of laws that would defer to the
substantive law of another jurisdiction. The Company irrevocably consents to the
jurisdiction of the United States federal courts and the state courts located in
the State of New York in any suit or proceeding based on or arising under this
Agreement and irrevocably agrees that any and all claims arising out of this
Agreement or related to the transactions contemplated by this Agreement shall be
determined exclusively in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The Company further agrees that service of process mailed by first class mail
shall be deemed in every respect effective service of process in any such suit
or proceeding. Nothing herein shall affect the right of any Purchaser to serve
process in any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
(b) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(c) HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the
-19-
<PAGE>
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
(e) ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the instruments
referenced herein contain the entire understanding of the Purchasers, the
Company, their affiliates and persons acting on their behalf with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Purchaser makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived other than by an instrument in writing signed by
the party to be charged with enforcement and no provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and a
majority in interest of the Purchasers.
(f) NOTICES. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed facsimile, and
shall be effective upon receipt or refusal of receipt, if delivered personally
or by courier or confirmed facsimile, in each case addressed to a party.
The addresses for such communications shall be:
If to the Company:
Henley Healthcare, Inc.
120 Industrial Boulevard
Sugarland, TX 77478
Facsimile: (281) 276-7038
Attn: Chief Financial Officer
If to any Purchaser, to such address set forth under such Purchaser's name
on the Execution Page hereto executed by such Purchaser.
Each party shall provide notice to the other parties of any change in
address.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. Except as
provided herein or therein, the Company shall not assign this Agreement, the
Registration Rights Agreement or the Warrants or any rights or obligations
hereunder or thereunder.
(h) THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person, except for the provisions of Section 2(j) and Section 3(m) which
are for the benefit of, and may be enforced by, the Placement Agent.
(i) SURVIVAL. The representations, warranties, agreements and covenants of
the Company set forth in Sections 3, 4, 5 and 8 hereof shall survive the Closing
notwithstanding any investigation
-20-
<PAGE>
conducted by or on behalf of any Purchasers until the date on which Purchasers
no longer own any Preferred Shares, Conversion Shares or Warrant Shares. None of
the representations and warranties made by the Company herein shall act as a
waiver of any rights or remedies a Purchaser may have under applicable federal
or state securities laws. The Company shall indemnify and hold harmless each
Purchaser and each of such Purchaser's officers, directors, employees, partners,
members, agents and affiliates for all losses or damages arising as a result of
or related to any breach or alleged breach by the Company of any of its
representations or covenants set forth herein, including advancement of
reasonable expenses as they are incurred.
(j) PUBLICITY. The Company and each Purchaser shall have the right to
review before issuance any press releases, SEC or NASDAQ filings, or any other
public statements with respect to the transactions contemplated hereby;
PROVIDED, HOWEVER, that the Company shall be entitled, without the prior review
of the Purchasers, to make any press release or SEC or NASDAQ filings with
respect to such transactions as is required by applicable law and regulations
(although the Purchasers shall be consulted by the Company in connection with
any such press release and filing prior to its release and shall be provided
with a copy thereof).
(k) FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) TERMINATION. In the event that the First Closing shall not have
occurred on or before August 12, 1998, unless the parties agree otherwise, this
Agreement shall terminate at midnight, New York City time on such date.
Notwithstanding any termination of this Agreement, any party not in breach of
this Agreement shall preserve all rights and remedies it may have against
another party hereto for a breach of this Agreement prior to or relating to the
termination hereof.
(m) JOINT PARTICIPATION IN DRAFTING. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Statement of
Designation, the Warrants and the Registration Rights Agreement. As such, the
language used herein and therein shall be deemed to be the language chosen by
the parties hereto to express their mutual intent, and no rule of strict
construction will be applied against any party to this Agreement.
(n) EQUITABLE RELIEF. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Purchaser by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
hereunder (including, but not limited to, its obligations pursuant to Section 5
hereof) will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement (including, but not
limited to, its obligations pursuant to Section 5 hereof), that a Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer of the
Securities,
-21-
<PAGE>
without the necessity of showing economic loss and without any bond or other
security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
PHIL1\141186-5
-22-
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused
this Securities Purchase Agreement to be duly executed as of the date first
above written.
HENLEY HEALTHCARE, INC.
By: /s/ DANIEL M. LAVELLE
Name: DANIEL M. LAVELLE
Title: VICE PRESIDENT
-23-
<PAGE>
PURCHASER:
ZANETT LOMBARDIER, LTD.
By: ________________________________
Name:
Title:
RESIDENCE: Cayman Islands
ADDRESS: c/o Bank Julius Baer Trust Co.
Kirk House, P.O. Box 1100
Grand Cayman, Cayman Islands
British West Indies
Telecopy: (345) 949-0993
with copies of all notices to:
The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, New York 10017
Attn: Claudio Guazzoni
Telecopy: (212) 759-3301
SUBSCRIPTION AMOUNT
First Closing
Number of Units: 600
Purchase Price ($1,000 per Unit): $600,000
<PAGE>
PURCHASER:
GOLDMAN SACHS PERFORMANCE PARTNERS, L.P.
BY: COMMODITIES CORPORATION LLC, ITS GENERAL PARTNER
By: _______________________________
Name:
Title:
RESIDENCE: Delaware
ADDRESS: c/o Commodities Corporation LLC
701 Mount Lucas Road
CN 850
Princeton, NJ 08540
SUBSCRIPTION AMOUNT
First Closing
Number of Units: 883.2
Purchase Price ($1,000 per Unit): $883,200
<PAGE>
PURCHASER:
GOLDMAN SACHS PERFORMANCE PARTNERS (OFFSHORE), L.P.
BY: COMMODITIES CORPORATION LLC, ITS GENERAL PARTNER
By: _______________________________
Name:
Title:
RESIDENCE: Cayman Islands
ADDRESS: P.O. Box 309
South Church Street
George Town, Grand Cayman
Cayman Islands
with copies of all notices to:
c/o Commodities Corporation LLC
701 Mount Lucas Road
CN 850
Princeton, NJ 08540
SUBSCRIPTION AMOUNT
First Closing
Number of Units: 716.8
Purchase Price ($1,000 per Unit): $716,800
EXHIBIT 10.7
FACILITIES AND SERVICES AGREEMENT
THIS AGREEMENT is made and entered into on August 6, 1998, by and between
Henley Healthcare, Inc., a Texas corporation (the "Seller") and Rehabilicare
Inc., a Minnesota corporation ("Buyer").
WITNESSETH THAT:
WHEREAS, Seller and Buyer have entered into an Asset Purchase Agreement,
dated August 6, 1998 ("Purchase Agreement"), with respect to the sale of certain
assets related to the Homecare business of Seller (the "Business");
WHEREAS, in order to facilitate the orderly transfer of the Business to,
and conduct of the Business by, Buyer, Seller and Buyer desire that the Business
continue to be conducted at the offices of Seller at (i) 895 Home Avenue, Akron,
Ohio (the "Ohio Facility"), and particularly within the floor space of such
offices described on Exhibit I to this Agreement (such space being hereafter
described as the " Ohio Offices") and at (ii) 120 Industrial Boulevard, Sugar
Land, Texas 77478 (the "Texas Offices" and together with the Ohio Offices, the
"Offices"); and
WHEREAS, Seller is the Lessee of the Ohio Offices and the owner of the
Texas Offices and will obtain benefits through the sale of the Business.
NOW, THEREFORE, in consideration of the premises, the respective
covenants and commitments of Seller and Buyer set forth in the Purchase
Agreement and the covenants of Seller and Buyer set forth herein, and other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Seller and Buyer agree as follows:
1. USE OF FACILITIES. (a) For so long as Seller's lease of the Ohio Offices
remains in effect (the "Ohio Use Term"), Seller hereby grants Buyer and
Buyer's employees the right to use the Ohio Offices for the conduct of the
Business. Buyer shall pay to Seller a monthly use fee, on the same dates as
Seller is obligated to pay rental to the landlord of such premises, equal to
the ratio of the number of square feet represented by the Offices divided by
the total number of square feet under lease to Seller at such facility,
multiplied by the sum of the rental plus CAM charge paid by Seller for such
facility. Within five days of the date of this Agreement, Seller and Buyer
shall calculate the monthly use fee for the first month of this Agreement on
the basis of the foregoing formula. Thereafter, Buyer may, upon 15 days
notice, reduce the amount of space utilized by Buyer at the Ohio Offices, but
not below 25% of the total leasable area within the Ohio Facility, and the
use fees shall be proportionately reduced. Seller shall promptly notify Buyer
of any default under the lease for the Ohio Offices and of any termination of
such Lease.
(b) For so long as is necessary for Buyer to effect a transition of its
billing, collecting and sales activities from Texas to Buyers' offices in St.
Paul, Minnesota or Tampa, Florida, which shall not, in any event, exceed six
months (the "Texas Use Term"), Seller hereby grants Buyer and Buyer's
employees the right to use such portion of the Texas Offices for the conduct
of the Business as is reasonably requested by Buyer. The Texas Use Term (and
the use of any related services) may be terminated by Buyer at any time upon
five days written notice. Seller shall retain as an Employee at the Texas
Offices and make available for services to Buyer when needed, Barbara
"). Buyer shall pay to Seller a monthly use fee equal to $3,000 for use of the
Texas Offices, for the use of the data and computer system in accordance with
paragraph 2 in Texas, and for the services of Barbara Woody.
2. ACCESS TO DATA BASE. Seller shall allow Buyer access, during the longer of
the Ohio Use Term or the Texas Use Term, to such portion of Seller's data
base and computer system as relates to the Business, including, without
limitation, that portion of the data base which contains the list of
receivables referenced in section 1.01(h) of the Purchase Agreement, at such
times during normal business hours as Buyer shall request.
3. OTHER SERVICES AND EQUIPMENT. Seller shall make the following services and
equipment available to Buyer at the Offices during the Use Term applicable to
each respective Officer for the charges specified.
(a) TELEPHONE SERVICES. Seller shall make available to Buyer during the
respective Use Term the telephone lines formerly used by Seller's
employees to conduct the Business, and the telephones and equipment, that
are located in the respective Offices. Buyer shall pay Seller for all
long distance costs and charges incurred in connection with the
<PAGE>
use of such telephone lines and equipment, plus, in the case of the Ohio
Offices only, a pro rata share (based on the proportion of office space)
of the Seller's monthly line charges for each telephone used by Buyer.
(b) PERSONNEL AND RELATED SERVICES. Seller shall retain as an Employee at the
Ohio Offices and make available for services to Buyer when needed, Leo J.
Wood ("Wood"). Wood shall initially devote substantially all of his time
to providing services to Buyer. Both Wood and Woody shall remain
employees of Seller, and Seller shall be responsible for all compensation
and benefits, including withholding taxes, FICA and unemployment taxes,
of such employees. For the services of Wood, Buyer shall pay a charge
based on percentage of the time of Wood that Buyer estimates it will
require for services to Buyer multiplied by the monthly salary plus
benefits paid by Seller for Wood and the portion of the month for which
services are utilized (e.g. 23/30 of a month for the first month). Buyer
and Seller shall estimate the approximate amount of time of Wood that
shall be devoted to services for Rehabilicare for the first 23 days of
this agreement within 5 days of the date hereof. Thereafter, Buyer may
reduce or increase such percentage by providing notice to Seller within 5
days preceding the beginning of any month.
(c) Seller shall maintain in the Offices the desks and associated office
equipment currently used to service the Business together with at least
one photocopy machine, one facsimile machine, and certain other
miscellaneous office equipment and supplies (the "Equipment and
Supplies").
4. TERM AND TERMINATION. The term of this Agreement will commence at 12:01 a.m.
on August 7, 1998 ("Effective Date") and end with respect to the Ohio Offices
with the termination of the Ohio Use Term and with respect to the Texas
Offices with the termination of the Texas Use Term. Following expiration of
the Use Terms, all unpaid fees and charges pursuant to Section 2 hereof shall
be due and payable upon receipt of invoice from Seller. Buyer's use of and
access to the facilities and services of Seller shall cease upon expiration
or earlier termination by Buyer, and it shall be the sole responsibility of
Buyer to obtain the facilities and services required or desirable for the
conduct of the Business after such termination.
5. VERIFICATION OF FEES AND CHARGES. Seller will provide such documentation and
information as may reasonably be requested by Buyer for the purpose of
verifying the accuracy of the fees and charges described in Paragraphs 1 and
3 hereof.
6. SECURITY, REGULATORY AND MANAGEMENT REQUIREMENTS. Buyer acknowledges that the
Offices are part of buildings used as business offices for Seller and that
security and confidentiality are essential to their operations. Buyer agrees
to adhere to and comply with the reasonable policies, procedures and
directives of Seller in using the Offices to the extent that such adherence
and compliance is necessary for compliance with management, regulatory and
security requirements.
7. FACILITY MAINTENANCE.
(a) Subject to the obligations of Seller in Section 8, Buyer will keep the
Offices in an orderly, clean and sanitary condition as required by
Seller, will neither do nor permit to be done anything which is in
violation of the terms of insurance policies with respect to the Offices
or property thereon; will neither do nor permit to be done anything in
violation of laws or ordinances applicable thereto; and will neither
commit nor suffer waste of the Offices.
(b) Buyer will make no alterations or modifications of, or with respect to,
the Offices without the written consent of Seller.
8. ADDITIONAL SERVICES AND ASSURANCES. Seller will furnish heat, air
conditioning, elevator service, janitorial and cleaning services, and access
to the Offices as shall be reasonably necessary for the comfortable use and
occupancy of the Offices of Buyer.
9. NON-ASSIGNABILITY. Buyer shall not assign or transfer its rights or
entitlements hereunder without the written consent of Seller.
10.FURTHER DOCUMENTS AND ASSURANCES. At any time from and after the date hereof,
each party shall, upon the request of the other party, execute, acknowledge
and deliver all such further assurances and documents, and will take such
action consistent with the terms of this Agreement and the Purchase
Agreement, as may be reasonably necessary to carry out the transactions
contemplated thereby and to permit each party to enjoy the rights and
benefits under such Agreements.
-2-
<PAGE>
11.INDEMNIFICATION.
(a) INDEMNIFICATION BY SELLER. Seller agrees to indemnify Buyer with respect
to, and hold Buyer harmless from, any loss, claim, liability, or expense
(including, but not limited to, reasonable legal fees and expenses) which
Buyer may incur or suffer by reason of, or which results from, arises out
of, or is based upon (a) the failure of Seller to comply with or perform
any of their obligations or agreements in this Agreement; and (b) any
liability relating to or arising out of the occupation of the Offices by
Seller prior to the Effective Date.
(b) INDEMNIFICATION BY BUYER. Buyer agrees to indemnify Seller with respect
to, and hold Seller harmless from, any loss, claim, liability, or expense
(including, but not limited to, reasonable legal fees and expenses) which
Seller may incur or suffer by reason of, or which results from, arises
out of, or is based upon (a) the failure of Buyer to comply with or
perform any of its obligations or agreements in this Agreement; and (b)
any liability relating to or arising out of the occupation of the Offices
by Buyer subsequent to the Effective Date.
(b) LIMITATION ON INDEMNIFICATION. Seller's obligation to indemnify Buyer
pursuant to Section 12(a), and Buyer's obligation to indemnify Seller
pursuant to Section 12(b), shall, in each case, become operative only
after and to the extent that the aggregate amount of all claims for
indemnification made by the other party exceeds $1,000.
(c) LEGAL PROCEEDINGS. In the event Buyer or Seller becomes a party to any
legal, governmental, or administrative proceeding which may result in
indemnification claims hereunder, such party shall promptly notify the
other party in writing of the commencement and nature of such proceeding.
The other party may, at its option and expense, defend any such
proceeding if the proceeding could give rise to an indemnification
obligation hereunder. If such other party elects to defend any
proceeding, it shall have full control over the conduct of such
proceedings, although the party being indemnified shall have the right to
retain legal counsel at its own expense and shall have the right to
approve any settlement of any dispute giving rise to such proceeding,
provided that such approval may not be withheld unreasonably by the party
being indemnified. The party being indemnified shall reasonably cooperate
with the indemnifying party in such proceeding.
12.BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit
of and be enforceable against the parties hereto and their respective
successors and assigns.
13.GOVERNING LAW. This Agreement shall in all respects be governed by, and
enforced and interpreted in accordance with, the laws of the State of
Minnesota, except with respect to its rules relating to conflicts of laws.
14.NOTICES. All notices, consents, requests, demands, instructions or other
communications provided for herein shall be in writing and shall be deemed
validly given, made and served when received if delivered personally or by
telephonically confirmed fax or when deposited in the U.S. mails for delivery
by certified or registered mail, postage prepaid, addressed to the
appropriate party.
15.ENTIRE AGREEMENT; AMENDMENT AND WAIVER COUNTERPARTS. Except for the Purchase
Agreement, this Agreement constitutes the entire agreement between Seller and
Buyer relating to the subject hereof in all respects any and all prior oral
or written agreements or understandings between them relating to such
transaction. This Agreement may be amended or modified, and the provisions
hereof may be waived, only by written instrument signed by both Seller and
Buyer (in the case of amendments or modifications) or by the party to be
charged thereby (in the case of waivers). Any waiver shall be limited in the
written waiver document and shall not be deemed a waiver of any other term of
this Agreement or of the same circumstance or event upon any recurrence
thereof. This Agreement may be executed in counterparts, each of which shall
be deemed an original and all of which, taken together, shall constitute one
agreement.
16.HEADINGS. Article and section headings used in this Agreement have no legal
significance and are used solely for convenience of reference.
17.SEVERABILITY. Each and every provision of this Agreement shall be deemed
valid, legal, and enforceable in all jurisdictions to the fullest extent
possible. Any provision of this Agreement that is determined to be invalid,
illegal, or unenforceable in any jurisdiction shall, as to that jurisdiction,
be adjusted and reformed rather than voided if possible, in
-3-
<PAGE>
order to achieve the intent of the parties. Any provision of this Agreement
that is determined to be invalid, illegal, or unenforceable in any
jurisdiction which cannot be adjusted and reformed shall, for the purposes of
that jurisdiction, be voided. Any adjustment, reformation, or voidance of any
provision of this Agreement shall only be effective in the jurisdiction
requiring such adjustment, reformation, or voidance, without affecting in any
way the remaining provisions of this Agreement in such jurisdiction or
adjusting, reforming, or voiding that provision or any other provision of
this Agreement in any other jurisdiction.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement by
their respective duly authorized representatives.
HENLEY HEALTHCARE, INC.
By /s/ DAN D. SUDDUTH
Its EXECUTIVE VP, CFO AND SECRETARY
REHABILICARE INC.
By /s/ DAVID B. KAYSEN
Its PRESIDENT AND COO
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BALANCE SHEET, STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,326,979
<SECURITIES> 0
<RECEIVABLES> 11,928,281
<ALLOWANCES> 0
<INVENTORY> 11,028,218
<CURRENT-ASSETS> 25,094,803
<PP&E> 7,164,606
<DEPRECIATION> 0
<TOTAL-ASSETS> 52,499,148
<CURRENT-LIABILITIES> 28,485,495
<BONDS> 0
0
2,922,739
<COMMON> 56,621
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 52,499,148
<SALES> 10,650,466
<TOTAL-REVENUES> 0
<CGS> 6,750,477
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 237,331
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 386,976
<INCOME-PRETAX> (2,981,150)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,981,150)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
