SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): JULY 13, 1998 (JULY 1, 1998)
HENLEY HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
TEXAS
(State or other jurisdiction of incorporation)
0-21054 76-0511324
(Commission File Number) (IRS Employer Identification No.)
120 INDUSTRIAL BOULEVARD, SUGAR LAND, TEXAS 77478
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 276-7000
NOT APPLICABLE
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On July 1, 1998, Henley Healthcare, Inc., a Texas corporation (the
"Company"), sold in a private placement 2,500 units 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 to acquire 50
shares of Common Stock, for a purchase price of $1,000 per unit, to Zanett
Lombardier, Ltd. (the "Purchaser"), an accredited investor. The Preferred Shares
bear no dividend, and the holders of the Preferred Shares are not entitled to
receive any dividends on the Preferred Shares. The Preferred Shares are
convertible into the Company's Common Stock at the lesser of (i) 87% of the
average closing bid price for the Company's Common Stock as reported by Nasdaq
for any three consecutive trading days chosen by the holder of the Preferred
Shares during the period beginning on the twentieth day prior to the conversion
date for such conversion and ending on such conversion date, or (ii) 110% of the
five day average closing bid price for the Company's Common Stock on July 1,
1998; PROVIDED; HOWEVER, that the conversion price shall not be less than $3.50
only if the Company meets certain quarterly and annual revenue and net income
tests in the future. The warrants have an exercise period of 40 months and an
exercise price of $6.00 per share. The placement agent, The Zanett Securities
Corporation, received a commission of 6% and a nonaccountable expense allowance
of 1.5% of the funds raised, as well as warrants to acquire 67,308 shares with
the same terms as the warrants sold to the Purchaser. The Company has agreed to
file a registration statement covering the resale of the shares of Common Stock
issuable upon the conversion of the Preferred Shares and exercise of the
warrants sold to the Purchaser and issued to the placement agent as described
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 rule 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.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) 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 report on Form 8-K.
3.1 -- Statement of Designation of Rights and Preferences of the
Series B Convertible Preferred Stock of Henley Healthcare,
Inc.
4.1 -- Registration Rights Agreement dated as of July 1, 1998, by
and among Henley Healthcare, Inc., Zanett Lombardier, Ltd. and
The Zanett Securities Corporation.
4.2 -- Form of Stock Purchase Warrant
10.1 -- Securities Purchase Agreement dated as of July 1, 1998,
between Henley Healthcare, Inc. and Zanett Lombardier, Ltd.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HENLEY HEALTHCARE, INC.
By: /s/ DAN D. SUDDUTH
Dan D. Sudduth,
EXECUTIVE VICE PRESIDENT
July 10, 1998
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EXHIBITS
EXHIBIT
NO.
3.1 -- Statement of Designation of Rights and Preferences of the
Series B Convertible Preferred Stock of Henley Healthcare, Inc.
4.1 -- Registration Rights Agreement dated as of July 1, 1998, by and
among Henley Healthcare, Inc., Zanett Lombardier, Ltd. and The
Zanett Securities Corporation.
4.2 -- Form of Stock Purchase Warrant
10.1 -- Securities Purchase Agreement dated as of July 1, 1998,
between Henley Healthcare, Inc. and Zanett Lombardier, Ltd.
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EXHIBIT 3.1
STATEMENT OF DESIGNATION
OF RIGHTS AND PREFERENCES OF THE
SERIES B CONVERTIBLE PREFERRED STOCK OF
HENLEY HEALTHCARE, INC.
I, being the Vice-President of Henley Healthcare, Inc., a corporation
organized and existing under and by virtue of the Texas Business Corporation Act
of the State of Texas (hereinafter the "Corporation"), DO HEREBY CERTIFY:
FIRST:
That pursuant to authority expressly granted and vested in the Board of
Directors (the "Board of Directors" or the "Board") of this Corporation by
Article 2.13 of the Texas Business Corporation Act and the provisions of the
Articles of Incorporation, the Board of Directors, on June 30, 1998, adopted the
following resolution setting forth the designations, powers, preferences and
rights of its Series B Convertible Preferred Stock (the "Statement of
Designation").
RESOLVED: That the designations, powers, preferences and rights of the Series B
Convertible Preferred Stock be, and they hereby are, as set forth below:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 8,000 shares of
Preferred Stock, is the Series B Convertible Preferred Stock (the "SERIES B
PREFERRED STOCK") and the stated value shall be One Thousand U.S. Dollars
($1,000.00) per share (the "STATED VALUE").
II. NO DIVIDENDS
The Series B Preferred Stock will bear no dividends, and the holders of
the Series B Preferred Stock shall not be entitled to receive dividends on the
Series B Preferred Stock.
III. CERTAIN DEFINITIONS
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For purposes of this Statement of Designation, the following terms shall
have the following meanings:
A. "CLOSING BID PRICE" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the then outstanding shares of Series B Preferred Stock. If Bloomberg
Financial Markets is not then reporting closing bid prices of such security
(collectively, "BLOOMBERG"), or if the foregoing does not apply, the last
reported bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
bid price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as reasonably determined by an investment banking firm selected by the
Corporation and reasonably acceptable to holders of a majority of the then
outstanding shares of Series B Preferred Stock, with the costs of such appraisal
to be borne by the Corporation.
B. "CONVERSION DATE" means, for any Conversion, the date on which the
notice of conversion in the form attached hereto (the "NOTICE OF CONVERSION") is
delivered by fax, as evidenced by a mechanically or electronically generated
confirmation thereof, (or delivered by other means resulting in notice) to the
Corporation before 8:00 p.m., New York City time on the Conversion Date
indicated in the Notice of Conversion. The holder shall confirm, by overnight
courier, in person (by courier or otherwise) or by telephone (to an authorized
officer of the Corporation or his or her administrative assistant), the delivery
of the Notice of Conversion to the Corporation on the date on which the Notice
of Conversion is delivered or before 9:00 a.m., New York City time on the
trading day immediately succeeding such date; provided that an overnight courier
delivery which is signed for or refused by the Corporation prior to 12:00 noon,
New York City time on a given day shall be deemed to have been delivered before
9:00 a.m. New York City time on such day. If the Notice of Conversion is not so
faxed or otherwise delivered or the overnight courier, in-person or telephone
confirmation is not so made or deemed to be made before such applicable times,
then the Conversion Date shall be the date as of which both such conditions are
satisfied (i.e., the Notice of Conversion is delivered on or before 8:00 p.m.
New York City time on a given day and the overnight courier, in-person or
telephone confirmation is made or deemed to be made either on such day of
delivery or before 9:00 a.m. New York City time on the immediately succeeding
trading day). Notwithstanding the foregoing, if the Series B Preferred Stock is
being redeemed pursuant to the optional Redemption at Maturity, the Conversion
Date shall be the Maturity Date (as defined below).
C. "CONVERSION PRICE" means the lower of the Fixed Conversion Price and
the Variable Conversion Price, each in effect as of such date and subject to
adjustment as provided herein. Notwithstanding the foregoing, if the Company (i)
has revenues for the nine month period ending
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September 30, 1998, as disclosed in the financial statements included in its
Quarterly Report on Form 10-QSB for the period ending September 30, 1998 (the
"SEPTEMBER 10-QSB"), in excess of $40,700,000 (the "FIRST PERFORMANCE
MILESTONE") or (ii) has revenues in excess of $63,400,000 and net income in
excess of $2,000,000 (excluding any non-cash charges taken by the Company in
connection with the transactions arising out of that certain Placement Agency
Agreement and Securities Purchase Agreement, each dated as of July 1, 1998) for
the year ended December 31, 1998, as disclosed in the financial statements
included in the Company's Annual Report on Form 10-KSB (the "1998 10-KSB") for
the period ending December 31, 1998 (the "SECOND PERFORMANCE MILESTONE" and
collectively with the First Performance Milestone, the "PERFORMANCE
MILESTONES"), the Conversion Price in effect on any Conversion Date after
publication of the September 10-QSB and prior to publication of the 1998 10-KSB
with respect to satisfaction of the First Performance Milestone and the
Conversion Price in effect on any Conversion Date after publication of the 1998
10-KSB with respect to satisfaction of the Second Performance Milestone shall
not be less than the Floor Price in effect on such Conversion Date unless a
Reserved Amount Trigger Event (as defined in Article V hereof), a Conversion
Default (as defined in Article VI hereof), a Trading Market Trigger Event (as
defined in Article VII hereof) or a Redemption Event (as defined in Article
VIII.A hereof) shall have occurred and be then continuing; provided, further,
however, that the restriction contained in the immediately preceding provision
shall not apply on any Conversion Date occurring after an Announcement Date (as
defined in Article XI.C hereof) and prior to the sixth (6th) trading day
following (i) the consummation of the proposed transaction or tender offer,
exchange offer or other transaction to which the Announcement Date relates or
(ii) the Abandonment Date (as defined in Article XI.C hereof).
D. "FIRST CONVERSION DATE" means the earliest of (i) the date the
Registration Statement required to be filed by the Corporation pursuant to that
certain Registration Rights Agreement by and among the Corporation and the other
signatories thereto entered into in connection with the Securities Purchase
Agreement (the "REGISTRATION RIGHTS AGREEMENT") is declared effective, (ii) the
date the Corporation makes a public announcement that it intends to merge or
consolidate with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and the voting capital stock of the
Corporation immediately prior to such merger represents at least 50% of the
voting power of the capital stock of the Corporation after the merger) or to
sell or transfer all or substantially all of the assets of the Corporation,
(iii) the date any person, group or entity (including the Corporation) publicly
announces a tender offer, exchange offer or another transaction to purchase 50%
or more of the Corporation's outstanding Common Stock or otherwise publicly
announces an intention to replace a majority of the Corporation's Board of
Directors by waging a proxy battle or otherwise, or (iv) the date on which a
Redemption Event described in Article VIII.A(iv) occurs.
E. "FIXED CONVERSION PRICE" means the amount obtained by multiplying 1.1
by the average of the Closing Bid Prices for the Corporation's common stock, par
value $.01 per share ("COMMON STOCK") during the five (5) consecutive trading
days ending on the Issuance Date, and shall be subject to adjustment as provided
herein.
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F. "ISSUANCE DATE" means the date of the relevant Closing (as defined in
that certain the Securities Purchase Agreement by and among the Corporation and
the purchasers named therein with respect to the initial issuance of the Series
B Preferred Stock (the "SECURITIES PURCHASE AGREEMENT")).
G. "N" means the number of days from, but excluding, the Issuance Date.
H. "VARIABLE CONVERSION PRICE" means, as of any date of determination,
the amount obtained by multiplying 0.87 by the average of the Closing Bid Prices
for the Common Stock for any three (3) consecutive trading days chosen by the
holder of Series B Preferred Stock during the period beginning on the twentieth
trading day prior to the Conversion Date for such Conversion and ending on such
Conversion Date (subject to equitable adjustment for any stock splits, stock
dividends, reclassifications or similar events during such 20 trading day
period), and shall be subject to adjustment as provided herein.
I. "FLOOR PRICE" means, with respect to any Conversion Date, $3.50, and
shall be subject to adjustment as provided herein.
J. "PREMIUM" means an amount equal to (.04)x(N/365)x(1,000).
IV. CONVERSION
A. CONVERSION AT THE OPTION OF THE HOLDER. (i) Subject to the
limitations on conversions contained in Paragraph C of this Article IV and to
the Corporation's right of redemption contained in Article VIII.D, each holder
of shares of Series B Preferred Stock may, at any time and from time to time on
or after the First Conversion Date, convert (an "OPTIONAL CONVERSION") each of
its shares of Series B Preferred Stock into a number of fully paid and
nonassessable shares of Common Stock determined in accordance with the following
formula if the Corporation timely redeems the Premium thereon in cash in
accordance with subparagraph (ii) below:
1,000
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CONVERSION PRICE
or in accordance with the following formula if the Corporation does not timely
redeem the Premium thereon in accordance with subparagraph (ii) below:
1,000 + THE PREMIUM
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CONVERSION PRICE
(ii) (a) The Corporation shall have the right, in its sole
discretion, upon receipt of a Notice of Conversion, to redeem the Premium
subject to such conversion for a sum of cash equal to the amount of the Premium
being so redeemed. All cash redemption payments hereunder shall be paid in
lawful money of the United States of America at such address for the holder as
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appears on the record books of the Corporation (or at such other address as such
holder shall hereafter give to the Corporation by written notice). In the event
the Corporation so elects to redeem the Premium in cash and fails to pay such
holder the applicable redemption amount to which such holder is entitled by
depositing a check in the U.S. Mail to such holder within four (4) business days
of receipt by the Corporation of a Notice of Conversion (in the case of a
redemption in connection with an Optional Conversion), the Corporation shall
thereafter forfeit its right to redeem such Premium in cash and such Premium
shall thereafter be converted into shares of Common Stock in accordance with
Article IV.A(i).
(b) Each holder of Series B Preferred Stock shall have the
right to require the Corporation to provide advance notice to such holder
stating whether the Corporation will elect to redeem the Premium in cash
pursuant to the Corporation's redemption rights discussed in subparagraph (a) of
this Article IV.A(ii). A holder may exercise such right from time to time by
sending notice (an "ELECTION NOTICE") to the Corporation, by facsimile,
requesting that the Corporation disclose to such holder whether the Corporation
would elect to redeem the Premium for cash in lieu of issuing shares of Common
Stock therefor if such holder were to exercise its right of conversion pursuant
to this Article IV.A. The Corporation shall, no later than the close of business
on the second business day following receipt of an Election Notice, disclose to
such holder whether the Corporation would elect to redeem the Premium in
connection with a conversion pursuant to a Notice of Conversion delivered over
the subsequent ten (10) business day period. If the Corporation does not respond
to such holder within such two business day period via facsimile, the
Corporation shall, with respect to any conversion pursuant to a Conversion
Notice delivered within the subsequent ten (10) business day period, forfeit its
right to redeem such Premium in accordance with subparagraph (a) of this Article
IV.A(ii) and shall be required to convert such Premium into shares of Common
Stock.
B. MECHANICS OF CONVERSION. In order to effect an Optional Conversion, a
holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice
of Conversion to the Corporation or the transfer agent for the Common Stock and
(y) surrender or cause to be surrendered the original certificates representing
the Series B Preferred Stock being converted (the "PREFERRED STOCK
CERTIFICATES"), duly endorsed, along with a copy of the Notice of Conversion as
soon as practicable thereafter to the Corporation or the transfer agent. The
holder shall confirm by overnight courier, in person (by courier or otherwise)
or by telephone (to an authorized officer of the Corporation or his or her
administrative assistant), the delivery of the Notice of Conversion to the
Corporation on the date on which the Notice of Conversion is delivered or before
9:00 a.m. New York City time on the trading day immediately succeeding such
date; provided that an overnight courier delivery which is signed for or refused
by the Corporation prior to 12:00 noon, New York City time on a given day shall
be deemed to have been delivered before 9:00 a.m. New York City time on such
day. Upon receipt by the Corporation of the Notice of Conversion by fax from a
holder, the Corporation shall, within one business day, following the later of
the Corporation's receipt of such Notice of Conversion and the holder's
overnight courier, in-person or telephone confirmation of the delivery of such
Notice of Conversion, send, via fax, a confirmation (the "NOTICE OF CONVERSION
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CONFIRMATION") to such holder stating that the Notice of Conversion has been
received, the date upon which the Corporation expects to deliver the Common
Stock issuable upon such conversion, the name and telephone number of a contact
person at the Corporation regarding the conversion and, if applicable, the
language required to effect a Redemption in Lieu of Conversion (as defined in
Article VIII.D). The Corporation shall not be obligated to issue shares of
Common Stock upon a conversion unless either the Preferred Stock Certificates
are delivered to the Corporation or the transfer agent as provided above, or the
holder notifies the Corporation or the transfer agent that such certificates
have been lost, stolen or destroyed and delivers the documentation to the
Corporation required by Article XIV.B hereof.
(i) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon the surrender
of Preferred Stock Certificates from a holder of Series B Preferred Stock
accompanied by a Notice of Conversion, the Corporation shall, subject to the
Corporation's redemption rights set forth in Article VIII.D, no later than the
later of (a) the fifth business day following the Conversion Date and (b) the
business day following the date of such surrender (or, in the case of lost,
stolen or destroyed certificates, after provision of documentation pursuant to
Article XIV.B) (the "DELIVERY PERIOD"), issue and deliver to the holder or its
nominee, after registration of the resale of such shares under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), or delivery of documentation
reasonably satisfactory to the Corporation that the registration of such shares
is not required, to such holder's nominee, (x) that number of shares of Common
Stock issuable upon conversion of such shares of Series B Preferred Stock being
converted and (y) a certificate representing the number of shares of Series B
Preferred Stock not being converted, if any. If the Corporation's transfer agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, and so long as the certificates therefor do not
bear a legend and the holder thereof is not then required to return such
certificate for the placement of a legend thereon, the Corporation may cause its
transfer agent to electronically transmit the Common Stock issuable upon
conversion to the holder by crediting the account of the holder or its nominee
with DTC through its Deposit Withdrawal Agent Commission system ("DTC
TRANSFER"). If the aforementioned conditions to a DTC Transfer are not satisfied
or a DTC Transfer is otherwise not effected, the Corporation shall deliver to
the holder physical certificates representing the Common Stock issuable upon
conversion. Further, a holder may instruct the Corporation to deliver to the
holder physical certificates representing the Common Stock issuable upon
conversion in lieu of delivering such shares by way of DTC Transfer.
(ii) TAXES. The Corporation shall pay any and all taxes which may
be imposed upon the Corporation with respect to the issuance and delivery of the
shares of Common Stock upon the conversion of the Series B Preferred Stock other
than transfer taxes due upon conversion, if such holder has transferred to
another party the Series B Preferred Stock or the right to receive Common Stock
upon the holder's conversion thereof.
(iii) NO FRACTIONAL SHARES. If any conversion of Series B
Preferred Stock would result in the issuance of a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion of the Series B
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Preferred Stock shall be rounded up or down to the nearest whole share, it being
understood that .5 of one share shall be rounded up to the next highest share.
(iv) CONVERSION DISPUTES. In the case of any dispute with respect
to a conversion, the Corporation shall promptly issue such number of shares of
Common Stock as are not disputed in accordance with subparagraph (i) above. If
such dispute involves the calculation of the Conversion Price, the Corporation
shall submit the disputed calculations to the Company's outside auditors
reasonably acceptable to the holder of Series B Preferred Stock being converted
via facsimile at any time prior to the expiration of the Delivery Period. The
accountant, at the expense of the party in error, shall audit the calculations
and notify the Corporation and the holder of the results as soon as practicable
following the date it receives the disputed calculations. The accountant's
calculation shall be deemed conclusive, absent manifest error. The Corporation
shall then issue the appropriate number of shares of Common Stock in accordance
with subparagraph (i) above.
C. LIMITATIONS ON CONVERSIONS. The conversion of shares of Series B
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) CAP AMOUNT. If, notwithstanding the representations and
warranties of the Corporation contained in the Securities Purchase Agreement,
the Corporation is prohibited by the rules or regulations of any securities
exchange or quotation system on which the Common Stock is then listed or traded,
from listing or issuing a number of shares of Common Stock in excess of a
prescribed amount (the "CAP AMOUNT") without the approval of the Corporation's
shareholders, then the Corporation shall not be required to list or issue, as
applicable, shares in excess of the Cap Amount unless the Corporation has
obtained the required approvals. The Cap Amount shall be allocated pro rata to
the holders of Series B Preferred Stock as provided in Article XIV.C. In the
event a holder of Series B Preferred Stock submits a Notice of Conversion and
the Corporation is prohibited from listing or issuing shares of Common Stock to
satisfy such Notice of Conversion as a result of the operation of this
subparagraph (i), such holder shall be entitled to the rights set forth in
Article VII hereof.
(ii) NO FIVE PERCENT HOLDERS. Unless a holder of shares of Series
B Preferred Stock delivers a waiver in accordance with the last sentence of this
subparagraph (ii), except in connection with a Required Conversion at Maturity
(as defined below), in no event shall a holder of shares of Series B Preferred
Stock be entitled to receive shares of Common Stock upon a conversion to the
extent that the sum of (x) the number of shares of Common Stock beneficially
owned by the holder and its affiliates (exclusive of shares issuable upon
conversion of the unconverted portion of the shares of Series B Preferred Stock
or the unexercised or unconverted portion of any other securities of the
Corporation (including, without limitation, the warrants (the "WARRANTS") issued
by the Corporation pursuant to the Securities Purchase Agreement) subject to a
limitation on conversion or exercise analogous to the limitations contained
herein) and (y) the number of shares of Common Stock issuable upon the
conversion of the shares of Series B Preferred
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Stock with respect to which the determination of this subparagraph is being
made, would result in beneficial ownership by the holder and its affiliates of
more than 4.99% of the outstanding shares of Common Stock. For purposes of this
subparagraph, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13 D-G thereunder, except as otherwise provided in clause (x) above. Except as
provided in the immediately succeeding sentence, the restriction contained in
this subparagraph (ii) shall not be altered, amended, deleted or changed in any
manner whatsoever unless the holders of a majority of the outstanding shares of
Common Stock and each holder of outstanding shares of Series B Preferred Stock
shall approve such alteration, amendment, deletion or change. Notwithstanding
the foregoing, a holder of shares of Series B Preferred Stock may, by providing
written notice to the Corporation, adjust the restriction set forth in this
subparagraph (ii) so that the limitation on beneficial ownership of 4.99% of the
outstanding shares of Common Stock referred to above shall be increased to
9.99%, which adjustment shall not take effect until the 61st day after the date
of such notice.
(iii) TIME LIMITATIONS. (a) So long as no Conversion Default (as
defined in Article VI hereof) or Redemption Event (as defined in Article VIII.A
hereof) has occurred and is then continuing, and except as otherwise provided
below, a holder of Series B Preferred Stock may not convert shares of Series B
Preferred Stock to the extent that the total number of shares of Series B
Preferred Stock previously converted by such holder (excluding for purposes of
this calculation any shares of Series B Preferred Stock converted by such holder
following the occurrence and during the continuation of a Conversion Default or
Redemption Event) together with the number of shares of Series B Preferred Stock
which such holder is attempting to convert exceeds the Maximum Conversion
Percentage (as defined herein) multiplied by the total number of shares of
Series B Preferred Stock purchased by such holder pursuant to the Securities
Purchase Agreement (with respect to each such holder, the "ORIGINAL SHARE
AMOUNT"). A holder's Original Share Amount shall be increased or decreased, as
applicable, upon any sale or purchase by such holder of shares of Series B
Preferred Stock occurring after the Issuance Date. "MAXIMUM CONVERSION
PERCENTAGE" means:
IF THE CONVERSION DATE IS: THEN THE MAXIMUM CONVERSION PERCENTAGE IS:
On or after the 30th day
following the date shares
of Series B Preferred Stock
are first issued (the "Initial
Issuance Date") and before
the 60th day following the
Initial Issuance Date 15%
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On or after the 60th day
following the Initial Issuance Date
and before the 90th day
following the Initial Issuance Date 30%
On or after the 90th day
following the Initial Issuance Date
and before the 120th day
following the Initial Issuance Date 45%
On or after the 120th day
following the Initial Issuance Date
and before the 150th day
following the Initial Issuance Date 60%
On or after the 150th day
following the Initial Issuance Date
and before the 180th day
following the Initial Issuance Date 75%
On or after the 180th day
following the Initial Issuance Date
and before the 210th day
following the Initial Issuance Date 90%
On or after the 210th day
following the Initial Issuance Date 100%
(b) Notwithstanding the foregoing, the
restrictions on conversion set forth in this Article IV.C. (iii) shall terminate
(i) on or after the date the Corporation makes a public announcement that it
intends to merge or consolidate with any other entity (other than a merger in
which the Corporation is the surviving or continuing entity and its capital
stock is unchanged) or to sell or transfer all or substantially all of the
assets of the Corporation or (ii) on or after the date any person, group or
entity (including the Corporation) publicly announces a tender offer, exchange
offer or another transaction to purchase 50% or more of the Corporation's Common
Stock or otherwise publicly announces an intention to replace a majority of the
Corporation's Board of Directors by waging a proxy battle or otherwise.
D. REQUIRED CONVERSION AT MATURITY. Subject to the limitations set
forth in Paragraph C(i) of this Article IV and provided all shares of Common
Stock issuable upon conversion of all outstanding shares of Series B Preferred
Stock are then (i) authorized and reserved for issuance, (ii) registered under
the Securities Act, for resale by the holders of such shares of Series B
Preferred Stock and (iii) eligible to be traded on either the Nasdaq SmallCap
Market, The Nasdaq
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National Market, the New York Stock Exchange or the American Stock Exchange,
each share of Series B Preferred Stock issued and outstanding on the fifth
anniversary of the Issuance Date thereof Date (the "MATURITY DATE"),
automatically shall be converted into shares of Common Stock on such date in
accordance with the conversion formulas set forth in Paragraph A of this Article
IV (the "REQUIRED CONVERSION AT MATURITY"). If the Required Conversion at
Maturity occurs, the Corporation and the holders of Series B Preferred Stock
shall follow the applicable conversion procedures set forth in Paragraph B of
this Article IV; PROVIDED, HOWEVER, that the holders of Series B Preferred Stock
are not required to deliver a Notice of Conversion to the Corporation or its
transfer agent.
V. RESERVATION OF SHARES OF COMMON STOCK
A. RESERVED AMOUNT. Upon the initial issuance of the shares of Series B
Preferred Stock, the Corporation shall reserve 200% of the number of shares
which would be issuable if the outstanding shares of Series B Preferred Stock
were converted in their entirety on the Issuance Date based on the Conversion
Price in effect on the First Conversion Date of the authorized but unissued
shares of Common Stock for issuance upon conversion of the Series B Preferred
Stock and thereafter the number of authorized but unissued shares of Common
Stock so reserved (the "RESERVED AMOUNT") shall not be decreased and shall at
all times be sufficient to provide for the conversion of the Series B Preferred
Stock outstanding at the then current Conversion Price thereof. The Reserved
Amount shall be allocated to the holders of Series B Preferred Stock as provided
in Article XIV.C.
B. INCREASES TO RESERVED AMOUNT. If the Reserved Amount for any three
consecutive trading days (the last of such three trading days being the
"AUTHORIZATION TRIGGER DATE") shall be less than 135% of the number of shares of
Common Stock issuable upon conversion of the then outstanding shares of Series B
Preferred Stock, the Corporation shall immediately notify the holders of Series
B Preferred Stock of such occurrence and shall take immediate action (including,
if necessary, seeking shareholder approval to authorize the issuance of
additional shares of Common Stock) to increase the Reserved Amount to 200% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series B Preferred Stock. In the event the Corporation fails to so
increase the Reserved Amount within 90 days after an Authorization Trigger Date
(such event being the "RESERVED AMOUNT TRIGGER EVENT"), each holder of Series B
Preferred Stock shall thereafter have the option, exercisable in whole or in
part at any time and from time to time by delivery of a Redemption Notice (as
defined in Article VIII.C) to the Corporation, to require the Corporation to
purchase for cash, at an amount per share equal to the Redemption Amount (as
defined in Article VIII.B), a portion of the holder's Series B Preferred Stock
such that, after giving effect to such purchase, the holder's allocated portion
of the Reserved Amount exceeds 135% of the total number of shares of Common
Stock issuable to such holder upon conversion of its Series B Preferred Stock.
If the Corporation fails to redeem any of such shares within five (5) business
days after its receipt of such Redemption Notice, then such holder shall be
entitled to the remedies provided in Article VIII.C.
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C. ADJUSTMENT TO CONVERSION PRICE. If the Corporation is prohibited, at
any time, from issuing shares of Common Stock upon conversion of Series B
Preferred Stock to any holder because the Corporation does not then have
available a sufficient number of authorized and reserved shares of Common Stock,
then the Fixed Conversion Price in respect of any shares of Series B Preferred
Stock held by any holder (including shares of Series B Preferred Stock submitted
to the Corporation for conversion, but for which shares of Common Stock have not
been issued to any such holder) shall be adjusted as provided in Article VI.A.
D. LIMITATIONS ON REDEMPTION RIGHT. Notwithstanding the provisions of
Paragraph B of this Article V, the holders of Series B Preferred Stock shall
have no right to require the Corporation to effect a redemption of their
outstanding shares of Series B Preferred Stock as provided in Paragraph B of
this Article V so long as (i) the Corporation has not, at any time, decreased
the Reserved Amount below that number of shares of Common Stock computed as set
forth in Article V.A.; (ii) the Corporation shall have taken immediate action
following the applicable Authorization Trigger Date (including, if necessary,
seeking stockholder approval to authorize the issuance of additional shares of
Common Stock) to increase the Reserved Amount to 200% of the number of shares of
Common Stock then issuable upon conversion of the outstanding Series B Preferred
Stock; and (iii) the Corporation continues to use its commercially reasonable
good faith best efforts (including the resolicitation of stockholder approval to
authorize the issuance of additional shares of Common Stock) to increase the
Reserved Amount to 200% of the number of shares of Common Stock then issuable
upon conversion of the outstanding Series B Preferred Stock. The Corporation
will be deemed to be using "its commercially reasonable good faith best efforts"
to increase the Reserved Amount so long as it solicits stockholder approval to
authorize the issuance of additional shares of Common Stock not less than three
(3) times during each twelve month period following the applicable Authorization
Trigger Date during which any shares of Series B Preferred Stock remain
outstanding.
VI. FAILURE TO SATISFY CONVERSIONS
A. CONVERSION DEFAULTS. The following shall constitute a "CONVERSION
DEFAULT": (i) following the submission by a holder of shares of Series B
Preferred Stock of a Notice of Conversion, the Corporation fails for any reason
(other than because of an event described in clause (iii) below) to deliver, on
or prior to the tenth business day following the expiration of the Delivery
Period for such conversion, such number of shares of Common Stock without a
restrictive legend covered by an effective registration statement to which such
holder is entitled upon such conversion, (ii) the Corporation provides notice to
any holder of Series B Preferred Stock at any time of its intention not to issue
freely tradeable shares of Common Stock upon exercise by any holder of its
conversion rights in accordance with the terms of this Statement of Designation
(other than because of an event described in clause (iii) below), or (iii) the
Corporation is prohibited, at any time, from listing shares of Common Stock or
from issuing shares of Common Stock upon conversion of Series B Preferred Stock
to any holder because the Corporation (A) does not at the date of such
conversion have available a sufficient number of authorized and reserved shares
of Common Stock or (B) such listing or issuance would exceed the then unissued
portion of such holder's Cap Amount. In the case
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of a Conversion Default described in clause (i) or (iii) above, the Fixed
Conversion Price in respect of any shares of Series B Preferred Stock held by
such holder (including shares of Series B Preferred Stock submitted to the
Corporation for conversion, but for which shares of Common Stock have not been
issued to such holder) shall thereafter be the lesser of (x) the Fixed
Conversion Price on the date of the Conversion Default and (y) the lowest
Conversion Price in effect during the period beginning on, and including, such
date through and including (A) in the case of a Conversion Default referred to
in clause (i) above, the earlier of (1) the day such shares of Common Stock are
delivered to the holder and (2) the day on which the holder regains its rights
as a holder of Series B Preferred Stock with respect to such unconverted shares
of Series B Preferred Stock pursuant to the provisions of Article XIV.F hereof,
and (B) in the case of a Conversion Default referred to in clause (iii) above,
the date on which the prohibition on listing or issuance of Common Stock
terminates. In the case of a Conversion Default described in clause (ii) above,
the Fixed Conversion Price with respect to any conversion thereafter shall be
the lowest Conversion Price in effect at any time during the period beginning
on, and including, the date of the occurrence of such Conversion Default through
and including the Default Cure Date (as defined below). Following any adjustment
to the Fixed Conversion Price pursuant to this Article VI.A, the Fixed
Conversion Price shall thereafter be subject to further adjustment for any
events described in Article XI. Upon the occurrence of each reset of the Fixed
Conversion Price pursuant to this Paragraph A, the Corporation, at its expense,
shall promptly compute the new Fixed Conversion Price and prepare and furnish to
each holder of Series B Preferred Stock a certificate setting forth such new
Fixed Conversion Price and showing in detail each Conversion Price in effect
during such reset period.
"DEFAULT CURE DATE" means (i) with respect to a Conversion Default
described in clause (i) of its definition, the date the Corporation effects the
conversion of the full number of shares of Series B Preferred Stock, (ii) with
respect to a Conversion Default described in clause (ii) of its definition, the
date the Corporation issues shares of Common Stock without a restrictive legend
covered by an effective registration statement in satisfaction of all
conversions of Series B Preferred Stock in accordance with Article IV.A, and
(iii) with respect to a Conversion Default described in clause (i) or clause
(ii) of its definition, the date on which the Corporation redeems shares of
Series B Preferred Stock held by such holder pursuant to paragraph C of this
Article VI.
B. Intentionally Omitted.
C. REDEMPTION RIGHT. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by the holder, for any reason (other than because
such issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount, for which failures the holders shall have the remedies set
forth in Articles V and VII, respectively) to issue shares of Common Stock
within 10 business days after the expiration of the Delivery Period with respect
to any conversion of Series B Preferred Stock, then the holder may elect at any
time and from time to time prior to the Default Cure Date for such Conversion
Default, by delivery of a Redemption Notice to the Corporation, to have all of
such holder's shares of Series B Preferred Stock which were submitted for
conversion purchased by the Corporation for cash, at an amount per share equal
to the Redemption Amount (as defined in Article
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VIII.B). If the Corporation fails to redeem any of such shares within five
business days after its receipt of such Redemption Notice, then such holder
shall be entitled to the remedies provided in Article VIII.C.
D. VOID NOTICE OF CONVERSION. If for any reason a holder has not
received all of the shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion of
Series B Preferred Stock and (i) such shares have not been called for redemption
pursuant to Article VIII.D(i)(y), provided the Redemption Amount therefor has
been or may be paid within the time limits set forth in Article VIII.D(iv), and
(ii) such shares are not subject to a redemption notice from the holder thereof,
then the holder, upon written notice to the Corporation's transfer agent, with a
copy to the Corporation, may void its Notice of Conversion with respect to, and
retain or have returned, as the case may be, any shares of Series B Preferred
Stock that have not been converted pursuant to such holder's Notice of
Conversion; provided that the voiding of a holder's Notice of Conversion shall
not affect such holders rights and remedies which have accrued prior to the date
of such notice pursuant to Article VI hereof or otherwise.
VII. INABILITY TO LIST OR CONVERT DUE TO CAP AMOUNT
A. OBLIGATION TO CURE. If at any time after September 30, 1998 the then
unissued portion of any holder's Cap Amount is less than 135% of the number of
shares of Common Stock then issuable upon conversion of such holder's shares of
Series B Preferred Stock (a "TRADING MARKET TRIGGER EVENT"), the Corporation
shall immediately notify the holders of Series B Preferred Stock of such
occurrence and shall take immediate action (including, if necessary, seeking the
approval of its shareholders to authorize the listing or issuance of the full
number of shares of Common Stock which would be issuable upon the conversion of
the then outstanding shares of Series B Preferred Stock but for the Cap Amount)
to eliminate any prohibitions under applicable law or the rules or regulations
of any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Corporation or any of its securities on
the Corporation's ability to list or issue shares of Common Stock in excess of
the Cap Amount ("TRADING MARKET PROHIBITIONS"). In the event the Corporation
fails to eliminate all such Trading Market Prohibitions within 120 days after
the Trading Market Trigger Event, then each holder of Series B Preferred Stock
shall thereafter have the option, exercisable in whole or in part at any time
and from time to time until such date that all such Trading Market Prohibitions
are eliminated, by delivery of a Redemption Notice (as defined in Article
VIII.C) to the Corporation, to require the Corporation to purchase for cash, at
an amount per share equal to the Redemption Amount, a number of the holder's
shares of Series B Preferred Stock such that, after giving effect to such
redemption, the then unissued portion of such holder's Cap Amount exceeds 135%
of the total number of shares of Common Stock issuable upon conversion of such
holder's shares of Series B Preferred Stock. If the Corporation fails to redeem
any of such shares within five (5) business days after its receipt of such
Redemption Notice, then such holder shall be entitled to the remedies provided
in Articles VII.B and VIII.C.
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B. REMEDIES. If the Corporation fails to redeem any shares of Series B
Preferred Stock pursuant to Article VII.A within five business days after its
receipt of such Redemption Notice, and thereafter the Corporation is prohibited,
at any time, from listing shares of Common Stock or from issuing shares of
Common Stock upon conversion of Series B Preferred Stock to any holder because
such listing or issuance would exceed the then unissued portion of such holder's
Cap Amount because of applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or its securities, any holder who is so
prohibited from converting its Series B Preferred Stock because the shares of
Common Stock underlying such Series B Preferred Stock may not be listed or
issued, may elect either or both of the following additional remedies:
(i) to require, with the consent of holders of at least fifty
percent (50%) of the outstanding shares of Series B Preferred Stock (including
any shares of Series B Preferred Stock held by the requesting holder), the
Corporation to terminate the listing of its Common Stock on the AMEX (or any
other stock exchange, interdealer quotation system or trading market) and to
cause its Common Stock to be eligible for trading on the over-the-counter
electronic bulletin board; or
(ii) to require the Corporation to issue shares of Common Stock
in accordance with such holder's Notice of Conversion at a conversion price
equal to the average of the Closing Bid Prices for the Common Stock during the
five consecutive trading days ending on the trading day immediately preceding
the date of the holder's written notice to the Corporation of its election to
receive shares of Common Stock pursuant to this subparagraph (ii) (subject to
equitable adjustment for any stock splits, stock dividends, reclassifications or
similar events during such five trading day period).
C. ADJUSTMENT TO CONVERSION PRICE. If the Corporation is prohibited, at
any time, from listing shares of Common Stock or from issuing shares of Common
Stock upon conversion of Series B Preferred Stock to any holder because such
listing or issuance would exceed the then unissued portion of such holder's Cap
Amount because of applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or its securities, then the Fixed
Conversion Price in respect of any shares of Series B Preferred Stock held by
any holder (including shares of Series B Preferred Stock submitted to the
Corporation for conversion, but for which shares of Common Stock have not been
issued) shall be adjusted as provided in Article VI.A.
VIII. REDEMPTION
A. REDEMPTION BY HOLDER. In the event (each of the events described in
clauses (i)-(v) below after expiration of the applicable cure period (if any)
being a "REDEMPTION EVENT"):
(i) the Common Stock (including, from and after the First
Conversion Date, any of the shares of Common Stock issuable upon conversion of
the Series B Preferred Stock) is
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suspended from trading on any of, or is not listed (and authorized) for trading
on at least one of, the NASDAQ Small Cap Market, the NASDAQ National Market, the
New York Stock Exchange or the American Stock Exchange for an aggregate of 10
full trading days in any nine month period;
(ii) the Corporation fails to remove any restrictive legend on
any certificate or any shares of Common Stock issued to the holders of Series B
Preferred Stock upon conversion of the Series B Preferred Stock as and when
required by this Statement of Designation, the Securities Purchase Agreement or
the Registration Rights Agreement (a "LEGEND REMOVAL FAILURE"), and any such
failure continues uncured for ten business days after the Corporation has been
notified thereof in writing by the holder;
(iii) the Corporation provides notice to any holder of Series B
Preferred Stock, including by way of public announcement, at any time, of its
intention not to issue, or otherwise refuses to issue, shares of Common Stock to
any holder of Series B Preferred Stock upon conversion in accordance with the
terms of this Statement of Designation (other than due to the circumstances
contemplated by Articles V or VII for which the holders shall have the remedies
set forth in such Articles);
(iv) the Corporation shall:
(a) sell, convey or dispose of all or substantially
all of its assets (the presentation of any such transaction for stockholder
approval being conclusive evidence that such transaction involves the sale of
all or substantially all of the assets of the Corporation);
(b) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Corporation and other than pursuant to a merger in which the Corporation is
the surviving or continuing entity and the voting capital stock of the
Corporation immediately prior to such merger represents at least 50% of the
voting power of the capital stock of the Corporation after the merger) and its
capital stock is unchanged; or
(c) have fifty percent (50%) or more of the voting power
of its capital stock owned beneficially by one person, entity or "group" (as
such term is used under Section 13(d) of the Securities Exchange Act of 1934, as
amended); or
(vi) the Corporation otherwise shall breach any material term
hereunder or under the Securities Purchase Agreement or the Registration Rights
Agreement and such breach continues for 5 business days after the Corporation
has been notified thereof in writing by the holder;
then, upon the occurrence of any such Redemption Event, each holder of shares of
Series B Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and from time to time by delivery of a Redemption Notice
(as defined in Paragraph C below) to the Corporation while such Redemption Event
continues, to require the Corporation to purchase for cash any or all of the
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then outstanding shares of Series B Preferred Stock held by such holder for an
amount per share equal to the Redemption Amount (as defined in Paragraph B
below) in effect at the time of the redemption hereunder. For the avoidance of
doubt, the occurrence of any event described in clauses (i), (iii) or (iv) above
shall immediately constitute a Redemption Event and there shall be no cure
period. Upon the Corporation's receipt of any Redemption Notice hereunder (other
than during the three trading day period following the Corporation's delivery of
a Redemption Announcement (as defined below) to all of the holders in response
to the Corporation's initial receipt of a Redemption Notice from a holder of
Series B Preferred Stock), the Corporation shall immediately (and in any event
within one business day following such receipt) deliver a written notice (a
"REDEMPTION ANNOUNCEMENT") to all holders of Series B Preferred Stock stating
the date upon which the Corporation received such Redemption Notice and the
amount of Series B Preferred Stock covered thereby. Subject to Article VIII.D,
the Corporation shall not redeem any shares of Series B Preferred Stock during
the three trading day period following the delivery of a required Redemption
Announcement hereunder. At any time and from time to time during such three
trading day period, each holder of Series B Preferred Stock may request (either
orally or in writing) information from the Corporation with respect to the
instant redemption (including, but not limited to, the aggregate number of
shares of Series B Preferred Stock covered by Redemption Notices received by the
Corporation) and the Corporation shall furnish (either orally or in writing) as
soon as practicable such requested information to such requesting holder.
B. DEFINITION OF REDEMPTION AMOUNT. The "REDEMPTION AMOUNT" with
respect to a share of Series B Preferred Stock means an amount equal to:
V X M;
-----------
C P
provided, however, if the Conversion Price is equal to or greater than the Floor
Price, Redemption Amount shall mean the greater of:
V X M
-----------
C P
and (ii) V X 1.13
where:
"V" means the Face Amount thereof, plus the accrued Premium thereon
through the date of payment of the Redemption Amount;
"CP" means the Conversion Price in effect on the date on which the
Corporation receives the Redemption Notice; and
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"M" means (i) with respect to all redemptions other than redemptions
pursuant to Article VIII.A(v) hereof, the highest Closing Bid Price of the
Corporation's Common Stock during the period beginning on the date on which the
Corporation receives the Redemption Notice and ending on the date immediately
preceding the date of payment of the Redemption Amount and (ii) with respect to
redemptions pursuant to Article VIII.A(v) hereof, the greater of (a) the amount
determined pursuant to clause (i) of this definition or (b) the fair market
value, as of the date on which the Corporation receives the Redemption Notice,
of the consideration payable to the holder of a share of Common Stock pursuant
to the transaction which triggers the redemption. For purposes of this
definition, "fair market value" shall be determined by the mutual agreement of
the Corporation and holders of a majority-in-interest of the shares of Series B
Preferred Stock then outstanding, or if such agreement cannot be reached within
five business days prior to the date of redemption, by an investment banking
firm selected by the Corporation and reasonably acceptable to holders of a
majority-in-interest of the then outstanding shares of Series B Preferred Stock,
with the costs of such appraisal to be borne by the Corporation.
C. REDEMPTION DEFAULTS. If the Corporation fails to pay any holder the
Redemption Amount with respect to any share of Series B Preferred Stock within
five business days after its receipt of a notice requiring such redemption (a
"REDEMPTION NOTICE"), then the holder of Series B Preferred Stock delivering
such Redemption Notice (i) shall be entitled to interest on the Redemption
Amount at a per annum rate equal to the lower of twenty-four percent (24%) and
the highest interest rate permitted by applicable law from the date on which the
Corporation receives the Redemption Notice until the date of payment of the
Redemption Amount hereunder, and (ii) shall have the right, at any time and from
time to time, to require the Corporation, upon written notice, to immediately
convert (in accordance with the terms of Paragraph A of Article IV) all or any
portion of the Redemption Amount, plus interest as aforesaid, into shares of
Common Stock at the lowest Conversion Price in effect during the period
beginning on the date on which the Corporation receives the Redemption Notice
and ending on the Conversion Date with respect to the conversion of such
Redemption Amount. In the event the Corporation is not able to redeem all of the
shares of Series B Preferred Stock subject to Redemption Notices delivered prior
to the date upon which such redemption is to be effected, the Corporation shall
redeem shares of Series B Preferred Stock from each holder pro rata, based on
the total number of shares of Series B Preferred Stock outstanding at the time
of redemption included by such holder in all Redemption Notices delivered prior
to the date upon which such redemption is to be effected relative to the total
number of shares of Series B Preferred Stock outstanding at the time of
redemption included in all of the Redemption Notices delivered prior to the date
upon which such redemption is to be effected.
D. REDEMPTION BY CORPORATION.
(i) The Corporation shall have the right at any time and from
time to time to redeem any shares which are the subject of a Notice of
Conversion for an amount of cash equal to the Redemption Amount (a "REDEMPTION
IN LIEU OF CONVERSION"), in its sole discretion by delivery of an Optional
Redemption Notice in accordance with the redemption procedures set forth below.
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(ii) Within ten (10) calendar days prior to the beginning of
any calendar month during which the Corporation elects to effect a Redemption in
Lieu of Conversion, the Corporation shall provide written notice to the holders
of Series B Preferred Stock by facsimile and overnight courier stating that the
Corporation will redeem any conversions of Series B Preferred Stock in such
calendar month (an "OPTIONAL REDEMPTION NOTICE"). In the event the Corporation
fails to provide an Optional Redemption Notice to the holders of Series B
Preferred Stock within such ten (10) day period, the Corporation shall not be
permitted to so redeem any conversions of Series B Preferred Stock during such
calendar month. In the event a timely Optional Redemption Notice is provided as
aforesaid, upon Corporation's receipt of a Notice of Conversion the Corporation
shall be obligated to redeem the entire number of shares of the Series B
Preferred Stock which are the subject of the Notice of Conversion for the
Redemption Amount (as defined in Article VIII.B).
E. VOID REDEMPTION. In the event that the Corporation does not pay the
Redemption Amount within the time period set forth in Article IV.D, Article
VIII.A or Article VIII.D, at any time thereafter and until the Corporation pays
such unpaid applicable Redemption Amount in full, a holder of Series B Preferred
Stock shall have the option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu
of redemption, require the Corporation to promptly return to such holder any or
all of the shares of Series B Preferred Stock that were submitted for redemption
by such holder under this Article VIII and for which the applicable Redemption
Amount (together with any interest thereon) has not been paid, by sending
written notice thereof to the Corporation via facsimile and confirmed by
overnight courier, in person (by courier or otherwise) or by telephone (to an
authorized officer of the Corporation or his or her administrative assistant)
(the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the Corporation's receipt of such
Void Optional Redemption Notice and overnight courier, in-person or telephone
confirmation, (i) the Notice of Redemption shall be null and void with respect
to those shares of Series B Preferred Stock subject to the Void Optional
Redemption Notice, and (ii) the Corporation shall immediately return any shares
of Series B Preferred Stock subject to the Void Optional Redemption Notice
IX. RANK
The Series B Preferred Stock shall rank (i) prior to the Corporation's
Common Stock; (ii) prior to any class or series of capital stock of the
Corporation hereafter created that, by its terms, ranks junior to the Series B
Preferred Stock ("JUNIOR SECURITIES"); (iii) junior to any class or series of
capital stock of the Corporation hereafter created (with the consent of the
holders of Series B Preferred Stock obtained in accordance with Article XIII
hereof) specifically ranking, by its terms, senior to the Series B Preferred
Stock ("SENIOR SECURITIES"); and (iv) PARI PASSU with the Series A Preferred
Stock and any other class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of the Series B Preferred
Stock obtained in accordance with Article XIII hereof) specifically ranking by
its terms on parity with the Series B Preferred Stock ("PARI PASSU SECURITIES"),
in each case as to distribution of assets upon liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary.
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X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of 60 consecutive days and,
on account of any such event, the Corporation shall liquidate, dissolve or wind
up, or if the Corporation shall otherwise liquidate, dissolve or wind up,
including, but not limited to, the sale or transfer of all or substantially all
of the Corporation's assets in one transaction or in a series of related
transactions (a "LIQUIDATION EVENT"), no distribution shall be made to the
holders of any shares of capital stock of the Corporation (other than Senior
Securities and Pari Passu Securities) upon liquidation, dissolution or winding
up unless prior thereto the holders of shares of Series B Preferred Stock shall
have received the Liquidation Preference with respect to each share. If, upon
the occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series B Preferred Stock and holders of
PARI PASSU Securities shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire assets and
funds of the Corporation legally available for distribution to the Series B
Preferred Stock and the PARI PASSU Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares.
B. The purchase or redemption by the Corporation of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Corporation.
C. The "LIQUIDATION PREFERENCE" with respect to a share of Series B
Preferred Stock means an amount equal to the Stated Value thereof, plus the
accrued Premium thereon through the date of final distribution. The Liquidation
Preference with respect to any PARI PASSU Securities shall be as set forth in
the Statement of Designation filed in respect thereof.
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XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price and the Floor Price shall be subject to adjustment
from time to time as follows:
A. STOCK SPLITS, STOCK DIVIDENDS, ETC. If, at any time on or after the
Issuance Date, the number of outstanding shares of Common Stock is increased by
a stock split, stock dividend, combination, reclassification or other similar
event, the Fixed Conversion Price and the Floor Price shall be proportionately
reduced, or if the number of outstanding shares of Common Stock is decreased by
a reverse stock split, combination or reclassification of shares, or other
similar event, the Fixed Conversion Price and the Floor Price shall be
proportionately increased. In such event, the Corporation shall notify the
Corporation's transfer agent of such change on or before the effective date
thereof.
B. ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any time after
the Issuance Date, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "CORPORATE CHANGE"), then the holders of Series B
Preferred Stock shall thereafter have the right to receive upon conversion, in
lieu of the shares of Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or payable in such
Corporate Change with respect to or in exchange for the number of shares of
Common Stock which would have been issuable upon conversion (without giving
effect to the limitations contained in Article IV.C) had such Corporate Change
not taken place, and in any such case, appropriate provisions (in form and
substance reasonably satisfactory to the holders of a majority of the Series B
Preferred Shares then outstanding) shall be made with respect to the rights and
interests of the holders of the Series B Preferred Stock to the end that the
economic value of the shares of Series B Preferred Stock are in no way
diminished by such Corporate Change and that the provisions hereof (including,
without limitation, in the case of any such consolidation, merger or sale in
which the successor entity or purchasing entity is not the Corporation, an
immediate adjustment of the Fixed Conversion Price and the Floor Price so that
the Fixed Conversion Price and the Floor Price immediately after the Corporate
Change reflects the same relative value as compared to the value of the
surviving entity's common stock that existed between the Fixed Conversion Price
and the Floor Price and the value of the Corporation's Common Stock immediately
prior to such Corporate Change and an immediate revision to the Variable
Conversion Price so that it is determined as provided in Article III.H but based
on the price of the common stock of the surviving entity and the market in which
such common stock is traded) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock or securities thereafter
deliverable upon the conversion thereof. The Corporation shall not effect any
Corporate Change unless (i) each holder of Series B
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Preferred Stock has received written notice of such transaction along with the
notice sent to the holders of the Common Stock of the Corporation, but in no
event later than 20 days prior to the record date for the determination of
shareholders entitled to vote with respect thereto, and (ii) the resulting,
successor or acquiring entity (if not the Corporation) assumes by written
instrument (in form and substance reasonably satisfactory to the holders of a
majority of the Series B Preferred Shares then outstanding) the obligations of
this Statement of Designation. The above provisions shall apply regardless of
whether or not there would have been a sufficient number of shares of Common
Stock authorized and available for issuance upon conversion of the shares of
Series B Preferred Stock outstanding as of the date of such transaction, and
shall similarly apply to successive reclassifications, consolidations, mergers,
sales, transfers or share exchanges.
C. ADJUSTMENT DUE TO MAJOR ANNOUNCEMENT. In the event the Corporation
at any time after the Issuance Date (i) makes a public announcement that it
intends to consolidate or merge with any other entity (other than a merger in
which the Corporation is the surviving or continuing entity and its capital
stock is unchanged) or to sell or transfer all or substantially all of the
assets of the Corporation or (ii) any person, group or entity (including the
Corporation) publicly announces a tender offer, exchange offer or another
transaction to purchase 50% or more of the Corporation's Common Stock or
otherwise publicly announces an intention to replace a majority of the
Corporation's Board of Directors by waging or proxy battle or otherwise (the
date of the announcement or commencement referred to in clause (i) or (ii) of
this Paragraph C is hereinafter referred to as the "ANNOUNCEMENT DATE"), then
the Conversion Price shall, effective upon the Announcement Date and continuing
through the tenth trading day following the earlier of the consummation of the
proposed transaction or tender offer, exchange offer or another transaction or
the Abandonment Date (as defined below) (the earlier of such dates being the
"ADJUSTED CONVERSION PRICE TERMINATION DATE"), be equal to the lower of (x) the
Conversion Price which would have been applicable for an Optional Conversion
occurring on the Announcement Date and (y) the Conversion Price determined in
accordance with Article III.C on the Conversion Date set forth in the Notice of
Conversion for the Optional Conversion. After the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in
Article III.C. "ABANDONMENT DATE" means with respect to any proposed transaction
or tender offer, exchange offer or another transaction for which a public
announcement or an action contemplated by this Paragraph C has been made or
commenced, the date upon which the Corporation (in the case of clause (i) above)
or the person, group or entity (in the case of clause (ii) above) publicly
announces the termination or abandonment of the proposed transaction or tender
offer, exchange offer or another transaction which caused this Paragraph C to
become operative.
D. ADJUSTMENT DUE TO DISTRIBUTION. If, at any time after the Issuance
Date, the Corporation 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, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's common shareholders in shares (or
rights to acquire shares) of capital stock of a subsidiary (I.E. a spin-off)) (a
"DISTRIBUTION"), then the holders of Series B Preferred Stock shall be entitled,
upon any conversion of shares of Series B Preferred Stock after the date of
record for determining shareholders entitled to such Distribution,
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to receive the amount of such assets which would have been payable to the holder
with respect to the shares of Common Stock issuable upon such conversion
(without giving effect to the limitations contained in Article IV.C) 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.
E. ISSUANCE OF OTHER SECURITIES. If at any time after the Issuance Date
the Company issues or sells any shares of Common Stock or any securities which
are convertible into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES")
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
Conversion 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 if, prior to the date of the Dilutive Issuance, the Company has met both
Performance Milestones 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 Conversion Price will be adjusted in accordance
with the following formula:
C' = C x O + P/F ;
------------------------
CSDO
or otherwise in accordance with the following formula:
C' = C x O + P/M ;
------------------------
CSDO
where:
C' = the adjusted Conversion Price;
C = the then current Conversion Price;
M = the then current Market Price;
F = the Floor Price
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set
forth herein, 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.
F. PURCHASE RIGHTS. If, at any time after the Issuance Date, the
Corporation issues any securities which are convertible into or exchangeable for
Common Stock, or rights to purchase stock, warrants, securities or other
property (the "PURCHASE RIGHTS") pro rata to the record holders of any
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class of Common Stock, then the holders of Series B Preferred Stock will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Common Stock acquirable upon complete
conversion of the Series B Preferred Stock (without giving effect to the
limitations contained in Article IV.C) immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if
no such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights.
G. NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Conversion Price and/or the Floor Price pursuant to this
Article XI, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to each holder of Series B
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series B Preferred Stock, furnish to such holder a like certificate setting
forth (i) such adjustment or readjustment, (ii) the Conversion Price and/or the
Floor Price at the time in effect and (iii) the number of shares of Common Stock
and the amount, if any, of other securities or property which at the time would
be received upon conversion of a share of Series B Preferred Stock.
XII. VOTING RIGHTS
The holders of the Series B Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Texas Business Corporation Act
(the "BUSINESS CORPORATION ACT") and in Article XIII below.
Notwithstanding the above, the Corporation shall provide each holder of
Series B Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders) at the same time such notice and materials are provided to the
holders of Common Stock. If the Corporation takes a record of its shareholders
for the purpose of determining shareholders entitled to (a) receive payment of
any dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger consolidation or recapitalization)
any share of any class or any other securities or property, or to receive any
other right, or (b) to vote in connection with any proposed sale, lease or
conveyance of all or substantially all of the assets of the Corporation, or any
proposed merger, consolidation, liquidation, dissolution or winding up of the
Corporation, the Corporation shall mail a notice to each holder, at least 20
days prior to the record date specified therein (but in no event earlier than
public announcement of such proposed transaction), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
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To the extent that under the Business Corporation Act the vote of the
holders of the Series B Preferred Stock, voting separately as a class or series,
as applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the then
outstanding shares of the Series B Preferred Stock represented at a duly held
meeting at which a quorum is present or by written consent of the holders of at
least a majority of the then outstanding shares of Series B Preferred Stock
(except as otherwise may be required under the Business Corporation Act) shall
constitute the approval of such action by the class. To the extent that under
the Business Corporation Act holders of the Series B Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series B Preferred Stock shall be entitled to a number
of votes equal to the number of shares of Common Stock into which it is then
convertible (subject to the limitations contained in Article IV.C(ii)) using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated.
XIII. PROTECTION PROVISIONS
So long as any shares of Series B Preferred Stock are outstanding, the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by the Business Corporation Act) of a majority in interest
of the holders of the then outstanding shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series B Preferred Stock;
(b) alter or change the rights, preferences or
privileges of any previously issued shares of capital stock of the Corporation
so as to affect adversely the Series B Preferred Stock;
(c) create any new class or series of capital stock
having a preference over the Series B Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article IX hereof, "SENIOR SECURITIES");
(d) create any new class or series of capital stock
ranking PARI PASSU with the Series B Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article IX hereof, "PARI PASSU SECURITIES");
(e) increase the authorized number of shares of Series B
Preferred Stock;
(f) issue any shares of Senior Securities;
(g) issue any shares of Series B Preferred Stock other
than pursuant to the Securities Purchase Agreement;
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(h) redeem, or declare or pay any cash dividend or
distribution on, any Junior Securities; or
(i) increase the par value of the Common Stock.
Notwithstanding the foregoing, no change pursuant to this Article XIII shall be
effective to the extent that, by its terms, it applies to less than all of the
holders of shares of Series B Preferred Stock then outstanding.
XIV. MISCELLANEOUS
A. CANCELLATION OF SERIES B PREFERRED STOCK. If any shares of Series B
Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be canceled, shall return to the status of authorized, but unissued
preferred stock of no designated series, and shall not be issuable by the
Corporation as Series B Preferred Stock.
B. LOST OR STOLEN CERTIFICATES. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity (without any bond or other security) reasonably satisfactory to the
Corporation, or (z) in the case of mutilation, upon surrender and cancellation
of the Preferred Stock Certificate(s), the Corporation shall execute and deliver
new Preferred Stock Certificate(s) of like tenor and date. However, the
Corporation shall not be obligated to reissue such lost or stolen Preferred
Stock Certificate(s) if the holder contemporaneously requests the Corporation to
convert such Series B Preferred Stock.
C. ALLOCATION OF CAP AMOUNT AND RESERVED AMOUNT. The initial Cap Amount
and Reserved Amount shall be allocated pro rata among the holders of Series B
Preferred Stock based on the number of shares of Series B Preferred Stock issued
to each holder. Each increase to the Cap Amount and the Reserved Amount shall be
allocated pro rata among the holders of Series B Preferred Stock based on the
number of shares of Series B Preferred Stock held by each holder at the time of
the increase in the Cap Amount or Reserved Amount. In the event a holder shall
sell or otherwise transfer any of such holder's shares of Series B Preferred
Stock, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any Series B Preferred Stock shall be allocated to the remaining holders of
shares of Series B Preferred Stock, pro rata based on the number of shares of
Series B Preferred Stock then held by such holders.
D. QUARTERLY STATEMENTS OF AVAILABLE SHARES. For each calendar quarter
beginning in the quarter in which the initial registration statement required to
be filed pursuant to the Registration Rights Agreement is declared effective and
thereafter so long as any shares of Series B Preferred Stock are outstanding,
the Corporation shall deliver (or cause its transfer agent to deliver) to each
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<PAGE>
holder a written report notifying the holders of any occurrence which prohibits
the Corporation from issuing Common Stock upon any such conversion. The report
shall also specify (i) the total number of shares of Series B Preferred Stock
outstanding as of the end of such quarter, (ii) the total number of shares of
Common Stock issued upon all conversions of Series B Preferred Stock prior to
the end of such quarter, (iii) the total number of shares of Common Stock which
are reserved for issuance upon conversion of the Series B Preferred Stock as of
the end of such quarter and (iv) the total number of shares of Common Stock
which may thereafter be listed or issued by the Corporation upon conversion of
the Series B Preferred Stock before the Corporation would exceed the Cap Amount
and the Reserved Amount. The Corporation (or its transfer agent) shall deliver
the report for each quarter to each holder prior to the tenth day of the
calendar month following the quarter to which such report relates. In addition,
the Corporation (or its transfer agent) shall provide, within 15 days after
delivery to the Corporation of a written request by any holder, any of the
information enumerated in clauses (i) - (iv) of this Paragraph D as of the date
of such request.
E. PAYMENT OF CASH; DEFAULTS. Whenever the Corporation is required to
make any cash payment to a holder under this Statement of Designation (upon
redemption or otherwise), such cash payment shall be made to the holder within
five business days after delivery by such holder of a notice specifying that the
holder elects to receive such payment in cash and the method (E.G., by check,
wire transfer) in which such payment should be made. If such payment is not
delivered within such five business day period, such holder shall thereafter be
entitled to interest on the unpaid amount at a per annum rate equal to the lower
of twenty-four percent (24%) and the highest interest rate permitted by
applicable law until such amount is paid in full to the holder.
F. STATUS AS STOCKHOLDER. Upon submission of a Notice of Conversion by
a holder of Series B Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their listing or issuance
would exceed such holder's allocated portion of the Reserved Amount or Cap
Amount) shall be deemed converted into shares of Common Stock and (ii) the
holder's rights as a holder of such converted shares of Series B Preferred Stock
shall cease and terminate, excepting only the right to receive certificates for
such shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such holder because of a failure by the
Corporation to comply with the terms of this Statement of Designation.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the tenth business day after the expiration of
the Delivery Period with respect to a conversion of Series B Preferred Stock for
any reason, then (unless the holder otherwise elects to retain its status as a
holder of Common Stock by so notifying the Corporation within five business days
after the expiration of such 10 business day period) the holder shall regain the
rights of a holder of Series B Preferred Stock with respect to such unconverted
shares of Series B Preferred Stock and the Corporation shall, as soon as
practicable, return such unconverted shares to the holder. In all cases, the
holder shall retain all of its rights and remedies (including, without
limitation, the right to have the Conversion Price with respect to subsequent
conversions determined in accordance with Article VI.A) for the Corporation's
failure to convert Series B Preferred Stock.
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<PAGE>
G. REMEDIES CUMULATIVE. The remedies provided in this Statement of
Designation shall be cumulative and in addition to all other remedies available
under this Statement of Designation, at law or in equity (including a decree of
specific performance and/or other injunctive relief), and nothing herein shall
limit a holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of this Statement of Designation. The
Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of Series B Preferred Stock and that the
remedy at law for any such breach may be inadequate. The Corporation therefore
agrees, in the event of any such breach or threatened breach, that the holders
of Series B Preferred Stock shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, this Statement of Designation is executed on behalf
of the Corporation this 30 day of June, 1998.
HENLEY HEALTHCARE, INC.
By:/s/ Daniel M. Lavelle
Name: Daniel M. Lavelle
Title: VP International Sales
and Marketing
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<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series B Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of
Series B Preferred Stock (the "CONVERSION"), represented by stock certificate
Nos(s). ___________ (the "PREFERRED STOCK CERTIFICATES"), into shares of common
stock ("COMMON STOCK") of HENLEY HEALTHCARE, INC. (the "CORPORATION") according
to the conditions of the Statement of Designation, Rights and Preferences of the
Series B Convertible Preferred Stock of Henley Healthcare, Inc. (the "STATEMENT
OF DESIGNATION"), as of the date written below. If securities are to be issued
in the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. No fee will be charged to the
holder for any conversion, except for transfer taxes, if any. A copy of each
Preferred Stock Certificate is attached hereto (or evidence of loss, theft or
destruction thereof).
The undersigned requests that the Corporation electronically transmit the Common
Stock issuable pursuant to this Notice of Conversion to the account of the
undersigned or its nominee (which is _________________) with DTC through its
Deposit Withdrawal Agent Commission System ("DTC TRANSFER").
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series B Preferred Stock shall be made pursuant to registration of the Common
Stock under the Securities Act of 1933, as amended (the "ACT"), or pursuant to
an exemption from registration under the Act.
o In lieu of receiving the shares of Common Stock issuable pursuant to
this Notice of Conversion by way of DTC Transfer, the undersigned
hereby requests that the Corporation issue and deliver to the
undersigned physical certificates representing such shares of Common
Stock.
Date of Conversion:_______________________
Applicable Conversion Price:______________
Number of Shares of Common
Stock to be Issued:_______________________
Signature:________________________________
Name:_____________________________________
Address:__________________________________
__________________________________
__________________________________
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EXHIBIT 4.1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of July 1,
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; and
C. The Company has agreed to issue to The Zanett Securities Corporation
(the "PLACEMENT AGENT") warrants (the "PLACEMENT WARRANTS") and, collectively
with the Investor Warrants, (the "WARRANTS") to purchase shares of Common Stock
pursuant to that certain Placement Agency Agreement, dated as of even date
herewith, by and between the Company and the Placement Agent and has agreed to
provide the Placement Agent the rights set forth herein. For purposes of this
Agreement, the Placement Agent shall be deemed an "INITIAL INVESTOR" and the
shares of Common Stock issuable upon the exercise of, or otherwise pursuant to,
the Placement Agent Warrants shall be deemed "WARRANT SHARES".
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investors hereby agree as follows:
1. DEFINITIONS.
<PAGE>
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.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare, and, on or
before August 15, 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
1,279,265 Registrable Securities. The Registration Statement filed hereunder, to
the extent allowable under the Securities Act and the Rules promulgated
thereunder (including Rule 416), shall state that the Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of the Preferred Stock and exercise of the
Warrants (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
2
<PAGE>
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 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
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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 the Investor desires to convert the amounts due
hereunder into Registrable Securities it shall so notify the Company in writing
within two (2) business days after the date on which such amounts are first
payable in cash and such amounts shall be so convertible (pursuant to the
mechanics set forth under Article IV of the 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.
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
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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 Investor of the Registrable
Securities and the Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
f. 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 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.
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3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare and file with the SEC the Registration
Statement required by Section 2(a) (but in no event later than the Filing Date),
and cause such Registration Statement relating to Registrable Securities to
become effective as soon as practicable after such filing (but in no event later
than the Registration Deadline), and keep such Registration Statement effective
pursuant to Rule 415 at all times until such date as is the earlier of (i) the
date on which all of the Registrable Securities have been sold and (ii) the date
on which all of the Registrable Securities (in the reasonable opinion of counsel
to the Initial Investors) may be immediately sold to the public without
registration or restriction pursuant to Rule 144(k) under the Securities Act or
any successor provision (the "REGISTRATION PERIOD"), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein and all documents incorporated by reference therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein not
misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement. In the event (i) the Company
delivers a Rule 416 Notice to the Investors or the Investors who hold a majority
in interest of the Registrable Securities shall reasonably determine, or the SEC
shall state formally or informally, that Rule 416 under the Securities Act does
not permit a registration statement to cover securities which may become
issuable upon conversion or exercise of convertible or exercisable securities by
reason of reductions in the conversion or exercise price of such securities and
(ii) the number of shares available under a Registration Statement filed
pursuant to this Agreement is, for any three (3) consecutive trading days (the
last of such three (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
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(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 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
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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 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.
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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 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
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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 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.)
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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 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
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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.
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
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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 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
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defending any such Claim; PROVIDED, HOWEVER, that the indemnity agreement
contained in this Section 6(b) shall not apply to amounts paid in settlement of
any Claim if such settlement is effected without the prior written consent of
such Investor, which consent shall not be unreasonably withheld; PROVIDED,
FURTHER, HOWEVER, that the Investor shall be liable under this Agreement
(including this Section 6(b) and Section 7) for only that amount as does not
exceed the net proceeds actually received by such Investor as a result of the
sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9 hereof.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented, and the Indemnified Party failed to utilize such corrected
prospectus.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; PROVIDED, HOWEVER, that such indemnifying party shall not be
entitled to assume such defense and an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential conflicts of interest between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding or the actual or potential defendants in, or targets
of, any such action include both the Indemnified Person or the Indemnified Party
and the indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in addition
to those available to such indemnifying party. The indemnifying party shall pay
for only one separate legal counsel for the Indemnified Persons or the
Indemnified Parties, as applicable, and such legal counsel shall be selected by
Investors holding a majority-in-interest of the Registrable Securities included
in the Registration Statement to which the Claim relates (with the approval of
the Initial Investors if they hold Registrable Securities included in such
Registration Statement), if the Investors are entitled to indemnification
hereunder, or by the Company, if the Company is entitled to indemnification
hereunder, as applicable. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually
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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:
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.
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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 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
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<PAGE>
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 Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11(b).
c. Failure of any party to exercise any right or remedy under this
Agreement 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 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.
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<PAGE>
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
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.
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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: VP International Sales and Marketing
INITIAL INVESTORS:
Zanett Lombardier, Ltd.
By: /s/ Gianluca Cicogna
Name: Gianluca Cicogna
Its: Director
- -----------------------------
By:________________________________
Name:______________________________
Its:_______________________________
- ------------------------------
By:________________________________
Name:______________________________
Its:_______________________________
EXHIBIT 4.2
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON NOVEMBER 1, 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: July 1, 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 $6.00. 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 July 1,
1998, by and among the Company and the other signatories thereto (the
"Securities Purchase Agreement") and that certain Placement Agency Agreement
dated as of the date hereof.
This Warrant is subject to the following terms, provisions and conditions:
<PAGE>
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 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
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<PAGE>
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.
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all
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<PAGE>
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.
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<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
5
<PAGE>
adjusted Exercise Price under Section 4(a) hereof, the following will be
applicable:
(i) Issuance of Rights or Options. If the Company in any manner
issues or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
exercisable, convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Dilutive Price in effect on the date of issuance of such
Options ("Below Market Options"), then the maximum total number of shares of
Common Stock issuable upon the exercise of all such Below Market Options
(assuming full exercise, conversion or exchange of Convertible Securities, if
applicable) will, as of the date of the issuance or grant of such Below Market
Options, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For purposes of the preceding sentence, the
"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
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<PAGE>
total number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "Variable Rate Convertible Security"), then the "price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange" for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts contained in
such Convertible Security have been satisfied) if the Dilutive Price on the date
of issuance of such Convertible Security was 75% of the Dilutive Price on such
date (the "Assumed Variable Market Price"). Further, if the Dilutive Price at
any time or times thereafter is less than or equal 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
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therefor for purposes of this Warrant will be the amount received by the Company
therefor, before deduction of reasonable commissions, underwriting discounts or
allowances or other reasonable expenses paid or incurred by the Company in
connection with such issuance, grant or sale. In case any Common Stock, Options
or Convertible Securities are issued or sold for a consideration part or all of
which shall be other than cash, the amount of the consideration other than cash
received by the Company will be the fair market value of such consideration,
except where such consideration consists of securities, in which case the amount
of consideration received by the Company will be the Market Price thereof as of
the date of receipt. In case any Common Stock, Options or Convertible Securities
are issued in connection with any merger or consolidation in which the Company
is the surviving corporation, the amount of consideration therefor will be
deemed to be the fair market value of such portion of the net assets and
business of the non-surviving corporation as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair market
value of any consideration other than cash or securities will be determined in
good faith by an investment banker or other appropriate 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
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<PAGE>
by the number of shares of Common Stock issuable or for which this Warrant is or
may become exercisable (as applicable) upon exercise of this Warrant immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
(e) Consolidation, Merger or Sale. In case of any consolidation of the
Company with, or merger of the Company into, any other corporation, or in case
of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company at any time during the Exercise Period, then as a condition of such
consolidation, merger or sale or conveyance, adequate provision will be made
whereby the holder of this Warrant will have the right to acquire and receive
upon exercise of this Warrant in lieu of the shares of Common Stock immediately
theretofore acquirable upon the exercise of this Warrant, such shares of stock,
securities, cash or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
acquirable and receivable upon exercise of this Warrant had such consolidation,
merger or sale or conveyance not taken place. In any such case, the Company will
make 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
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such calculation is based. Such calculation shall be certified by the chief
financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution (other
than dividends or distributions payable in cash out of retained earnings
consistent with the Company's past practices with respect to declaring dividends
and making distributions) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable estimate thereof by the Company)
when the same shall take place. Such notice shall also specify the date on which
the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least twenty (20)
days prior to the
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record date or the date on which the Company's books are closed in respect
thereto. Failure to give any such notice or any defect therein shall not affect
the validity of the proceedings referred to in clauses (I), (ii), (iii) and (iv)
above. Notwithstanding the foregoing, the Company shall publicly disclose the
substance of any notice delivered hereunder prior to delivery of such notice to
the holder of this Warrant.
(k) Certain Events. If, at any time during the Exercise Period, any
event occurs of the type contemplated by the adjustment provisions of this
Section 4 but not expressly provided for by such provisions, the Company will
give notice of such event as provided in Section 4(g) hereof, and the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of shares of Common Stock acquirable upon exercise of this Warrant so
that the rights of the holder shall be neither enhanced nor diminished by such
event.
(l) Certain Definitions.
(i) "Market Price," as of any date, (i) means the average of the
closing bid prices for the shares of Common Stock as reported on The Nasdaq
SmallCap Market ("Nasdaq SmallCap") by Bloomberg Financial Markets ("Bloomberg")
for the ten consecutive trading days immediately preceding such date, or (ii) if
Nasdaq SmallCap is not the principal trading market for the shares of Common
Stock, the average of the closing bid prices as reported by Bloomberg on the
principal trading market for the Common Stock during the same period, or, if
there is no sale price for such period, the last reported bid price as reported
by Bloomberg for such period, or (iii) if market value cannot be calculated as
of such date on any of the foregoing bases, the Market Price shall be the
average fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to the holder, with the costs
of the appraisal to be borne by the Company. The manner of determining the
Market Price of the Common Stock set forth in the foregoing definition shall
apply with respect to any other security in respect of which a determination as
to market value must be made hereunder.
(ii) "Common Stock," for purposes of this Section 4, includes the
Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation, provided that the
shares purchasable pursuant to this Warrant shall include only Common Stock in
respect of which this Warrant is exercisable, or shares resulting from any
subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
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6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, Redemption and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights granted to
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Section 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Sections 7(f) and (g) hereof and to the provisions
of Sections 2(f) and 2(g) of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 8 hereof are assignable only in
accordance with the provisions of the Registration Rights Agreement.
(b) Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Section 7(e) below, for new Warrants of
like tenor of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by the holder hereof at the time of such
surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Section 7. The Company shall indemnify
and reimburse the holder of this Warrant for all losses and damages arising as a
result of or related to any breach of the terms of this Warrant, including costs
and expenses (including legal fees) incurred by such holder in connection
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<PAGE>
with the enforcement of its rights hereunder.
(e) Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time of the
surrender of this Warrant in connection with any exercise, transfer, or exchange
of this Warrant, this Warrant (or, in the case of any exercise, the Warrant
Shares issuable hereunder), shall not be registered under the Securities Act and
under applicable state securities or blue sky laws, the Company may require, as
a condition of allowing such exercise, transfer, or exchange, (i) that the
holder or transferee of this Warrant, as the case may be, furnish to the Company
a written opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions) to the
effect that such exercise, transfer, or exchange may be made without
registration under the Securities Act and under applicable state securities or
blue sky laws (the cost of which shall be borne by the Company if the Company's
counsel renders such an opinion and up to $250 of such cost shall be borne by
the Company if the holder's counsel is requested to render such opinion), (ii)
that the holder or transferee execute and deliver to the Company an investment
letter in form and substance acceptable to the Company and (iii) that the
transferee be an "accredited investor" as defined in Rule 501(a) promulgated
under the Securities Act; provided that no such opinion, letter, or status as an
"accredited investor" shall be required in connection with a transfer pursuant
to Rule 144 under the Securities Act.
(g) Additional Restrictions on Exercise or Transfer. Notwithstanding
anything contained herein to the contrary, unless the holder hereof delivers a
waiver in accordance with the last sentence of this Section 7(g), this Warrant
shall not be exercisable by a holder hereof to the extent (but only to the
extent) that (a) the number of shares of Common Stock beneficially owned by such
holder and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unexercised portion of the
Warrants or the unexercised or unconverted portion of any other securities of
the Company (including the Series B Preferred Stock) subject to a limitation on
conversion or exercise analogous to the limitation contained herein) and (b) the
number of shares of Common Stock issuable upon exercise of the Warrant (or
portion thereof) with respect to which the determination described herein is
being made, would result in beneficial ownership by such holder and its
affiliates of more than 4.99% of the outstanding shares of Common Stock. To the
extent the above limitation applies, the determination of whether and to what
extent this Warrant shall be exercisable with respect to other securities owned
by such holder shall be in the sole discretion of the holder and submission of
this Warrant for full or partial exercise shall be deemed to be the holder's
determination of whether and the extent to which this Warrant is exercisable, in
each case subject to such aggregate percentage limitation. No prior inability to
exercise the Warrant pursuant to this Section shall have any effect on the
applicability of the provisions of this Section with respect to any subsequent
determination of
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<PAGE>
exerciseability. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as
otherwise provided in clause (a) hereof. Except as provided in the immediately
succeeding sentence, the restrictions contained in this Section 7(g) may not be
amended without the consent of the holder of this Warrant and the holders of a
majority of the Company's then outstanding Common Stock. Notwithstanding the
foregoing, the holder hereof may, by providing written notice to the Company,
adjust the restriction set forth in this Section 7(g) so that the limitation on
beneficial ownership of 4.99% of the outstanding shares of Common Stock referred
to above shall be increased to 9.99%, which adjustment shall not take effect
until the 61st day after the date of such notice.
8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement, including the right to assign such rights to certain assignees, as
set forth therein.
9. Notices. Any notices required or permitted to be given under the terms
of this Warrant shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective upon receipt or refusal of receipt, if delivered personally
or by courier, or by confirmed telecopy, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
HENLEY HEALTHCARE, INC.
120 Industrial Boulevard
Sugarland, Texas 77478
Telecopy: (281) 276-7038
Attn: Chief Financial Officer
If to the holder, at such address as such holder shall have provided in writing
to the Company, or at such other address as such holder furnishes by notice
given in accordance with this Section 9.
10. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of 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 state courts located in the
State of New York in any suit or proceeding based on or arising under this
Warrant and irrevocably agrees that all claims in respect of such suit or
proceeding shall be determined exclusively in such courts. The Company
irrevocably waives any objection to the laying of venue and the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
further agrees that service of process
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upon the Company mailed by certified or registered mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the holder's right to serve process in
any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
(c) Business Day. For purposes of this Warrant, the term "business
day" means any day, other than a Saturday or Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law,
regulation or executive order to close.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
HENLEY HEALTHCARE, INC.
By: _________________________________
Name:____________________________
Title:_____________________________
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FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
To: HENLEY HEALTHCARE, INC.
120 Industrial Boulevard
Sugarland, Texas 77478
Telecopy: (281) 276-7038
Attn: Chief Financial Officer
The undersigned hereby irrevocably exercises the right to purchase
_____________ shares of the Common Stock of HENLEY HEALTHCARE, INC., a
corporation organized under the laws of the State of Texas (the "Company"),
evidenced by the attached Warrant, in accordance with the conditions and
provisions of said Warrant. The undersigned shall submit as payment for such
purchase, at the option of the Company, either (i) an amount equal to the
product of the Exercise Price multiplied by the number of shares being purchased
hereby, or (ii) forfeiture of a number of shares of Common Stock which would
have been issuable under the Warrant equal to the aggregate Exercise Price
payable for such exercise divided by the Market Price. All capitalized terms
used herein and not otherwise defined shall have the meanings ascribed to such
terms in the Warrant.
The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any Common Stock obtained on exercise of the Warrant, except under circumstances
that will not result in a violation of the Securities Act of 1933, as amended,
or any state securities laws.
The undersigned requests that the Company cause its transfer agent to
electronically transmit the Common Stock issuable pursuant to this Exercise
Agreement to the account of the undersigned or its nominee (which is
_________________) with DTC through its Deposit Withdrawal Agent Commission
System ("DTC Transfer").
In lieu of receiving the shares of Common Stock issuable pursuant to this
Exercise Agreement by way of DTC Transfer, the undersigned hereby requests
that the Company cause its transfer agent to issue and deliver to the
undersigned physical certificates representing such shares of Common Stock.
The undersigned requests that a Warrant representing any unexercised
portion hereof be issued, pursuant to the Warrant, in the name of the Holder and
delivered to the undersigned at the address set forth below:
Dated:_________________ _____________________________________
Signature of Holder
-------------------------------------
Name of Holder (Print)
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Address:
-------------------------------------
-------------------------------------
-------------------------------------
18
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FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints
_____________________________________ as agent and attorney-in-fact to transfer
said Warrant on the books of the within-named corporation, with full power of
substitution in the premises.
Dated: _____________________, ____
In the presence of
- ------------------
Name: ____________________________
Signature: _______________________
Title of Signing Officer or Agent (if any):
------------------------
Address: ________________________
------------------------
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
19
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of July 1,
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 form of Statement of Designation of Rights and
Preferences attached hereto as EXHIBIT B (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.
<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 July 1, 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
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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.
(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.
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<PAGE>
(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:
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.
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<PAGE>
(j) ACKNOWLEDGMENTS REGARDING PLACEMENT AGENT. Purchaser acknowledges that
The Zanett Securities Corporation is acting as placement agent (the "PLACEMENT
AGENT") for the Securities being offered hereby and will be compensated by the
Company for acting in such capacity. Purchaser further acknowledges that the
Placement Agent has acted solely as placement agent in connection with the
offering of the Securities by the Company, that the information and data
provided to Purchaser and referred to in subsection (d) above or otherwise in
connection with the transactions contemplated hereby have not been subjected to
independent verification by the Placement Agent, and that the Placement Agent
makes no representation or warranty with respect to the accuracy or completeness
of such information, data or other related disclosure material. Purchaser
further acknowledges that in making its decision to enter into this Agreement
and purchase the Securities it has relied on the Company's representations and
warranties contained in Section 3 below and on its own examination of the
Company and the terms of, and consequences of holding, the Securities. Purchaser
further acknowledges that the provisions of this Section 2(j) are for the
benefit of, and may be enforced by, the Placement Agent.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser as follows:
(a) ORGANIZATION AND QUALIFICATION. The Company 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
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<PAGE>
shareholders is required, and (iii) this Agreement constitutes, and, upon
execution and delivery by the Company of the Warrants and the Registration
Rights Agreement, such agreements will constitute, valid and binding obligations
of the Company enforceable against the Company in accordance with their terms.
(c) STOCKHOLDER AUTHORIZATION. Except as set forth on SCHEDULE 3(C), the
Company believes that neither the execution, delivery or performance of this
Agreement, the Warrants or the Registration Rights Agreement by the Company nor
the consummation by it of the transactions contemplated hereby or thereby
(including, without limitation, the issuance of the Preferred Shares or Warrants
or the issuance, reservation for issuance or listing of the Conversion Shares or
Warrant Shares) requires any consent, approval or authorization of the Company's
stockholders.
(d) CAPITALIZATION. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Preferred Shares and Warrants)
exercisable or exchangeable for, or convertible into, any shares of capital
stock and the number of shares to be reserved for issuance upon conversion of
the Preferred Shares and exercise of the Warrants is set forth on SCHEDULE 3(D).
All of such outstanding shares of capital stock have been, or upon issuance in
accordance with the terms of any such warrants, options or preferred stock, will
be, validly issued, fully paid and non-assessable. No shares of capital stock of
the Company (including the Preferred Shares, the Conversion Shares and the
Warrant Shares) are subject to preemptive rights or any other similar rights of
the stockholders of the Company 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
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<PAGE>
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 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
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<PAGE>
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 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
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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 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
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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.
(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
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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 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.
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(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.
(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.
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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 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.
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(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 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.
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(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 as follows: (i) amend
the Performance Milestones (as defined in the Statement of Designation) in
Article III.C. thereof to reflect quarterly revenue and net income performance
milestones calculated by dividing by four the annual revenue and net income
projections through December 31, 2001 for the Company contained in the
Information Memorandum dated June 10, 1998 regarding the purchase of Enraf
Nonius B.V. prepared by Everen Securities and (ii) amend the requirement
relating to the delivery of Common Stock upon conversion contained in Article
IV.B.(i)(a) thereof from the "fifth" to the "third" business day.
(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.
(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.
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(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.
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.
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(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 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 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
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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 Statement of Designation 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.
(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.
(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
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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.
(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.
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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 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
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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 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
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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 July 15, 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, without the necessity of showing economic loss and without any bond
or other security being required.
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<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser 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: VP International Sales and Marketing
<PAGE>
PURCHASER:
ZANETT LOMBARDIER, LTD.
By: /s/ Gianluca Cicogna
Name: Gianluca Cicogna
Title: Director
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 2,500
Purchase Price ($1,000 per Unit) $2,500,000
