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):
APRIL 19, 1999 (APRIL 12, 1999)
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
PRIVATE PLACEMENT OF SERIES C CONVERTIBLE PREFERRED STOCK
On April 12, 1999, Henley Healthcare, Inc., a Texas corporation (the
"Company"), sold in a private placement 750 units (the "Series C Units")
consisting of (i) one share of the Company's Series C Convertible Preferred
Stock, par value $.10 per share (the "Series C Shares"), convertible into shares
of the Company's common stock, par value $.01 per share (the "Common Stock"),
and (ii) a warrant (the "Series C Warrant") to acquire 166.667 shares of Common
Stock, for a purchase price of $1,000 per unit, to Zanett Lombardier, Ltd. (the
"Purchaser"), an accredited investor. The Series C Shares bear no dividend, and
the holders of the Series C Shares are not entitled to receive any dividends on
the Series C Shares. The Series C 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 Series C 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) $2.875, the closing price for the Company's Common
Stock on April 12, 1999; PROVIDED; HOWEVER, that the conversion price shall not
be less than $1.75 if the Company meets certain quarterly and annual revenue and
net income tests for the first quarter of 1999 and continues to meets such tests
in the future. The Series C Warrants have an exercise period of 48 months and an
exercise price of $2.64 per share. The placement agent, The Zanett Securities
Corporation, received a commission of 9.5% and a nonaccountable expense
allowance of $55,000, as well as warrants to acquire 62,500 shares of Common
Stock with the same terms as the Series C 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 Series C Shares and
exercise of the Series C 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 C Preferred Stock, the Company is not required to
issue shares of its Common Stock on conversion of the Series C Shares unless
such shares of Common Stock 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 Series C Shares 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
seek shareholder approval for the issuance of the Series C Shares at its 1999
Annual Meeting of Shareholders, to be held on or before July 1, 1999, in order
to eliminate this limit on the shares of Common Stock issuable on conversion of
the Series C Shares.
AMENDMENT OF SERIES B STATEMENT OF DESIGNATION AND RELATED WARRANTS
In connection with the private placement of the Series C Units, the
Company also (i) amended the Statement of Designation of Rights and Preferences
of its Series B Convertible Preferred Stock (the "Series B Statement of
Designation") and (ii) amended and restated certain
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warrants (the "Series B Warrants") to purchase Common Stock issued in connection
with the private placement of shares of Series B Convertible Preferred Stock
(the "Series B Shares") on July 1 and August 10, 1998. The Series B Statement of
Designation was amended to change the Fixed Conversion Price (as defined
therein) to $4.00 from 110% of the five day average closing bid price of the
Common Stock on the original issuance date, which was $5.961 for the 2,500
Series B Shares sold on July 1, 1998 and $5.665 for the 2,200 Series B Shares
sold on August 10, 1998. The Series B Warrants were amended to reduce the
exercise price from $6.00 to $2.64.
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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
C Convertible Preferred Stock of the Company.
3.2 -- Articles of Amendment to the Company's Articles of Incorporation
amending the Statement of Designation of Rights and Preferences
of the Series B Convertible Preferred Stock.
4.1 -- Registration Rights Agreement dated as of April 12, 1999, by and
among the Company, Zanett Lombardier, Ltd. and Zanett Securities
Corporation.
4.2 -- Form of Series C Warrant.
4.3 -- Amendment and Exchange Agreement dated as of April 12, 1999
among the Company, Zanett Lombardier, Ltd., Goldman Sachs
Performance Partners, L.P., Goldman Sachs Performance Partners
(Offshore), L.P. and Zanett Securities Corporation.
4.4 -- Form of Replacement Series B Warrant.
10.1 -- Securities Purchase Agreement dated as of April 12, 1999,
between the Company and Zanett Lombardier, Ltd.
10.2 -- Placement Agency Agreement dated as of April 12, 1999 between
the Company and Zanett Securities Corporation.
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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
April 19, 1999
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EXHIBITS
3.1 -- Statement of Designation of Rights and Preferences of the Series
C Convertible Preferred Stock of the Company.
3.2 -- Articles of Amendment to the Company's Articles of Incorporation
amending the Statement of Designation of Rights and Preferences
of the Series B Convertible Preferred Stock.
4.1 -- Registration Rights Agreement dated as of April 12, 1999, by and
among the Company, Zanett Lombardier, Ltd. and Zanett Securities
Corporation.
4.2 -- Form of Series C Warrant.
4.3 -- Amendment and Exchange Agreement dated as of April 12, 1999
among the Company, Zanett Lombardier, Ltd., Goldman Sachs
Performance Partners, L.P., Goldman Sachs Performance Partners
(Offshore), L.P. and Zanett Securities Corporation.
4.4 -- Form of Replacement Series B Warrant.
10.1 -- Securities Purchase Agreement dated as of April 12, 1999,
between the Company and Zanett Lombardier, Ltd.
10.2 -- Placement Agency Agreement dated as of April 12, 1999 between
the Company and Zanett Securities Corporation.
6
STATEMENT OF DESIGNATION
OF RIGHTS AND PREFERENCES OF THE
SERIES C CONVERTIBLE PREFERRED STOCK OF
HENLEY HEALTHCARE, INC.
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 April 6, 1999, adopted the
following resolution setting forth the designations, powers, preferences and
rights of its Series C Convertible Preferred Stock and the amendments and
corrections filed since that date (as amended and corrected, the "STATEMENT OF
DESIGNATION").
RESOLVED: That the designations, powers, preferences and rights of the Series C
Convertible Preferred Stock be, and they hereby are, as set forth below:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 2,250 shares of
Preferred Stock, is the Series C Convertible Preferred Stock (the "SERIES C
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 C Preferred Stock will bear no dividends, and the holders of
the Series C Preferred Stock shall not be entitled to receive dividends on the
Series C Preferred Stock.
III. CERTAIN DEFINITIONS
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
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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 C
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 C 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 C 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, so long as the
Company has revenue, net income and average daily trading volume equal to or
greater than the amounts set forth below in each period set forth opposite such
amounts (such amounts being the "PERFORMANCE MILESTONE" for such period):
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AVERAGE DAILY
FOR THE QUARTERLY QUARTERLY TRADING
PERIOD ENDED: QUARTERLY REVENUE NET INCOME VOLUME (SHARES)
------------- ----------------- ---------- ---------------
March 31, 1999 $13,200,000 $ 53,000 N/A
June 30, 1999 $13,600,000 $500,000 N/A
September 30, 1999 $13,300,000 $480,000 75,000
December 31, 1999 $14,900,000 $900,000 75,000
March 31, 2000 $13,300,000 $480,000 75,000
then, the Conversion Price in effect on any Conversion Date after the Filing
Date (defined below) for such period and prior to the Filing Date (defined
below) for the subsequent period shall not be less than the Floor Price in
effect on such Conversion Date, PROVIDED, however, that no Floor Price shall be
in effect (a) whenever 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, (b) 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), (c) until the determination has been made as to whether
the Performance Milestone set forth above for the quarterly period ended March
31, 1999 has been met or (d) at any time after the Company fails to meet the
Performance Milestone for any period set forth above. The term "FILING DATE"
means, with respect to any period, the date the Company's Quarterly Report on
Form 10-Q or 10-QSB (each a "10-Q") or Annual Report on Form 10-K or 10-KSB
(each a "10-K"), as the case may be, is filed with the Securities and Exchange
Commission for such period. The determination as to whether the Performance
Milestone for any period has been met shall be made by comparing the revenue and
net income for such period disclosed in the 10-Q or 10-K, as the case may be,
for such period, with the Performance Milestone for such period and shall be
made as of the Filing Date of such 10-Q or 10-K, as the case may be; provided,
however, for purposes of making such a determination of net income, net income
shall be increased by an amount equal to the amount of any non-cash charges and
expenses taken by the Company, as reflected in its financial statements,
relating to the issuance of shares of its Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and warrants in connection therewith.
In the event the Company meets all the Performance Milestones for all the
periods set forth above, thereafter the Floor Price shall remain in effect.
D. "FIRST CONVERSION DATE" means, with respect to Series C Preferred Stock
issued on any Issue Date the earliest of (i) the date the Registration Statement
required to be filed by the Corporation, with respect to such shares of Series C
Preferred Stock pursuant to that certain Registration Rights Agreement (the
"REGISTRATION RIGHTS AGREEMENT") by and among the Corporation and the other
signatories thereto entered into in connection with the Securities Purchase
Agreement dated as of April 12, 1999, but effective as of April 7,1999, by and
among the
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Corporation and the other signatory thereto (the "SECURITIES PURCHASE
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 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 greater of (i) $2.64 and (ii) the
Closing Price for the Corporation's common stock, par value $.01 per share
("COMMON STOCK") on the Issuance Date, and shall be subject to adjustment as
provided herein.
F. "ISSUANCE DATE" means the date of the relevant Closing under the
Securities Purchase
Agreement.
G. "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.
H. "N" means the number of days from, but excluding, the Issuance Date.
I. "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 C 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.
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J. "FLOOR PRICE" means, with respect to any Conversion Date, $1.75, and
shall be subject to adjustment as provided herein.
K. "PREMIUM" means an amount equal to (X)x(N/365) x (1,000), where "X"
means seven hundredths (.07), provided, however, that X shall mean ten
hundredths (.10) for the period beginning as of the last day of any Trading
Volume Valuation Period (defined below) and thereafter in which the Trading
Volume Value (defined below) shall not equal or exceed $250,000, in which event
X shall remain seven hundredths (.07) with respect to calculating the amount of
the Premium accrued prior to such day. The term "TRADING VOLUME VALUATION
PERIOD" shall mean any twenty (20) consecutive trading day period during the
period beginning on the twentieth trading day prior to April 12, 1999 and
continuing thereafter. The term "TRADING VOLUME Value" shall mean, for any
Trading Volume Valuation Period, the average of the products obtained by
multiplying (i) the Closing Bid Price for the Common Stock on a trading day by
(ii) the total number of shares of Common Stock traded on such trading day for
each trading day in such Trading Volume Valuation Period.
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 C 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 C 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
----------------
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
-------------------
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
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
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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 C 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 C 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
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
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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 C 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 third 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 C Preferred Stock being
converted and (y) a certificate representing the number of shares of Series C
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 C Preferred Stock other
than transfer taxes due upon conversion, if such holder has transferred to
another party the Series C Preferred Stock or the right to receive Common Stock
upon the holder's conversion thereof.
(iii) NO FRACTIONAL SHARES. If any conversion of Series C 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 C 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.
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(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 C 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 C
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 C Preferred Stock as provided in Article XIV.C. In the
event a holder of Series C 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 C
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 C 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 C 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 Agreements) 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 C Preferred 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
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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 C Preferred Stock shall approve such alteration, amendment, deletion or
change. Notwithstanding the foregoing, a holder of shares of Series C 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 C Preferred Stock may not convert shares of Series C
Preferred Stock acquired on a particular Issuance Date to the extent that the
total number of shares of Series C Preferred Stock acquired on such Issuance
Date previously converted by such holder (excluding for purposes of this
calculation any shares of Series C 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 C Preferred Stock
acquired on such Issuance Date which such holder is attempting to convert
exceeds the Maximum Conversion Percentage (as defined herein) multiplied by the
total number of shares of Series C 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 C Preferred Stock occurring after the applicable 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 First
Conversion Date and before
the 60th day following the
First Conversion Date 20%
On or after the 60th day
following the First Conversion
Date and before the 90th day
following the First Conversion
Date 40%
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On or after the 90th day
following the First Conversion
Date and before the 120th day
following the First Conversion
Date 60%
On or after the 120th day
following the First Conversion
Date and before the 150th day
following the First Conversion
Date 80%
On or after the 150th day
following the First Conversion
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 C 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 C Preferred
Stock and (iii) eligible to be traded on either The Nasdaq SmallCap Market, The
Nasdaq National Market, the New York Stock Exchange or the American Stock
Exchange, each share of Series C 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 C Preferred Stock
shall follow the applicable conversion procedures set forth in Paragraph B of
this Article IV; PROVIDED, HOWEVER, that the holders of Series C Preferred Stock
are not required to deliver a Notice of Conversion to the Corporation or its
transfer agent.
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V. RESERVATION OF SHARES OF COMMON STOCK
A. RESERVED AMOUNT. Upon the initial issuance of the shares of Series C
Preferred Stock, the Corporation shall reserve 200% of the number of shares
which would be issuable if the outstanding shares of Series C Preferred Stock
were converted in their entirety on the Initial 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 C
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 C
Preferred Stock outstanding at the then current Conversion Price thereof. The
Reserved Amount shall be allocated to the holders of Series C 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 C
Preferred Stock, the Corporation shall immediately notify the holders of Series
C 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 C 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 C
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 C 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 C 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.
C. ADJUSTMENT TO CONVERSION PRICE. If the Corporation is prohibited, at
any time, from issuing shares of Common Stock upon conversion of Series C
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 C Preferred
Stock held by any holder (including shares of Series C 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 C Preferred Stock shall
have no right to require the
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Corporation to effect a redemption of their outstanding shares of Series C
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 C 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 C 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 C
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 C 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 C 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 of a Conversion Default
described in clause (i) or (iii) above, the Fixed Conversion Price in respect of
any shares of Series C Preferred Stock held by such holder (including shares of
Series C 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 C Preferred Stock
with respect to such unconverted shares of Series C 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,
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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 C 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 C 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 C 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 C 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 C 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 C 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 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 C 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
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<PAGE>
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 C 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 April 12, 1999 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 C Preferred Stock (a "TRADING MARKET TRIGGER EVENT"), the Corporation
shall immediately notify the holders of Series C 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 C 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 C 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 C 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 C 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.
B. REMEDIES. If the Corporation fails to redeem any shares of Series C
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 C 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 C Preferred Stock because the shares of
Common Stock underlying such Series C Preferred Stock may not be listed or
issued, may elect either or both of the following additional remedies:
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(i) to require, with the consent of holders of at least fifty
percent (50%) of the outstanding shares of Series C Preferred Stock (including
any shares of Series C 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 C 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 C Preferred Stock held by
any holder (including shares of Series C 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 C Preferred Stock) is 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 C
Preferred Stock upon conversion of the Series C 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;
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(iii) the Corporation provides notice to any holder of Series C
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 C 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 Agreements or the Registration Rights
Agreements 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 C 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
then outstanding shares of Series C 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 C 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 C Preferred Stock stating
the date upon which the Corporation received such Redemption Notice and the
amount of Series C Preferred Stock covered
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thereby. Subject to Article VIII.D, the Corporation shall not redeem any shares
of Series C 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 C
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 C 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 C 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
"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 C
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
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majority-in-interest of the then outstanding shares of Series C 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 C Preferred Stock within
five business days after its receipt of a notice requiring such redemption (a
"REDEMPTION NOTICE"), then the holder of Series C 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 C 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 C Preferred Stock from each holder pro rata, based on
the total number of shares of Series C 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 C 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.
(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 C Preferred Stock by facsimile and overnight courier stating that the
Corporation will redeem any conversions of Series C 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 C
Preferred Stock within such ten (10) day period, the Corporation shall not be
permitted to so redeem any conversions of Series C 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 C
Preferred Stock which are the subject of the Notice of Conversion for the
Redemption Amount (as defined in Article VIII.B).
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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 C 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 C 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 C Preferred Stock subject to the Void Optional
Redemption Notice, and (ii) the Corporation shall immediately return any shares
of Series C Preferred Stock subject to the Void Optional Redemption Notice
IX. RANK
The Series C 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 C
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 C Preferred Stock, obtained in accordance with Article XIII
hereof) specifically ranking, by its terms, senior to the Series C Preferred
Stock ("SENIOR SECURITIES"); and (iv) PARI PASSU with the Series A Preferred
Stock, the Series B 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 C Preferred Stock obtained in accordance with Article XIII hereof)
specifically ranking by its terms on parity with the Series C 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.
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
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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 C 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 C 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 C
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 C
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.
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
Initial 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.
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B. ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any time after
the Initial 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 C
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 C
Preferred Shares then outstanding) shall be made with respect to the rights and
interests of the holders of the Series C Preferred Stock to the end that the
economic value of the shares of Series C 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 C 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 C 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 C 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 Initial 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
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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 Initial
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 C Preferred Stock shall be entitled,
upon any conversion of shares of Series C Preferred Stock after the date of
record for determining shareholders entitled to such Distribution, 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 Initial
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 all Performance Milestones or (ii) otherwise, the Market Price. If
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the Company has met all 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 Initial 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 class of
Common Stock, then the holders of Series C 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 C 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 C
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 C Preferred Stock, furnish to such holder a like certificate setting
forth (i) such adjustment or readjustment, (ii) the Conversion Price
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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 C Preferred Stock.
XII. VOTING RIGHTS
The holders of the Series C 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 C 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.
To the extent that under the Business Corporation Act the vote of the
holders of the Series C 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 C 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 C 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 C Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series C 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.
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XIII. PROTECTION PROVISIONS
So long as any shares of Series C 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 C Preferred Stock:
(a) alter or change the rights, preferences or privileges of
the Series C 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 C Preferred
Stock;
(c) create any new class or series of capital stock having a
preference over the Series C 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 C 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 C
Preferred Stock;
(f) issue any shares of Senior Securities;
(g) issue any shares of Series C Preferred Stock other than
pursuant to the Securities Purchase Agreements;
(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.
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XIV. MISCELLANEOUS
A. CANCELLATION OF SERIES C PREFERRED STOCK. If any shares of Series C
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 C 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 C 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 C
Preferred Stock based on the number of shares of Series C 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 C Preferred Stock based on the
number of shares of Series C 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 C 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 C Preferred Stock shall be allocated to the remaining holders of
shares of Series C Preferred Stock, pro rata based on the number of shares of
Series C 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 Agreements is declared effective
and thereafter so long as any shares of Series C Preferred Stock are
outstanding, the Corporation shall deliver (or cause its transfer agent to
deliver) to each 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 C 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 C
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 C 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 C 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
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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 C 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 C 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 C 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 C Preferred Stock with respect to such unconverted
shares of Series C 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 C Preferred Stock.
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
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acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the holders of Series C 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
C 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.
/s/ DAN D. SUDDUTH
Dan D. Sudduth
EXECUTIVE VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND SECRETARY
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NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series C Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of
Series C 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 C 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 C 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.
[ ] 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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ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
HENLEY HEALTHCARE, INC.
Henley Healthcare, Inc. (the "Corporation"), pursuant to the provisions of
Article 4.04 of the Texas Business Corporation Act (the "TBCA"), hereby adopts
the following Articles of Amendment to its Articles of Incorporation.
ARTICLE ONE
The name of the Corporation is Henley Healthcare, Inc.
ARTICLE TWO
The Articles of Incorporation of the Corporation are amended as follows:
Article III.E of the Amended and Restated Statement of Designation of Rights and
Preferences of the Series B Convertible Preferred Stock, Par Value $.10 Per
Share, as filed with the Secretary of State on August 25, 1998, is deleted in
its entirety and the following Article III.E is substituted in its place:
E. "FIXED CONVERSION PRICE" means an amount equal to $4.00.
ARTICLE THREE
These Articles of Amendment were duly adopted by the shareholders of the
Series B Convertible Preferred Stock by written consent dated April 12, 1999.
ARTICLE FOUR
The number of shares of Series B Convertible Preferred Stock outstanding
at the time of the adoption of these Articles of Amendment was 4,700; and the
number of shares entitled to consent thereto was 4,700.
ARTICLE FIVE
The number of shares of the Series B Convertible Preferred Stock which
consented to these Articles of Amended was 4,700; and the number of shares which
did not consent to these Articles of Amendment was 0. The shareholders of all of
the shares of Series B Preferred Stock outstanding and entitled to vote on said
amendment have signed a consent in writing pursuant to Article 9.10(A) of the
TBCA adopting these Articles of Amendment and any written notice required by
Article 9.10(A)(4) of the TBCA has been given.
<PAGE>
IN WITNESS WHEREOF, the undersigned President and Chief Executive Officer
of the Corporation hereby executes these Articles of Amendment on this 12th day
of April, 1999.
HENLEY HEALTHCARE, INC.
/s/ DAN D. SUDDUTH
Dan D. Sudduth
EXECUTIVE VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND SECRETARY
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EXHIBIT 4.1
EXHIBIT C
TO SECURITIES
PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of April 12,
1999, 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 C 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 AINVESTOR WARRANTS") to acquire shares (the
"WARRANT SHARES") of Common Stock;
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"SECURITIES ACT"), and applicable state securities laws;
C. The Company has agreed to issue to The Zanett Securities Corporation
(the "PLACEMENT AGENT") warrants (the "PLACEMENT WARRANTS" and, collectively
with the Investor Warrants, the "WARRANTS") to purchase shares of Common Stock
pursuant to that certain Placement Agency Agreement, dated as of even date
herewith, by and between the Company and the Placement Agent and has agreed to
provide the Placement Agent the rights set forth herein. For purposes of this
Agreement, the Placement Agent shall be deemed an AINITIAL INVESTOR@ and the
shares of Common Stock issuable upon the exercise of, or otherwise pursuant to,
the Placement Agent Warrants shall be deemed "WARRANT SHARES"; and
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:
<PAGE>
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "INVESTORS" means the Initial Investors and any
transferees or assignees who agree to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means the Conversion Shares and
the Warrant Shares (including any Conversion Shares issuable in redemption of
any Preferred Stock and any Warrant Shares issuable with respect to Exercise
Default Payments under the Warrants) issued or issuable with respect to the
Preferred Stock and the Warrants and any shares of capital stock issued or
issuable, from time to time (with any adjustments), as a distribution on or in
exchange for or otherwise with respect to any of the foregoing.
(iv) "REGISTRATION STATEMENT" means a registration statement
of the Company under the Securities Act.
b. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare, and, on or
before May 27, 1999 (the "FIRST FILING DATE"), and within 45 days after the
Second Closing Date (as defined in the Securities Purchase Agreement) (the
"SECOND CLOSING DATE") (each, a "CLOSING DATE") file with the SEC a Registration
Statement on Form S-3 (or, if Form S-3 is not then available, on such form of
Registration Statement as is then available to effect a registration of all of
the Registrable Securities issued at such Closing, subject to the consent of the
Initial Investors (as determined pursuant to Section 11(j) hereof)) covering the
resale of at least that number of shares of Common Stock equal to 175% of the
Registrable Securities issued or issuable upon conversion (without giving effect
to any limitations on conversion contained in Article IV.C of the
<PAGE>
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), calculated as of a mutually agreeable date within the five (5)
trading days prior to the filing date for any Registration Statement. 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 parties acknowledge that as of the date hereof the SEC's
position is that Rule 416 doe not permit the registration of the securities
described in clause (ii) of the preceding sentence, and that the Registration
Statement will not state that it covers such securities unless the SEC changes
its postion prior to the filing of the Registration Statement. The Registrable
Securities included in each Registration Statement filed hereunder shall be
allocated to the Investors as set forth in Section 11(k) hereof. Each
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 each
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 applicable Filing Date (the
"REGISTRATION
<PAGE>
DEADLINE"). If (i) (A) a 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 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 SmallCap, AMEX, NYSE or NNM; PROVIDED,
HOWEVER, that there shall be excluded from each such period any delays which are
solely attributable to changes (other than corrections of Company mistakes with
respect to information previously provided by the Investors) required by the
Investors in the Registration Statement with respect to information relating to
the Investors, including, without limitation, changes to the plan of
distribution. (For example, if the Registration Statement is not effective by
the Registration Deadline, the Company would pay $15,000 for each thirty (30)
day period thereafter with respect to each $1,000,000 of Aggregate Share Price
until the Registration Statement becomes effective.) Such amounts shall be paid
in cash or, at each Investor's option, may be convertible into Common Stock at
the "CONVERSION PRICE" (as defined in the Statement of Designation) then in
effect. Any shares of Common Stock issued upon conversion of such amounts shall
be Registrable Securities. If any Investor desires to convert the amounts due
hereunder into Registrable Securities it shall so notify the Company in writing
within two (2) business days after the date on which such amounts are first
<PAGE>
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
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
<PAGE>
or underwriters and, subject to the provisions of this Agreement, on the same
terms and conditions as other shares of Common Stock included in such
underwritten offering.
e. ELIGIBILITY FOR FORM S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of the
sale by the Initial Investors and any other Investors of the Registrable
Securities and the Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
f. RULE 416; NOTICE OF REGISTRATION TRIGGER DATE. 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 to prevent dilution resulting from stock splits, stock
dividends or similar transactions (collectively, the "RULE 416 SECURITIES"). In
this regard, the Company agrees to take all steps necessary to ensure that all
Rule 416 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. In the event that a Registration Trigger Date (as
defined below) occurs, the Company shall provide each Investor written notice of
such Registration Trigger Date within three (3) business days thereafter. 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.
g. Notwithstanding the provisions of this Section 2, the
registration rights contained herein shall not be interpreted to adversely
affect the Company's existing registration rights as described on Schedule A
hereto (the AExisting Registration Rights@).
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 each 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
<PAGE>
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 Statements and
the prospectuses used in connection with the Registration Statements as may be
necessary to keep the Registration Statements 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 Statements 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 Statements. In the event that the number of shares available
under a Registration Statement filed pursuant to this Agreement is, for any
three (3) consecutive trading days (the last of such three (3) trading days
being the "REGISTRATION TRIGGER DATE"), insufficient to cover one hundred
thirty-five percent (135%) of the Registrable Securities issued or issuable upon
conversion (without giving effect to any limitations on conversion contained in
Article IV.C of the Statement of Designation) of the Preferred Stock and
exercise of the Warrants (without giving effect to any limitations on exercise
contained in Section 7 of the Warrants), the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover two hundred percent
(200%) of the Registrable Securities issued or issuable (without giving effect
to any limitations on conversion or exercise contained in the Statement of
Designation or the Warrants) as of the Registration Trigger Date, in each case,
as soon as practicable, but in any event within fifteen (15) days after the
Registration Trigger Date (based on the market price then in effect of the
Common Stock and other relevant factors on which the Company reasonably elects
to rely). The Company shall cause such amendment(s) and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof. In the event the Company fails to obtain the effectiveness of any such
Registration Statement within seventy-five (75) days after a Registration
Trigger Date, each Investor shall thereafter have the option, exercisable in
whole or in part at any time and from time to time by delivery of a written
notice to the Company (a "MANDATORY REDEMPTION NOTICE"), to require the Company
to purchase for cash, at an amount per share equal to the Redemption Amount (as
defined in Article VIII.B of the Statement of Designation), a portion of the
Investor's Preferred Stock such that the total number of Registrable Securities
included on the Registration Statements for resale by such Investor exceeds 135%
of the Registrable Securities issued or issuable upon
<PAGE>
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 Statements 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 each Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statements 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 Statements (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 a Registration
Statement or any amendment thereto, a notice stating that such 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
Statements under such other securities or "blue sky" laws of such jurisdictions
in the United States as each Investor who holds Registrable Securities being
offered reasonably requests, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; PROVIDED, HOWEVER, that the Company shall not be
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause the Company undue expense
or burden, or (e) make any change in its charter or bylaws, which in each case
the Board of Directors of the
<PAGE>
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 each Registration Statement and all amendments
and supplements thereto a reasonable period of time prior to its filing with the
SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of the effectiveness of any
Registration Statement without prior notice to such counsel.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish, on the
<PAGE>
date of effectiveness of each 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 a
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
<PAGE>
agreement, or (v) such Investor consents to the form and content of any such
disclosure. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to such Investor prior to making such disclosure, and allow the Investor,
at its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, such information.
m. The Company shall use its commercially reasonable best efforts to
promptly either (i) cause all of the Registrable Securities covered by the
Registration Statement to be listed on the SmallCap, AMEX, NNM or the NYSE or
another national securities exchange and on each additional national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure the designation and
quotation of all of the Registrable Securities covered by the Registration
Statement on the NNM and, without limiting the generality of the foregoing, to
arrange for or maintain at least two market makers to register with the National
Association of Securities Dealers, Inc. ("NASD") as such with respect to such
Registrable Securities.
n. The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statements and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an 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
<PAGE>
distribution set forth in such Registration Statement.
q. The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the SEC.)
r. The Company shall take all such other actions as any Investor or
the underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of the Registrable Securities.
s. From and after the date of this Agreement, the Company shall not,
and shall not agree to, allow the holders of any securities of the Company,
other than holders of securities having the Existing Registration Rights, to
include any of their securities in a 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
<PAGE>
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election not to participate in such underwritten
distribution.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Sections 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Sections 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten distribution
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and commissions
and costs of counsel to Investors, incurred in connection with registrations,
filings or qualifications pursuant to Sections 2 and 3, including, without
limitation, all registration, listing and qualifications fees, printers and
accounting fees, the fees and disbursements of counsel for the Company and the
fees and disbursements contemplated by Section 3(k) hereof shall be borne by the
Company. In addition, the Company shall pay all of the Investors' costs and
expenses (including legal fees) incurred in connection with the enforcement of
the rights of the Investors hereunder.
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,
<PAGE>
and underwriters for Investors and such underwriters' directors, officers,
partners, members, employees, agents and each person who controls any such
underwriter within the meaning of Section 15 of the Exchange Act (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any filing made in connection with qualification under state
securities laws or the omission or alleged omission to state therein a material
fact required to be stated or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading,
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any other applicable securities law, including, without
limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities or (iv) any material
breach of this Agreement (the matters in the foregoing clauses (i) through (iv)
being, collectively, "VIOLATIONS"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Investors and each other Indemnified Person, promptly as such
expenses are incurred and are due and payable, for any reasonable legal fees or
other reasonable out of pocket expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person expressly for use
in the Registration Statement or any such amendment thereof or supplement
thereto; (ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld; and (iii) with respect to any
preliminary prospectus, shall not inure to the benefit of any Indemnified Person
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, if such corrected prospectus was timely made
available by the Company pursuant to Section 3(c) hereof, and the Indemnified
Person was promptly 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
<PAGE>
the Investors pursuant to Section 9 hereof.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, its employees, agents and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act (collectively and
together with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim
to which any of them may become subject, under the Securities Act, the Exchange
Act or otherwise, insofar as such Claim arises out of or is based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and subject to Section 6(c) such Investor will
reimburse any legal or other out of pocket expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; PROVIDED, HOWEVER, that the
indemnity agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; PROVIDED, FURTHER, HOWEVER, that any Investor shall be liable under
this Agreement (including this Section 6(b) and Section 7) for only that amount
as does not exceed the net proceeds actually received by such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by any Investor pursuant to
Section 9 hereof. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, and the Indemnified Party failed to utilize such
corrected prospectus.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; PROVIDED, HOWEVER, that such indemnifying party shall not be
entitled to assume
<PAGE>
such defense and an Indemnified Person or Indemnified Party shall have the right
to retain its own counsel with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential conflicts of interest between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified Person or the Indemnified Party and the
indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in addition
to those available to such indemnifying party. The indemnifying party shall pay
for only one separate legal counsel for the Indemnified Persons or the
Indemnified Parties, as applicable, and such legal counsel shall be selected by
Investors holding a majority-in-interest of the Registrable Securities included
in the Registration Statement to which the Claim relates (with the approval of
the Initial Investors if they hold Registrable Securities included in such
Registration Statement), if the Investors are entitled to indemnification
hereunder, or by the Company, if the Company is entitled to indemnification
hereunder, as applicable. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; PROVIDED, HOWEVER, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation, and (iii) contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
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
<PAGE>
promulgated under the Securities Act or any other similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. file with the SEC in a timely manner and make and keep available
all reports and other documents required of the Company under the Securities Act
and the Exchange Act so long as the Company remains subject to such requirements
(it being understood that nothing herein shall limit the Company's obligations
under Section 4(c) of the Securities Purchase Agreement) and the filing and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
b. furnish to each Investor so long as such Investor owns shares of
Preferred Stock, Warrants or Registrable Securities, promptly upon
request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such
other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested to permit the Investors to sell such
securities under Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any transferee of all or any
portion of the shares of Preferred Stock, the Warrants or the Registrable
Securities if: (i) 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
<PAGE>
majority in interest of the Registrable Securities; PROVIDED, HOWEVER, that no
amendment hereto which restricts the ability of an Investor to elect not to
participate in an underwritten offering shall be effective against any Investor
which does not consent in writing to such amendment; PROVIDED, further, HOWEVER,
that no consideration shall be paid to an Investor by the Company in connection
with an amendment hereto unless each Investor similarly affected by such
amendment receives a pro-rata amount of consideration from the Company. Unless
an Investor otherwise agrees, each amendment hereto must similarly affect each
Investor. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more
persons or entities with respect to the same Registrable Securities, the Company
shall act upon the basis of instructions, notice or election received from the
registered owner of such Registrable Securities.
b. Any notices required or permitted to be given under the terms of
this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective upon receipt or refusal of receipt, if delivered personally
or by courier or confirmed telecopy, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
HENLEY HEALTHCARE, INC.
120 Industrial Boulevard
Sugar Land, Texas 77478
Telecopy: (281) 276-7038
Attn: Chief Financial Officer
and if to any Investor, at such address as such shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 11(b).
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
<PAGE>
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.
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
<PAGE>
Investors or Initial Investors, as the case may be.
k. The initial number of Registrable Securities included on any
Registration Statement and each increase (if any) to the number of Registrable
Securities included thereon shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each Investor at the time
of such establishment or increase, as the case may be. In the event an Investor
shall sell or otherwise transfer any of such holder's Registrable Securities,
each transferee shall be allocated a pro rata portion of the number of
Registrable Securities included on a Registration Statement for such transferor.
Any shares of Common Stock included on a Registration Statement and which remain
allocated to any person or entity which does not hold any Registrable Securities
shall be allocated to the remaining Investors, pro rata based on the number of
shares of Registrable Securities then held by such Investors. For the avoidance
of doubt, the number of Registrable Securities held by any Investor shall be
determined as if all shares of Preferred Stock and Warrants then outstanding
were converted into or exercised for Registrable Securities.
l. Each party to this Agreement has participated in the negotiation
and drafting of this Agreement. As such, the language used herein shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party to
this Agreement.
m. For purposes of this Agreement, the term "business day" means any
day other than a Saturday or Sunday or a day on which banking institutions in
the State of New York are authorized or obligated by law, regulation or
executive order to close.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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/ MICHAEL M. BARBOUR
Name: Michael M. Barbour
Its: President and CEO
INITIAL INVESTOR:
ZANETT LOMBARDIER, LTD.
By: /s/ G. A. CICOGNA
Name:
Its:
<PAGE>
EXHIBIT 1
TO
REGISTRATION
RIGHTS
AGREEMENT
[Date]
[Name and address
of transfer agent]
RE: HENLEY HEALTHCARE, INC.
Ladies and Gentlemen:
We are counsel to HENLEY HEALTHCARE, INC., a corporation organized under
the laws of the State of Texas (the "COMPANY"), and we understand that [Name of
Investor] (the "HOLDER") has purchased from the Company (i) shares of the
Company's Series C Convertible Preferred Stock (the "PREFERRED STOCK") that are
convertible into shares of the Company's common stock, par value $.01 per share
(the "COMMON STOCK"), and (ii) warrants (the "WARRANTS") to acquire shares of
Common Stock. Pursuant to a Registration Rights Agreement, dated as of ________,
1999, by and among the Company and the signatories thereto (the "REGISTRATION
RIGHTS AGREEMENT"), the Company agreed with the Holder, among other things, to
register the Registrable Securities (as that term is defined in the Registration
Rights Agreement) under the Securities Act of 1933, as amended (the "SECURITIES
ACT"), upon the terms provided in the Registration Rights Agreement. In
connection with the Company's obligations under the Registration Rights
Agreement, on ____________, 1999, the Company filed a Registration Statement on
Form S-___ (File No. 333-_____________) (the "REGISTRATION STATEMENT") with the
Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities, which names the Holder as a selling stockholder thereunder. The
Registration Statement was declared effective by the SEC on _____________, 1998.
[Other customary introductory and scope of examination
language to be inserted]
Based on the foregoing, we are of the opinion that the resale of the
Registrable Securities have been registered under the Securities Act.
[Other customary language to be included.]
Very truly yours,
cc: [Name of Investor]
VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON APRIL 7, 2003 (UNLESS
EXTENDED PURSUANT TO SECTION 2 HEREOF) THIS WARRANT AND THE SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THOSE LAWS.
Right to Purchase _________ Shares of
Common Stock, par value $.01 per share
Date: April 7, 1999
HENLEY HEALTHCARE, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, [Purchaser], 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 $2.64. 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 April 12, 1999, but effective as of
April 7, 1999, by and among the Company and the other signatories thereto (the
"SECURITIES PURCHASE AGREEMENT") and that certain Placement Agency Agreement
dated as of April 12, 1999, but effective as of April 7, 1999.
<PAGE>
This Warrant is subject to the following terms, provisions and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, including, without limitation, the limitations
contained in Section 7 hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "EXERCISE
AGREEMENT"), to the Company by 11:59 p.m. New York time on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof). The Warrant Shares
so purchased shall be deemed to be issued to the holder hereof or such holder's
designee, as the record owner of such shares, as of the close of business on the
date on which this Warrant shall have been surrendered and the completed
Exercise Agreement shall have been delivered or, if such date is not a business
date, on the next succeeding business date. The Warrant Shares so purchased,
representing the aggregate number of shares specified in the Exercise Agreement,
shall be delivered to the holder hereof within a reasonable time, not exceeding
three business days, after this Warrant shall have been so exercised (the
"DELIVERY PERIOD"). If the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, and
so long as the certificates therefor do not bear a legend and the holder is not
obligated to return such certificate for the placement of a legend thereon, the
Company shall cause its transfer agent to electronically transmit the Warrant
Shares so purchased to the holder by crediting the account of the holder or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DTC
TRANSFER"). If the aforementioned conditions to a DTC Transfer are not
satisfied, the Company shall deliver to the holder physical certificates
representing the Warrant Shares so purchased. Further, the holder may instruct
the Company to deliver to the holder physical certificates representing the
Warrant Shares so purchased in lieu of delivering such shares by way of DTC
Transfer. Any certificates so delivered shall be in such denominations as may be
reasonably requested by the holder hereof, shall be registered in the name of
such holder or such other name as shall be designated by such holder and,
following the date on which the Warrant Shares have been registered under the
Securities Act pursuant to that certain Registration Rights Agreement, dated as
of April 12, 1999, but effective as of April 7, 1999, 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
2
<PAGE>
Company failed to so deliver in such Exercise Default, multiplied by (d) .24,
where N = the number of days from the Exercise Default Date to the date that the
Company effects the full exercise of this Warrant which gave rise to the
Exercise Default. The accrued Exercise Default Payment for each calendar month
shall be paid in cash or shall be convertible into Common Stock, at the holder's
option, as follows:
(a) In the event holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth day of the month following the
month in which it has accrued; and
(b) In the event holder elects to take such payment in Common Stock,
the holder may convert such payment amount into Common Stock (in accordance with
the terms contained in Article IV of the Statement of Designation of Rights and
Preferences (the "STATEMENT OF DESIGNATION") governing the Company's Series C
Convertible Preferred Stock (the "SERIES C 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 [_____________]
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 times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a suf-
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ficient number of shares of Common Stock to provide for the exercise in full of
this Warrant (without giving effect to the limitations on exercise set forth in
Section 7(g) hereof).
(c) LISTING. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed or become listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all shares of Common
Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system; PROVIDED, HOWEVER,
that the holder of this Warrant acknowledges and agrees that the Company will be
required to obtain shareholder approval for the issuance of the shares of Common
Stock issuable upon exercise of this Warrant in excess of the Cap Amount (as
defined in the Statement of Designation).
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment
of its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the economic benefit inuring to the holder hereof
and the exercise privilege of the holder of this Warrant against dilution or
other impairment, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all of the Company's assets.
(f) BLUE SKY LAWS. The Company shall, on or before the date of
issuance of any Warrant Shares, take such actions as the Company shall
reasonably determine are necessary to qualify the Warrant Shares for, or obtain
exemption for the Warrant Shares for, sale to the holder of this Warrant upon
the exercise hereof under applicable securities or "blue sky" laws of the states
of the United States, and shall provide evidence of any such action so taken to
the holder of this Warrant prior to such date; provided, however, that the
Company shall not be required to qualify as a foreign corporation or file a
general consent to service of process in any such jurisdiction.
4. 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
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pursuant to Section 2 hereof shall be subject to adjustment from time to time as
provided in this Section 4.
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up or down
to the nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE. Except as otherwise provided in
Sections 4(c) and 4(e) hereof, if and whenever during the Exercise Period the
Company issues or sells, or in accordance with Section 4(b) hereof is deemed to
have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Dilutive Price (as defined in this
subparagraph) on the date of issuance (a "DILUTIVE ISSUANCE"), then effective
immediately upon the Dilutive Issuance, the Exercise Price will be adjusted in
accordance with one of the two formulas below. For purposes of this
subparagraph, "DILUTIVE PRICE" means (i) the Floor Price (as defined in the
Statement of Designation) if, prior to the date of the Dilutive Issuance, the
Company has met both Performance Milestones (as defined in the Statement of
Designation), or (ii) otherwise, the Market Price (as hereinafter defined). If
the Company has met both Performance Milestones (as defined in the Statement of
Designation), the Exercise Price will be adjusted in accordance with the
following formula:
E' = E x O + P/F ;
--------------
CSDO
or otherwise in accordance with the following formula:
E' = E x O + P/M ;
--------------
CSDO
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price (as defined in Section
4(1)(ii));
F = the Floor Price (as defined in the Statement of Designation)
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth
in Section 4(b) hereof, received by the Company upon
such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock deemed
outstanding immediately after the Dilutive Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(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
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or to purchase Common Stock or other securities exercisable, convertible into or
exchangeable for Common Stock ("CONVERTIBLE SECURITIES") (such warrants, rights
and options to purchase Common Stock or Convertible Securities are hereinafter
referred to as "OPTIONS") and the price per share for which Common Stock is
issuable upon the exercise of such Options is less than the Dilutive Price in
effect on the date of issuance of such Options ("BELOW MARKET OPTIONS"), then
the maximum total number of shares of Common Stock issuable upon the exercise of
all such Below Market Options (assuming full exercise, conversion or exchange of
Convertible Securities, if applicable) will, as of the date of the issuance or
grant of such Below Market Options, be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For purposes of the
preceding sentence, the "price per share for which Common Stock is issuable upon
the exercise of such Below Market Options" is determined by dividing (i) the
total amount, if any, received or receivable by the Company as consideration for
the issuance or granting of all such Below Market Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of all such Below Market Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below Market Options,
the minimum aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Below Market
Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES.
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less than the
Dilutive Price in effect on the date of issuance of such Convertible Securities,
then the maximum total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible Securities will, as of
the date of the issuance of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of the preceding sentence, the "price per share for
which Common Stock is issuable upon such exercise, conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. 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.
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<PAGE>
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "VARIABLE RATE CONVERTIBLE SECURITY"), then the "price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange" for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts contained in
such Convertible Security have been satisfied) if the Dilutive Price on the date
of issuance of such Convertible Security was 75% of the Dilutive Price on such
date (the "ASSUMED VARIABLE MARKET PRICE"). Further, if the Dilutive Price at
any time or times thereafter is less than or equal to the Assumed Variable
Market Price last used for making any adjustment under this Section 4 with
respect to any Variable Rate Convertible Security, the Exercise Price in effect
at such time shall be readjusted to equal the Exercise Price which would have
resulted if the Assumed Variable Market Price at the time of issuance of the
Variable Rate Convertible Security had been 75% of the Dilutive Price existing
at the time of the adjustment required by this sentence.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If there is a
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the exercise, conversion or
exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock (in
each such case, other than under or by reason of provisions designed to protect
against dilution), the Exercise Price in effect at the time of such change will
be readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon exercise, conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options 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
7
<PAGE>
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
underwriters public offering.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company, at
any time during the Exercise Period, subdivides (by any stock split, stock
dividend, recapitalization, reorganization, reclassification or otherwise) its
shares of Common Stock into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company, at
any time during the Exercise Period, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the date of record for
effecting such combination, the Exercise Price in effect immediately prior to
such combination will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant and for which this
Warrant is or may become exercisable shall be adjusted by multiplying a number
equal to the Exercise Price in effect immediately prior to such adjustment by
the number of shares of Common Stock issuable or for which this Warrant is or
may become exercisable (as applicable) upon exercise of this Warrant immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
(e) CONSOLIDATION, MERGER OR SALE. In case of any consolidation of
the Company with, or merger of the Company into, any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company at any time during the Exercise Period, then as a condition of such
consolidation, merger or sale or conveyance, adequate provision will be made
whereby the holder
8
<PAGE>
of this Warrant will have the right to acquire and receive upon exercise of this
Warrant in lieu of the shares of Common Stock immediately theretofore acquirable
upon the exercise of this Warrant, such shares of stock, securities, cash or
assets as may be issued or payable with respect to or in exchange for the number
of shares of Common Stock immediately theretofore acquirable and receivable upon
exercise of this Warrant had such consolidation, merger or sale or conveyance
not taken place. In any such case, the Company will make appropriate provision
to insure that the provisions of this Section 4 hereof will thereafter be
applicable as nearly as may be in relation to any shares of stock or securities
thereafter deliverable upon the exercise of this Warrant. The Company will not
effect any consolidation, merger or sale or conveyance unless prior to the
consummation thereof, the successor corporation (if other than the Company)
assumes by written instrument the obligations under this Warrant and the
obligations to deliver to the holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the holder
may be entitled to acquire. Notwithstanding the foregoing, in the event of any
consolidation of the Company with, or merger of the Company into, any other
corporation, or the sale or conveyance of all or substantially all of the assets
of the Company, at any time during the Exercise Period, the holder of the
Warrant shall, at its option, have the right to receive, in connection with such
transaction, cash consideration equal to the fair market value of this Warrant
as determined in accordance with customary valuation methodology used in the
investment banking industry.
(f) DISTRIBUTION OF ASSETS. In case the Company shall declare or
make any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, stock repurchase by way of
return of capital or otherwise (including any dividend or distribution to the
Company's shareholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "DISTRIBUTION"), at any time during the
Exercise Period, then the holder of this Warrant shall be entitled upon exercise
of this Warrant for the purchase of any or all of the shares of Common Stock
subject hereto, to receive the amount of such assets (or rights) which would
have been payable to the holder had such holder been the holder of such shares
of Common Stock on the record date for the determination of shareholders
entitled to such Distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(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
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<PAGE>
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 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.
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(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.
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.
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<PAGE>
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 cancelled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Section 7. The Company shall indemnify
and reimburse the holder of this Warrant for all losses and damages arising as a
result of or related to any breach of the terms of this Warrant, including costs
and expenses (including legal fees) incurred by such holder in connection with
the enforcement of its rights hereunder.
(e) WARRANT REGISTER. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of 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
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<PAGE>
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, 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 C Preferred Stock) subject to a limitation on conversion
or exercise analogous to the limitation contained herein) and (b) the number of
shares of Common Stock issuable upon exercise of the Warrant (or portion
thereof) with respect to which the determination described herein is being made,
would result in beneficial ownership by such holder and its affiliates of more
than 4.99% of the outstanding shares of Common Stock. To the extent the above
limitation applies, the determination of whether and to what extent this Warrant
shall be exercisable with respect to other securities owned by such holder shall
be in the sole discretion of the holder and submission of this Warrant for full
or partial exercise shall be deemed to be the holder's determination of whether
and the extent to which this Warrant is exercisable, in each case subject to
such aggregate percentage limitation. No prior inability to exercise the Warrant
pursuant to this Section shall have any effect on the applicability of the
provisions of this Section with respect to any subsequent determination of
exerciseability. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as
otherwise provided in clause (a) hereof. Except as provided in the immediately
succeeding sentence, the restrictions contained in this Section 7(g) may not be
amended without the consent of the holder of this Warrant and the holders of a
majority of the Company's then outstanding Common Stock.
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:
13
<PAGE>
If to the Company:
HENLEY HEALTHCARE, INC.
120 Industrial Boulevard
Sugar Land, 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 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]
14
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
HENLEY HEALTHCARE, INC.
By: /s/ MICHAEL M. BARBOUR
Name: Michael M. Barbour
Title: President and CEO
<PAGE>
FORM OF EXERCISE AGREEMENT
(TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT)
To: HENLEY HEALTHCARE, INC.
120 Industrial Boulevard
Sugar Land, 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)
Address:
_____________________________________
_____________________________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
NAME OF ASSIGNEE ADDRESS NO OF SHARES
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints _____________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: _____________________, ____
In the presence of
______________________
Name: _____________________________________
Signature:________________________________
Title of Signing Officer or Agent (if any):
_________________________________
Address:
_________________________________
_________________________________
Note: The above signature should
correspond exactly with the
name on the face of the
within Warrant.
EXHIBIT 4.3
AMENDMENT AND EXCHANGE AGREEMENT
AMENDMENT AND EXCHANGE AGREEMENT, dated as of April 12, 1999, among HENLEY
HEALTHCARE, INC., a Texas corporation (the "Company"); ZANETT LOMBARDIER, LTD.
("Zanett"), GOLDMAN SACHS PERFORMANCE PARTNERS, L.P. ("Goldman"), GOLDMAN SACHS
PERFORMANCE PARTNERS (OFFSHORE), L.P. ("Offshore") (Zanett, Goldman and Offshore
are referred to herein individually as a "Purchaser" and collectively as the
"Purchasers") and ZANETT SECURITIES CORPORATION (the "Placement Agent").
RECITALS
The Company and Zanett are parties to a Securities Purchase Agreement
dated July 1, 1998 (the "First Purchase Agreement") pursuant to which Zanett
acquired 2,500 shares of the Company's Series B Convertible Preferred Stock, par
value $.10 per share ("Series B Shares") and warrants ("Warrants") to purchase
125,000 shares of the Company's common stock, par value $.01 per share ("Common
Stock"). In addition, the Company and the Purchasers are parties to a Securities
Purchase Agreement dated August 10, 1998 (the "Second Purchase Agreement"),
pursuant to which the Purchasers acquired an aggregate of 2,200 Series B Shares
and Warrants to purchase 110,000 shares of Common Stock. The Company and the
Purchasers are also parties to Registration Rights Agreements dated July 1, 1998
and August 10, 1998 (the "Registration Rights Agreements"), pursuant to which
the Purchasers were granted certain rights with respect to the Series B Shares
and the Warrants. In connection with the foregoing transactions, the Company
entered into Placement Agency Agreements dated July 1, 1998 and August 10, 1998
(the "Placement Agreements") with the Placement Agent pursuant to which, among
other things, the Placement Agent received warrants to purchase an aggregate of
126,524 shares of Common Stock (the "Placement Warrants").
In connection with the execution and delivery by the Company and Zanett of
a Securities Purchase Agreement of even date herewith with respect to shares of
the Company's Series C Convertible Preferred Stock, par value $.10 per share,
the Company and the Purchasers have agreed to amend the Company's Articles of
Incorporation to reflect a change in the Statement of Designation of Rights and
Preferences with respect to the Series B Shares (the "Statement") and to amend
the terms of the Warrants and the Placement Warrants.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound,
the Company, the Purchasers and the
Placement Agent agree as follows:
1. AMENDMENT OF STATEMENT. Subject to the terms and conditions set forth
herein, prior to or on the Closing Date (as defined below), the Company will
execute and file with the Secretary of State of the State of Texas Articles of
Amendment to the
<PAGE>
Company's Articles of Incorporation, amending the Statement, in the form set
forth on Exhibit "A" hereto (the "Articles of Amendment").
2. AMENDMENT OF WARRANTS. Effective as of the Closing, each Warrant and
each Placement Warrant shall be amended to reflect a reduction in the Exercise
Price stated therein to $2.64 per share. Upon surrender of each Warrant or
Placement Warrant to the Company, the Company shall issue amended and restated
Warrants and Placement Warrants reflecting such amendment.
3. CLOSING. The issuance of the Shares in exchange for the Debenture shall
occur at a closing (the "Closing") to be held on April 12, 1999 (the "Closing
Date"), at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers LLP, 1401
Walnut Street, Philadelphia, Pennsylvania, or such other date and place as the
parties hereto may agree. At the Closing,
(a) the Company shall:
(i) deliver to the Purchasers copies of the executed Articles of
Amendment, together with evidence of filing;
(ii) issue and deliver to the Purchasers and the Placement Agent the
amended and restated Warrants and Placement Warrants; and
(iii) execute and deliver to the Purchasers and the Placement Agent a
cross-receipt for the Warrants and Placement Warrants.
(b) Each Purchaser shall:
(i) execute and deliver to the Company a cross-receipt for the amended
and restated Warrants; and
(ii) deliver to the Company the Warrants for cancellation.
(c) The Placement Agent shall:
(i) deliver to the Company the Placement Warrants for cancellation; and
(ii) executed and deliver to the Company a cross-receipt for the
amended and restated Placement Warrants.
4. REPRESENTATIONS AND WARRANTIES OF COMPANY. The Company represents and
warrants to Morrison as follows:
4.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas.
4.2 AUTHORIZATION. The Company has all requisite power and
<PAGE>
authority to execute, deliver and consummate the transactions contemplated by
this Agreement and the Amendment. The Company has taken all action necessary to
authorize the execution and delivery of this Agreement and the Amendment and the
consummation of the transactions contemplated hereby and thereby. Each of this
Agreement and the Amendment is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
4.3 NO VIOLATION. Neither the execution or delivery of this
Agreement or the Amendment by the Company, nor the performance by the Company of
the transactions contemplated hereby or thereby (i) conflicts with, or
constitutes a breach or default under, (a) the Articles of Incorporation of the
Company or (b) any applicable law or any applicable rule, judgment, order, writ,
injunction or decree of any court or administrative or governmental authority or
(ii) violates, conflicts with, or constitutes a default (or an event or
condition that, with notice or lapse of time or both, would constitute a
default) under, or results in the termination of, or accelerates the performance
required by, any note, bond, mortgage, indenture, deed of trust, license, lease,
contract or commitment to which the Company is a party or by which any of its
properties may be bound, except, in any such case, for conflicts, breaches,
defaults and violations that would not have a material adverse effect on the
Company's ability to perform its obligations hereunder and thereunder.
4.4 VALIDITY OF STOCK. The Articles of Amendment have been duly
authorized and, when filed with the Texas Secretary of State in accordance with
this Agreement, the Series B Shares will remain validly issued, fully paid and
non-assessable.
4.5 NO CONSENTS. The Company is not required to obtain the consent
of, or to make any filing, declaration or registration with, any governmental or
regulatory authority in connections with the execution and delivery of this
Agreement or the Amendment or the consummation by the Company of the
transactions contemplated hereby or thereby.
5. OTHER AGREEMENTS. For purposes of the First Purchase Agreement, the
Second Purchase Agreement, the Registration Rights Agreements and the Placement
Agreements, all references therein to Series B Shares shall be deemed to be
references to the Series B Shares, as amended, and the Series B Shares, as
amended, and the holders thereof shall have all of the rights, privileges,
benefits and powers accorded to the Series B Shares and/or the holders thereof
under the First Purchase Agreement, the Second Purchase Agreement, the
Registration Rights Agreement and/or the Placement Agreements.
<PAGE>
6. MISCELLANEOUS.
6.1 PARTIES IN INTEREST. This Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the respective successors and permitted
assigns of the parties hereto. The rights and obligations of the parties
hereunder may not be assigned without the consent of the other parties.
6.2 ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to its subject matter. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to its subject matter.
6.3 AMENDMENTS AND WAIVERS. This Agreement may be amended only by a
written instrument duly executed by the parties. Any condition to a party's
obligations hereunder may be waived in writing by such party to the extent
permitted by law.
6.4 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.5 GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York
without regard to its or any other jurisdiction's conflicts of law rules. Each
party hereto agrees to submit to personal jurisdiction and to waive any
objection to venue in the State of New York, and further agrees that service of
process in any action arising out of or relating to this Agreement shall be
effective if mailed to such party at the address specified herein.
6.6 THIRD PARTIES. Nothing herein expressed or implied is intended
or shall be construed to confer upon or give to any person, other than the
parties hereto and their successors or permitted assigns, any rights or remedies
under or by reason of this Agreement.
6.7 COUNTERPARTS. This Agreement may be executed simultaneously in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto as of the date first written above.
HENLEY HEALTHCARE, INC.
By: /s/ MICHAEL M. BARBOUR
Name: Michael M. Barbour
Title: President and CEO
ZANETT SECURITIES CORPORATION ZANETT LOMBARDIER, LTD.
By: /s/ CLAUDIO GUAZZONI By: /s/ G. A. CICOGNA
Name: Claudio Guazzoni Name:
Title: President Title:
GOLDMAN SACHS PERFORMANCE GOLDMAN SACHS PERFORMANCE
PARTNERS, PARTNERS, L.P.
By: COMMODITIES CORPORATION LLC By: COMMODITIES CORPORATION LLC
General Partner General Partner
By: /s/ MICHAEL STRASHINSKY By: /s/ MICHAEL STRASHINSKY
EXHIBIT A
VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON [November 1, 2001 or December
10, 2001] (UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY
NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS
OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
Right to Purchase __________ Shares of
Common Stock, par value $.01 per share
Date: July 1, 1998, as amended
and restated as of April 7, 1999
HENLEY HEALTHCARE, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, [Purchaser], 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 $2.64. 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 April 12, 1999, but
effective as of April 7, 1999, and amended pursuant to the terms of that certain
Amendment and Exchange Agreement dated April 12, 1999, but effective as of April
7, 1999.
This Warrant is subject to the following terms, provisions and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, including, without limitation, the limitations
contained in Section 7 hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "EXERCISE
<PAGE>
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 August 10, 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 of days from the Exercise Default Date to the date that the
Company effects the full exercise of this Warrant which gave rise to the
Exercise Default. The accrued Exercise Default Payment for each calendar month
shall be paid in cash or shall be convertible into Common Stock, at the holder's
option, as follows:
2
<PAGE>
(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 times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a suf ficient 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
3
<PAGE>
listed (subject to official notice of issuance upon exercise of this Warrant)
and shall maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all shares of Common Stock from time to time issuable
upon the exercise of this Warrant; and the Company shall so list on each
national securities exchange or automated quotation system, as the case may be,
and shall maintain such listing of, any other shares of capital stock of the
Company issuable upon the exercise of this Warrant if and so long as any shares
of the same class shall be listed on such national securities exchange or
automated quotation system; PROVIDED, HOWEVER, that the holder of this Warrant
acknowledges and agrees that the Company will be required to obtain shareholder
approval for the issuance of the shares of Common Stock issuable upon exercise
of this Warrant in excess of the Cap Amount (as defined in the Statement of
Designation).
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment
of its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the economic benefit inuring to the holder hereof
and the exercise privilege of the holder of this Warrant against dilution or
other impairment, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all of the Company's assets.
(f) BLUE SKY LAWS. The Company shall, on or before the date of
issuance of any Warrant Shares, take such actions as the Company shall
reasonably determine are necessary to qualify the Warrant Shares for, or obtain
exemption for the Warrant Shares for, sale to the holder of this Warrant upon
the exercise hereof under applicable securities or "blue sky" laws of the states
of the United States, and shall provide evidence of any such action so taken to
the holder of this Warrant prior to such date; provided, however, that the
Company shall not be required to qualify as a foreign corporation or file a
general consent to service of process in any such jurisdiction.
4. 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.
4
<PAGE>
(a) ADJUSTMENT OF EXERCISE PRICE. Except as otherwise provided in
Sections 4(c) and 4(e) hereof, if and whenever during the Exercise Period the
Company issues or sells, or in accordance with Section 4(b) hereof is deemed to
have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Dilutive Price (as defined in this
subparagraph) on the date of issuance (a "DILUTIVE ISSUANCE"), then effective
immediately upon the Dilutive Issuance, the Exercise Price will be adjusted in
accordance with one of the two formulas below. For purposes of this
subparagraph, "DILUTIVE PRICE" means (i) the Floor Price (as defined in the
Statement of Designation) if, prior to the date of the Dilutive Issuance, the
Company has met both Performance Milestones (as defined in the Statement of
Designation), or (ii) otherwise, the Market Price (as hereinafter defined). If
the Company has met both Performance Milestones (as defined in the Statement of
Designation), the Exercise Price will be adjusted in accordance with the
following formula:
E' = E x O + P/F ;
-------------
CSDO
or otherwise in accordance with the following formula:
E' = E x O + P/M ;
-------------
CSDO
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price (as defined in Section
4(1)(ii));
F = the Floor Price (as defined in the Statement of
Designation)
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth
in Section 4(b) hereof, received by the Company upon
such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock deemed
outstanding immediately after the Dilutive Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(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
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<PAGE>
Options (assuming full exercise, conversion or exchange of Convertible
Securities, if applicable) will, as of the date of the issuance or grant of such
Below Market Options, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For purposes of the preceding
sentence, the "price per share for which Common Stock is issuable upon the
exercise of such Below Market Options" is determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for the
issuance or granting of all such Below Market Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of all such Below Market Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below Market Options,
the minimum aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Below Market
Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES.
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less than the
Dilutive Price in effect on the date of issuance of such Convertible Securities,
then the maximum total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible Securities will, as of
the date of the issuance of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of the preceding sentence, the "price per share for
which Common Stock is issuable upon such exercise, conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. 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%
6
<PAGE>
of the Dilutive Price on such date (the "ASSUMED VARIABLE MARKET PRICE").
Further, if the Dilutive Price at any time or times thereafter is less than or
equal to the Assumed Variable Market Price last used for making any adjustment
under this Section 4 with respect to any Variable Rate Convertible Security, the
Exercise Price in effect at such time shall be readjusted to equal the Exercise
Price which would have resulted if the Assumed Variable Market Price at the time
of issuance of the Variable Rate Convertible Security had been 75% of the
Dilutive Price existing at the time of the adjustment required by this sentence.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If there is a
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the exercise, conversion or
exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock (in
each such case, other than under or by reason of provisions designed to protect
against dilution), the Exercise Price in effect at the time of such change will
be readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon exercise, conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options 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
7
<PAGE>
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
underwriters public offering.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company, at
any time during the Exercise Period, subdivides (by any stock split, stock
dividend, recapitalization, reorganization, reclassification or otherwise) its
shares of Common Stock into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company, at
any time during the Exercise Period, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the date of record for
effecting such combination, the Exercise Price in effect immediately prior to
such combination will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant and for which this
Warrant is or may become exercisable shall be adjusted by multiplying a number
equal to the Exercise Price in effect immediately prior to such adjustment by
the number of shares of Common Stock issuable or for which this Warrant is or
may become exercisable (as applicable) upon exercise of this Warrant immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
(e) CONSOLIDATION, MERGER OR SALE. In case of any consolidation of
the Company with, or merger of the Company into, any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company at any time during the Exercise Period, then as a condition of such
consolidation, merger or sale or conveyance, adequate provision will be made
whereby the holder of this Warrant will have the right to acquire and receive
upon exercise of this Warrant in lieu of the shares of Common Stock immediately
theretofore acquirable upon the exercise of this Warrant, such shares of stock,
securities, cash or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
acquirable and receivable upon exercise of this Warrant had such consolidation,
merger or sale or conveyance not taken place. In any such case, the Company will
make 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
8
<PAGE>
or securities thereafter deliverable upon the exercise of this Warrant. The
Company will not effect any consolidation, merger or sale or conveyance unless
prior to the consummation thereof, the successor corporation (if other than the
Company) assumes by written instrument the obligations under this Warrant and
the obligations to deliver to the holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the holder
may be entitled to acquire. Notwithstanding the foregoing, in the event of any
consolidation of the Company with, or merger of the Company into, any other
corporation, or the sale or conveyance of all or substantially all of the assets
of the Company, at any time during the Exercise Period, the holder of the
Warrant shall, at its option, have the right to receive, in connection with such
transaction, cash consideration equal to the fair market value of this Warrant
as determined in accordance with customary valuation methodology used in the
investment banking industry.
(f) DISTRIBUTION OF ASSETS. In case the Company shall declare or
make any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, stock repurchase by way of
return of capital or otherwise (including any dividend or distribution to the
Company's shareholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "DISTRIBUTION"), at any time during the
Exercise Period, then the holder of this Warrant shall be entitled upon exercise
of this Warrant for the purchase of any or all of the shares of Common Stock
subject hereto, to receive the amount of such assets (or rights) which would
have been payable to the holder had such holder been the holder of such shares
of Common Stock on the record date for the determination of shareholders
entitled to such Distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect 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.
9
<PAGE>
(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 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
10
<PAGE>
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.
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
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<PAGE>
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 cancelled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Section 7. The Company shall indemnify
and reimburse the holder of this Warrant for all losses and damages arising as a
result of or related to any breach of the terms of this Warrant, including costs
and expenses (including legal fees) incurred by such holder in connection with
the enforcement of its rights hereunder.
(e) WARRANT REGISTER. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of 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
12
<PAGE>
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, 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
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.
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:
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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 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: /s/ MICHAEL M. BARBOUR
Name: Michael M. Barbour
Title: President and CEO
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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.
o 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").
o In lieu of receiving the shares of Common Stock issuable pursuant to this
Exercise Agreement by way of DTC Transfer, the undersigned hereby requests
that the Company cause its transfer agent to issue and deliver to the
undersigned physical certificates representing such shares of Common
Stock.
The undersigned requests that a Warrant representing any unexercised
portion hereof be issued, pursuant to the Warrant, in the name of the Holder and
delivered to the undersigned at the address set forth below:
Dated:_________________ _____________________________________
Signature of Holder
_____________________________________
Name of Holder (Print)
Address:
_____________________________________
_____________________________________
_____________________________________
16
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
NAME OF ASSIGNEE ADDRESS NO OF SHARES
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints _____________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: _____________________, ____
In the presence of
_________________________
Name: _____________________________________
Signature: _______________________________
Title of Signing Officer or Agent (if any):
_________________________________
Address:
_________________________________
_________________________________
Note: The above signature should
correspond exactly with the
name on the face of the
within Warrant.
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of April 12,
1999, 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, in one or two tranches, upon the terms and conditions
stated in this Agreement, units (the "UNITS"), each Unit consisting of (i) one
share of the Company's Series C 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 166.667 shares of
Common Stock. The rights, preferences and privileges of the Preferred Shares,
including the terms upon which such Preferred Shares are convertible into shares
of Common Stock, are set forth in the Statement of Designation of Rights and
Preferences of the Series C Convertible Preferred Stock of the Company, in the
form attached hereto as EXHIBIT B, filed in the Office of the Secretary of State
of Texas on April 12, 1999. Such Statement of Designation, as so filed,
corrected and amended, is referred to herein as the "STATEMENT OF DESIGNATION".
The shares of Common Stock issuable upon conversion of the Preferred Shares or
otherwise pursuant to the Statement of Designation are referred to herein as the
"CONVERSION SHARES" and the shares of Common Stock issuable upon exercise of or
otherwise pursuant to the Warrants are referred to herein as the "WARRANT
SHARES." The Preferred Shares, the Warrants, the Conversion Shares and the
Warrant Shares are collectively referred to herein as the "SECURITIES" and each
of them may individually be referred to herein as a "SECURITY."
C. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as EXHIBIT C, (the "REGISTRATION RIGHTS AGREEMENT")
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
<PAGE>
1. PURCHASE AND SALE OF UNITS.
(a) PURCHASE OF UNITS AND CLOSING. The issuance, sale and purchase of the
Preferred Shares and the Warrants shall occur in one or two tranches with
separate closings, hereinafter referred to as the "FIRST CLOSING" and the
"SECOND CLOSING," respectively. Each of the First Closing and the Second Closing
is hereinafter referred to as a "Closing." On the date of each 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 aggregate purchase price of the Units being acquired by
each Purchaser at the Closing is set forth on such Purchaser's Execution Page.
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.
(c) CLOSING DATE. Subject to the satisfaction (or waiver) of the relevant
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Units shall be (i) in the case of the First
Closing, 12:00 noon Eastern Time on April 12, 1999 and (ii) in the case of the
Second Closing, 12:00 noon Eastern Time on the fifth (5th) trading day following
notification of satisfaction (or waiver) of the relevant conditions to such
Closing or, in each case, such other time as may be mutually agreed upon by the
Company and the Purchasers. The date of the First Closing or the Second Closing,
as the case may be, shall hereinafter be referred to as the "FIRST CLOSING DATE"
or the "SECOND CLOSING DATE," respectively. Each Closing shall occur at the
offices of Klehr, Harrison, Harvey, Branzburg & Ellers, LLP, 1401 Walnut Street,
Philadelphia, Pennsylvania 19102.
(d) ISSUANCE DATE. The parties acknowledge that they reached agreement on
the terms of the transactions described herein, and that the Purchasers were
prepared to fund the purchase of the Preferred Shares and Warrants on April 7,
1999. therefore, the parties have agreed that the effective date of this
Agreement and the issuance date of the Warrants shall be deemed April 7, 1999.
However, as the Statement was not filed until April 12, 1999, the issuance date
of the Preferred Shares shall be April 12, 1999.
<PAGE>
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally and not jointly represents and warrants to the
Company as follows:
(a) PURCHASE FOR OWN ACCOUNT, ETC. Purchaser is purchasing the Units for
Purchaser's own account and not with a present view towards the public sale or
distribution thereof, except pursuant to sales that are exempt from the
registration requirements of the Securities Act and/or sales registered under
the Securities Act. Purchaser understands that Purchaser must bear the economic
risk of this investment indefinitely, unless the Securities are registered
pursuant to the Securities Act and any applicable state securities or blue sky
laws or an exemption from such registration is available, and that the Company
has no present intention of registering the resale of any such Securities other
than as contemplated by the Registration Rights Agreement. Notwithstanding
anything in this Section 2(a) to the contrary, by making the representations
herein, the Purchaser does not agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with or pursuant to a registration statement or an exemption
from the registration requirements under the Securities Act, subject to any
limitations set forth in the Statement of Designation.
(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.
<PAGE>
(f) TRANSFER OR RESALE. Purchaser understands that (i) except as provided
in the Registration Rights Agreement, the sale or resale of the Securities have
not been and are not being registered under the Securities Act or any state
securities laws, and the Securities may not be transferred unless (a) the resale
of the Securities has been registered thereunder; or (b) Purchaser shall have
delivered to the Company an opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from such registration; or (c) the
Securities are sold under Rule 144 promulgated under the Securities Act (or a
successor rule) ("RULE 144"); or (d) the Securities are sold or transferred to
an affiliate of Purchaser who agrees to sell or otherwise transfer the
Securities only in accordance with the provisions of this Section 2(f) and who
is an Accredited Investor; and (ii) neither the Company nor any other person is
under any obligation to register such Securities under the Securities Act or any
state securities laws (other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement.
(g) LEGENDS. Purchaser understands that the certificates for the Preferred
Shares and the Warrants and, until such time as the Conversion Shares and
Warrant Shares have been registered under the Securities Act (including
registration pursuant to Rule 416 thereunder) as contemplated by the
Registration Rights Agreement or otherwise may be sold by Purchaser under Rule
144, the certificates for the Conversion Shares and Warrant Shares may bear a
restrictive legend in substantially the following form:
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
<PAGE>
requirements of the Securities Act or in accordance with Rule 144(k). In the
event the above legend is removed from any Security and thereafter the
securities are not sold or the effectiveness of a registration statement
covering such Security is suspended or the Company determines that a supplement
or amendment thereto is required by applicable securities laws, then upon
reasonable advance notice to Purchaser the Company may require that the above
legend be placed on any such Security that cannot then be sold pursuant to an
effective registration statement or under Rule 144(k) and Purchaser shall
cooperate in the replacement of such legend. Such legend shall thereafter be
removed when such Security may again be sold pursuant to an effective
registration statement or under Rule 144(k).
(h) AUTHORIZATION; ENFORCEMENT. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable against Purchaser in accordance with their terms.
(i) RESIDENCY. Purchaser is a resident of the jurisdiction set forth under
Purchaser's name on the Execution Page hereto executed by Purchaser.
(j) ACKNOWLEDGMENTS REGARDING PLACEMENT AGENT. Purchaser acknowledges that
The Zanett Securities Corporation is acting as placement agent (the "PLACEMENT
AGENT") for the Securities being offered hereby and will be compensated by the
Company for acting in such capacity. Purchaser further acknowledges that the
Placement Agent has acted solely as placement agent in connection with the
offering of the Securities by the Company, that the information and data
provided to Purchaser and referred to in subsection (d) above or otherwise in
connection with the transactions contemplated hereby have not been subjected to
independent verification by the Placement Agent, and that the Placement Agent
makes no representation or warranty with respect to the accuracy or completeness
of such information, data or other related disclosure material. Purchaser
further acknowledges that in making its decision to enter into this Agreement
and purchase the Securities it has relied on the Company's representations and
warranties contained in Section 3 below and on its own examination of the
Company and the terms of, and consequences of holding, the Securities. Purchaser
further acknowledges that the provisions of this Section 2(j) are for the
benefit of, and may be enforced by, the Placement Agent.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each as follows:
<PAGE>
(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 for the shareholder approval required under Rule 4310(a)(25)(H) or
4460(i) promulgated by the National Association of Securities Dealers, Inc.
("NASD") or as set forth on SCHEDULE 3(B), the Company's shareholders is
required, and (iii) this Agreement constitutes, and, upon execution and delivery
by the Company of the Warrants and the Registration Rights Agreement, such
agreements will constitute, valid and binding obligations of the Company
enforceable against the Company in accordance with their terms.
(c) STOCKHOLDER AUTHORIZATION. Except pursuant to the NASD Rules described
in Section 3(b), or 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.
<PAGE>
(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 Articles of Incorporation as in effect on the date hereof ("ARTICLES
OF INCORPORATION"), the Company's By-laws as in effect on the date hereof (the
"BY-LAWS"), and all other instruments and agreements governing securities
convertible into or exercisable or exchangeable for capital stock of the
Company. The Statement of Designation, in the form attached hereto, will be duly
filed prior to Closing with the Secretary of State of the State of Texas and,
upon the issuance of the Preferred Shares in accordance with the terms hereof,
each Purchaser shall be entitled to the rights set forth therein.
<PAGE>
(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 Articles 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
Articles 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,
<PAGE>
and shall not be conducted so long as a Purchaser owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental entity, except
for possible violations the sanctions for which either singly or in the
aggregate would not have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and SCHEDULE 3(F) and the Registration Rights
Agreement, the Company is not required to obtain any consent, approval,
authorization or order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self regulatory agency in order for it
to execute, deliver or perform any of its obligations under this Agreement, the
Warrants or the Registration Rights Agreement or to perform its obligations
under the Statement of Designation, in each case in accordance with the terms
hereof or thereof. The Company is not in violation of the listing requirements
of the Nasdaq SmallCap Market and does not reasonably anticipate that the Common
Stock will be delisted by Nasdaq for the foreseeable future.
(g) SEC DOCUMENTS, FINANCIAL STATEMENTS. Since December 31, 1997, the
Company has timely filed (within applicable extension periods) all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT") (all of the foregoing and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to 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. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings made prior to the date hereof). As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
applicable with respect thereto. Such financial statements have been prepared in
accordance with U.S. generally accepted accounting principles ("GAAP"),
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their
<PAGE>
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 any of the liabilities described on SCHEDULE
3(H) hereto, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to the
date of such financial statements, (ii) liabilities not required by GAAP to be
disclosed on a balance sheet prepared in accordance with GAAP, and (iii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under GAAP to be reflected in such financial
statements, which liabilities and obligations referred to in clauses (i), (ii)
and (iii), individually or in the aggregate, are not material to the financial
condition or operating results of the Company. Neither the Company nor any of
its subsidiaries or any of their officers, directors, employees or agents have
provided the Purchasers with any material, nonpublic information.
(h) ABSENCE OF CERTAIN CHANGES. Since December 31, 1997, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, except as disclosed in SCHEDULE
3(H) or in the SEC Documents filed prior to the date hereof.
(i) ABSENCE OF LITIGATION. Except as expressly disclosed in the SEC
Documents filed prior to the date hereof, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its subsidiaries, threatened against or affecting the Company,
any of its subsidiaries, or any of their respective directors or officers in
their capacities as such. There are no facts which, if known by a potential
claimant or governmental authority, could give rise to a claim or proceeding
which, if asserted or conducted with results unfavorable to the Company or any
of its subsidiaries, could reasonably be expected to have a Material Adverse
Effect.
(j) INTELLECTUAL PROPERTY. Each of the Company and its subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service 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
<PAGE>
is in conflict with any right of any other person with respect to any
Intangibles which, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse Effect.
Neither the Company nor any of its subsidiaries has received written notice of
any pending conflict with or infringement upon such third party Intangibles,
which alleged pending conflict or alleged infringement, if adversely determined,
would result in a Material Adverse Effect. Except as disclosed in the SEC
Documents filed prior to the date hereof hereto, the termination of the
Company's ownership of, or right to use, any single Intangible would not result
in a Material Adverse Effect on the Company. Neither the Company nor any of its
subsidiaries has entered into any consent agreement, indemnification agreement,
forbearance to sue or settlement agreement with respect to the validity of the
Company's or its subsidiaries' ownership or right to use its Intangibles and, to
the best knowledge of the Company, there is no reasonable basis for any such
claim to be successful. The Intangibles which are material to the conduct of the
Company's business are valid and enforceable and no registration relating
thereto has lapsed, expired or been abandoned or canceled or is the subject of
cancellation or other adversarial proceedings, and all applications therefor are
pending and in good standing. The Company and its subsidiaries have complied, in
all material respects, with their respective contractual obligations relating to
the protection of the Intangibles used pursuant to licenses. To the best
knowledge of the Company, no person is infringing on or violating the
Intangibles owned or used by the Company or its subsidiaries.
(k) FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
(l) DISCLOSURE. All information relating to or concerning the Company set
forth in this Agreement or provided to the Purchasers pursuant to Section 2(d)
hereof or otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
operations or financial conditions, which has not been publicly disclosed but,
under applicable law, rule or regulation, would be required to be disclosed by
the Company in a registration statement filed on the date hereof by the Company
<PAGE>
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 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
<PAGE>
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.
(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)
<PAGE>
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.
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.
<PAGE>
(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 to pay off certain penalties with respect to
the Company's Series A Preferred Stock and Series B Preferred Stock or 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-K or 10-KSB, its Quarterly Reports on Form 10-Q or
10-QSB, its proxy statements and any Current Reports on Form 8-K; (ii) within
one day after release, copies of all press releases issued by the Company or any
of its subsidiaries; and (iii) copies of any notices and other information made
available or given to shareholders of the Company generally, contemporaneously
with making available or giving thereof to such shareholders.
(g) RESERVATION OF SHARES. The Company shall at all times have authorized
and reserved for the purpose of issuance a sufficient number of shares of Common
Stock to provide for the full conversion of the outstanding Preferred Shares and
issuance of the Conversion Shares in connection therewith and the full exercise
of the Warrants and the issuance of the Warrant Shares in connection therewith,
subject to and as otherwise required by the Statement of Designation and the
Warrants.
(h) LISTING. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any Purchaser (or any of their affiliates) own any Securities, such listing of
all Conversion Shares and Warrant Shares from time to time issuable upon
conversion of the Preferred Shares and exercise of the Warrants; PROVIDED,
<PAGE>
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 SmallCap 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
<PAGE>
Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for purposes of any stockholder approval
provision applicable to the Company or its securities.
(k) LEGAL COMPLIANCE. The Company shall conduct its business and the
business of its subsidiaries in compliance with all laws, ordinances or
regulations of governmental entities applicable to such businesses, except where
the failure to do so would not have a Material Adverse Effect.
(l) FILING OF FORM 8-K. On or before the fifth (5th) business day
following the Closing Date, the Company shall file a Current Report on Form 8-K
with the SEC describing the terms of the transactions contemplated by this
Agreement, the Statement of Designation, the Registration Rights Agreement and
the Warrants in the form required by the Exchange Act.
(m) CAPITAL AND SURPLUS; SPECIAL RESERVES. The amount to be represented in
the capital account for the Series C Preferred Stock at all times for each
outstanding share of Series C 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.
<PAGE>
(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, 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 is less than twenty
percent (20%) of the average daily trading volume for shares of Common Stock on
the principal exchange or market on which such shares are traded for the ten
(10) trading days immediately preceding the date of such determination. The
Company agrees from the date of this Agreement until the end of the Lock-Up
Period it will not conduct any Future Offering unless it shall have first
delivered to each Purchaser at least ten (10) business days prior to the closing
of such Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof, and providing each Purchaser and its
affiliates, an option during the ten (10) business day period following delivery
of such notice to purchase up to the Applicable Portion (as defined below) of
the securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this and
the immediately preceding sentence are collectively referred to as the "CAPITAL
RAISING LIMITATIONS"). The Capital Raising Limitations shall not apply to any
transaction involving issuances of securities as consideration in a merger,
consolidation or acquisition of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or as consideration for the acquisition of a business, product
or license by the Company, provided such shares are not covered by an effective
registration statement within one year of the date of consummation thereof. The
Capital Raising Limitations also shall not apply to (i) the issuance of
securities pursuant to an underwritten public offering, (ii) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof, or (iii) the
grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option, bonus plan or restricted stock plan
for the benefit of the Company's employees, consultants or directors pursuant to
plans approved by a majority of the Board of Directors who are not officers of
the Company or a majority of the Board's compensation committee, if any. The
"APPLICABLE PORTION" shall mean a fraction, the numerator of which is the number
of Units purchased by such Purchaser hereunder and the denominator of which is
the total number of Units purchased by all of the Purchasers hereunder.
(q) STOCKHOLDERS' MEETING. The Company shall seek approval of the issuance
of the Preferred Shares and the matters contained in the Amendment Agreement (as
defined below) at the Company's regularly scheduled Annual
<PAGE>
Meeting of Shareholders which in any event shall be held on or before July 1,
1999. The Company shall, through its Board of Directors, recommend to its
stockholders approval of such matters. The Company shall use its best efforts to
solicit from its stockholders proxies in favor of such matters sufficient to
comply with all relevant legal requirements, including, without limitation, Rule
4310(a)(25)(H) or 4460(i) promulgated by the NASD.
5. TRANSFER AGENT INSTRUCTIONS.
(a) The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Conversion
Shares and the Warrant Shares in such amounts as specified from time to time by
such Purchaser to the Company upon conversion of the Preferred Shares or
exercise of the Warrants, as applicable.
(b) The Company warrants that no instruction other than such instructions
referred to in this Section 5, and stop transfer instructions to give effect to
Section 2(f) and (g) hereof in the case of the transfer of the Conversion Shares
or Warrant Shares prior to registration of the Conversion Shares and Warrant
Shares under the Securities Act or without an exemption therefrom, will be given
by the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section shall affect in any way each Purchaser's obligations and agreement
set forth in Section 2(g) hereof to resell the Securities pursuant to an
effective registration statement or under an exemption from the registration
requirements of applicable securities law.
(c) If a Purchaser provides the Company and the transfer agent with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration, or a Purchaser provides the Company
with reasonable assurances that such Securities may be sold under Rule 144(k),
the Company shall permit the transfer and, in the case of the Conversion Shares
and Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such
Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Units to a
Purchaser at the Closing is subject to the satisfaction, at or before the
relevant
<PAGE>
Closing Date, 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 a Closing Date, 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 being purchased by it at such Closing in accordance with
Section 1(b) above.
(c) The representations and warranties of the applicable Purchaser shall
be true and correct in all material respects as of the date when made and as of
the date and time of such closing as though made at that time (except for
representations and warranties that relate to a different date, which shall be
true and correct as of such date), and the applicable Purchaser shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the applicable Purchaser at or prior to the applicable
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
relevant 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) With respect to the First Closing:
(i) The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered executed
copies to such Purchaser.
<PAGE>
(ii) 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 and the Statement of Designation shall remain in
full force and effect, in the form described in the definition thereof.
(iii) 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.
(iv) 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.
(v) The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
First 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 First
Closing Date. Such Purchaser shall have received a certificate, executed by the
Chief Executive Officer of the Company, dated as of the First Closing Date to
the foregoing effect and as to such other matters as such Purchaser may
reasonably request.
(vi) No litigation, statute, rule, regulation, executive order,
decree, ruling, injunction, action or proceeding shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby that questions the validity of, or challenges or
prohibits the consummation of, any of the transactions contemplated by this
Agreement.
(vii) 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.
(viii) 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.
(ix) There shall have been no material adverse changes and no
<PAGE>
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.
(x) 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.
(xi) The Company shall have delivered to such Purchaser a
certificate evidencing the incorporation and good standing of the Company, and
each of its subsidiaries organized in a jurisdiction in the United States, 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 First Closing
Date.
(xii) 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.
(xiii) The Company shall have delivered to such Purchaser a
secretary's certificate, dated as of the First Closing Date, as to (i) the
resolutions described in Section 7(k), (ii) the Articles of Incorporation and
(iii) the Bylaws, each as in effect at the Closing.
(xiv) The Company shall have delivered to the Purchasers the
executed Consent and Agreement of Stockholders in the form attached hereto as
EXHIBIT F.
(xv) The Company shall have executed and delivered to each holder of
the Company's Series B Preferred Stock and the holders of warrants to purchase
shares of Common Stock dated July 1, 1998 and August 1, 1998, an Amendment and
Exchange Agreement in the form attached hereto as EXHIBIT G. (the AAmendment
Agreement@) .
(xvi) The holders of the Company's Series B Preferred Stock shall
have executed and delivered to the Company a Waiver and Consent in the form
attached hereto
as EXHIBIT H.
(b) With respect to the Second Closing:
(i) The Company shall have delivered to such Purchaser duly executed
certificates and Warrant agreements (each in such denominations as
<PAGE>
such Purchaser shall request) representing the Preferred Shares and Warrants
being so purchased by such Purchaser in accordance with Section 1(b) above.
(ii) 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.
(iii) 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
Second 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 Second
Closing Date. Such Purchaser shall have received a certificate, executed by the
Chief Executive Officer of the Company, dated as of the Second Closing Date to
the foregoing effect and as to such other matters as such Purchaser may
reasonably request.
(iv) No litigation, statute, rule, regulation, executive order,
decree, ruling, injunction, action or proceeding shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby that questions the validity of, or challenges or
prohibits the consummation of, any of the transactions contemplated by this
Agreement.
(v) 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.
(vi) 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.
(vii) 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.
(viii) 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
<PAGE>
the Secretary of State of such state of incorporation as of a date within ten
days of the Second Closing Date.
(ix) 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.
(x) The Company shall have delivered to such Purchaser a secretary's
certificate, dated as of the Second 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.
(xi) The First Closing shall have occurred.
(xii) The Company Milestones for the Second Closing, as set forth on
EXHIBIT I, shall have been met.
(xiii) The Placement Agent, on behalf of the Purchasers, has elected
to close by written notice to the Company.
8. GOVERNING LAW; MISCELLANEOUS.
(a) GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of choice of law or conflicts of laws that would defer to the
substantive law of another jurisdiction. The Company irrevocably consents to the
jurisdiction of the United States federal courts and the state courts located in
the State of New York in any suit or proceeding based on or arising under this
Agreement and irrevocably agrees that any and all claims arising out of this
Agreement or related to the transactions contemplated by this Agreement shall be
determined exclusively in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The Company further agrees that service of process mailed by first class mail
shall be deemed in every respect effective service of process in any such suit
or proceeding. Nothing herein shall affect the right of any Purchaser to serve
process in any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
(b) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
<PAGE>
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 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
Sugar Land, 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
<PAGE>
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 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 April 30, 1999, 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
<PAGE>
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused
this Securities Purchase Agreement to be duly executed as of the date first
above written.
HENLEY HEALTHCARE, INC.
By: /s/ MICHAEL M. BARBOUR
Name: Michael M. Barbour
Title: President and CEO
<PAGE>
PURCHASER:
ZANETT LOMBARDIER, LTD.
By: /s/ G. A. CICOGNA
Name:
Title:
RESIDENCE: Cayman Islands
ADDRESS: c/o Bank Julius Baer Trust Co.
Kirk House, P.O. Box 1100
Grand Cayman, Cayman Islands
British West Indies
Telecopy: (345) 949-0993
with copies of all notices to:
The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, New York 10017
Attn: Claudio Guazzoni
Telecopy: (212) 759-3301
SUBSCRIPTION AMOUNT
First Closing Second Closing
Number of Units: 750 1,500
Purchase Price ($1,000 per Unit): $750,000 1,500,000
PLACEMENT AGENCY AGREEMENT
April 12, 1999
The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, New York 10017
Gentlemen:
This agreement ("AGREEMENT") will confirm that HENLEY HEALTHCARE, INC., a
Texas corporation (the "COMPANY"), has retained The Zanett Securities
Corporation ("ZANETT" or the "PLACEMENT AGENT") as its exclusive placement agent
to assist the Company, during the 30 day period commencing on the date hereof
(the "TERM"), on "best-efforts" basis, in connection with the placement of up
to 2,250 units (the "UNITS") in two tranches at an aggregate price of $1,000 per
Unit, each Unit consisting of (i) one share of the Company's Series C
Convertible Preferred Stock, par value $.10 per share (each, a "PREFERRED
SHARE"), convertible into shares of the Company's common stock, par value $.01
per share (the "COMMON STOCK"), and (ii) one warrant to acquire 166.667 shares
of Common Stock (each, a "WARRANT"). The rights, preferences and privileges of
the Preferred Shares, including the terms upon which such Preferred Shares will
be convertible into shares of Common Stock, are set forth in a Statement of
Designation of Rights and Preferences (as defined in the Securities Purchase
Agreement (defined below), 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." The Company agrees that,
during the Term, Zanett shall have the exclusive right to offer and place the
Securities and that all conversations, negotiations, documents and other
materials exchanged between the Company and the Placement Agent shall not be
disclosed or released to any third party without the prior written consent of
Zanett. The Company acknowledges that certain of the aforementioned Securities
may be purchased by affiliates of Zanett.
The Units are being offered to "accredited investors" in accordance with
Regulation D promulgated under the Securities Act of 1933, as amended (the
"SECURITIES ACT"). Each prospective investor ("INVESTOR") subscribing to
purchase the Units will be required to deliver, among other things, a Securities
Purchase Agreement between the Company and the Investor (the "SECURITIES
PURCHASE AGREEMENT") in form and substance reasonably satisfactory to Zanett and
the Company, representing and warranting, among other things, that such Investor
is an "accredited investor" as such term is defined in Regulation D.
Contemporaneous with the execution and delivery of the Securities Purchase
Agreement, the Investors shall execute and deliver a Registration Rights
Agreement (the "REGISTRATION RIGHTS AGREEMENT") in form and substance reasonably
satisfactory
<PAGE>
to Zanett and the Company pursuant to which the Company will agree to provide
the Investors certain registration rights under the Securities Act with respect
to the Securities.
The Securities Purchase Agreement, the Statement of Designation, the
Warrants and the Registration Rights Agreement are referred to herein
collectively as the "OFFERING DOCUMENTS." The offering of Units described in the
Offering Documents is referred to herein as the "OFFERING."
1. APPOINTMENT OF PLACEMENT AGENT. Zanett is hereby appointed Placement
Agent of the Company for the purposes of assisting the Company in finding
qualified Investors to participate in the Offering. On the basis of the
representations and warranties and subject to the terms and conditions contained
herein, Zanett hereby accepts such agency and agrees to assist the Company in
finding qualified Investors to participate in the Offering. Zanett's agency
hereunder is not terminable by the Company except upon termination of the
Offering. Upon termination of the Offering, all subscriptions received, if any,
shall be returned to Investors.
2. CLOSING; PLACEMENT FEE AND WARRANT; EXPENSES.
a. CLOSING. Upon satisfaction of the conditions to the closing
contained in the Securities Purchase Agreement, the closings (each, a "CLOSING")
of the purchase and sale of the Units shall take place at the offices of Klehr,
Harrison, Harvey, Branzburg & Ellers LLP or such other mutually agreed place, at
such times and dates (each, a "CLOSING DATE") as may be agreed upon between the
Placement Agent, the Investors and the Company.
b. PROCEDURES AT CLOSING. Counsel for the Placement Agent shall act
as escrow agent for each Closing (the "ESCROW AGENT"). At each Closing:
(i) The Company shall deliver to the Escrow Agent, on behalf
of the Placement Agent and the Investors, an opinion of the Company's outside
legal counsel, dated as of the Closing Date, in such form as required by the
Securities Purchase Agreement.
(ii) The Company shall deliver to the Escrow Agent
certificates from the Company, signed by the President or a Vice President
thereof, certifying that attached thereto is a true and correct copy of
resolutions adopted by the Company's Board of Directors authorizing (A) the
execution, delivery and performance of this Agreement, the Securities Purchase
Agreement, the Registration Rights Agreement, the Warrants and other
documentation related to the Offering, (B) the execution and filing of the
amendment to the Statement of Designation with the Secretary of State of the
State of Texas referred to in the Securities Purchase Agreement, and (c) the
issuance of the Preferred Shares and the reservation for issuance and issuance
of the Conversion Shares and the Warrant Shares, and certifying that such
resolutions have not been modified, rescinded or amended and are in full force
and effect.
(iii) The Company shall deliver to the Escrow Agent a
certificate of good standing of the Company, dated as of a recent date, from the
Secretary of State of the State of Texas.
(iv) Each Investor shall deliver to the Escrow Agent two
executed copies of the Securities Purchase Agreement and Registration Rights
Agreement signed by such Investor,
<PAGE>
and the Company shall deliver to the Escrow Agent with respect to each Investor
two executed copies of its acceptance of the Securities Purchase Agreement and
Registration Rights Agreement executed by such Investor.
(v) Each Investor shall have delivered by wire transfer to an
escrow account designated by the Escrow Agent an amount equal to the aggregate
purchase price of the Units(s) being purchased by such Investor at such Closing.
(vi) The Company shall have delivered to the Escrow Agent the
duly executed Preferred Shares and Warrants being purchased by the Investors in
such denominations as the Investors shall request.
(vii) The Company and the Placement Agent shall instruct the
Escrow Agent to pay to the Company the purchase price (the "PURCHASE PRICE") for
the Units subscribed for at such Closing, less the Placement Agent Fee (as
defined below), out of the funds on deposit in the escrow account received from
Investors whose Securities Purchase Agreements have been accepted.
c. PLACEMENT FEE; EXPENSES. The Company covenants and agrees to pay
to the Placement Agent at the Closing a fee (the "PLACEMENT AGENT Fee") equal to
9.5% of the aggregate gross proceeds payable to the Company for the sale of the
Units at each Closing. The Placement Agent Fee shall be delivered by the Escrow
Agent to Zanett by wire transfer, in accordance with Zanett's written wiring
instructions, from the funds on deposit in the escrow account simultaneously
with payment for and delivery of the Units at such Closing under the Securities
Purchase Agreement as provided in paragraph 2(a) above. In addition, the
Placement Agent shall be entitled to receive from the Company a non-accountable
expense allowance (the "EXPENSE ALLOWANCE") equal to $55,000. Such Expense
Allowance shall be delivered in the same manner as the Placement Agent Fee. In
addition, the Company shall pay to the Placement Agent, on the first day of each
calendar month during which any Preferred Shares or Warrants are outstanding, a
monitoring and financial advisory fee of Two Thousand Seven Hundred Dollars
($2,700.00).
d. WARRANTS. In addition to the Placement Agent Fee, at each Closing
under the Securities Purchase Agreement, the Company shall issue to the
Placement Agent warrants, in substantially the form attached hereto as EXHIBIT
A, to purchase 83.333 shares of the Company's Common Stock for each $1,000 of
aggregate gross proceeds received by the Company from the sale of the Units at
the Closing (the PLACEMENT WARRANTS"). The Placement Warrants shall be
exercisable for a period of forty (40) months from the date of issuance at a
price per share equal to 110% of the average of the Closing Sale Prices (as
defined in the Statement of Designation) for the Common Stock during the ten
(10) consecutive trading days ending on the trading day immediately preceding
the Closing Date. The shares of the Company's Common Stock issuable upon
exercise of the Placement Warrants shall hereinafter be referred to as the
"PLACEMENT WARRANT SHARES." The Company shall grant the Placement Agent certain
registration rights under the Securities Act with respect to the Placement
Warrant Shares pursuant to the Registration Rights Agreement.
e. EXPENSES OF OFFERING. The Company shall be responsible for and
shall bear all expenses directly and necessarily incurred by it in connection
with the Offering, including, but not limited to, the following: filing fees,
registrar and transfer agent fees, investigatory fees (including,
<PAGE>
but not limited to travel, lodging and entertainment expenses), issuer's counsel
and accounting fees, blue sky fees and counsel, if any, and issue and transfer
taxes, if any. In the event one or both of the Closings do not occur during the
Term, the Company shall reimburse the Placement Agent for its reasonable
out-of-pocket expenses incurred in connection with the Offering.
f. NON-CIRCUMVENTION PERIOD; LOCK-UP PERIOD.
(i) The Company agrees that, during the period beginning on
the date hereof and ending three (3) years following the later of the date
hereof and the date of the First Closing (as defined in the Securities Purchase
Agreement) (the "NON-CIRCUMVENTION PERIOD"), it will not, without the prior
written consent of the Placement Agent, negotiate or contract or have
discussions concerning any such matters with any Investor or any other party
introduced to the Company by Placement Agent to obtain additional financing in
any form.
(ii) The Company agrees that, during the period beginning on
the date hereof and ending on that date on which the Purchasers (as defined in
the Securities Purchase Agreement) no longer own twenty percent (20%) or more of
the Preferred Shares (as defined in the Securities Purchase Agreement) purchased
at the First Closing (the "LOCK-UP PERIOD"), it will not, without the prior
written consent of the Placement Agent, 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 (as defined in the Securities Purchase
Agreement) 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 the Placement Agent written notice of such
proposed Future Offering, including the terms and conditions thereof, and
providing the Placement Agent an option, which option must be exercised within
fifteen (15) days following delivery of such notice, to act as the placement
agent for such Future Offering on terms, including fees, no less favorable to
the Company as those set forth in such notice and to place the securities being
offered by the Company in the Future Offering to the Investors or to such other
persons or entities as the Placement Agent shall determine (the limitations
referred to in this and the immediately preceding sentence are hereinafter
collectively referred to as the "CAPITAL RAISING LIMITATION"). The Capital
Raising Limitation 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 Limitation shall also 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 or
restricted stock plan for the benefit of the Company's employees, consultants or
<PAGE>
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.
3. REPRESENTATIONS AND WARRANTIES AND COVENANTS.
a. The Company represents and warrants to Zanett that this Agreement
has been duly authorized, executed and delivered by the Company and, assuming
the due execution by Zanett, constitutes a legal, valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms.
b. The Company has delivered to Zanett true and complete copies of
the SEC Documents (as defined in the Securities Purchase Agreement) filed by the
Company on or after December 31, 1997 with the Securities and Exchange
Commission (the "SEC") pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT").
c. The Company recognizes and confirms that Zanett (i) will use and
rely primarily on the SEC Documents and on information provided by the Company
in connection with the transactions contemplated by this Agreement in performing
the services contemplated by this Agreement without having independently
verified the same; (ii) is authorized to assist the Company in the structuring
of the Offering with any prospective purchaser who is an "accredited investor"
as defined in Regulation D under the Securities Act and to provide copies of the
SEC Documents and forms of the Securities Purchase Agreement and other Offering
Documents to prospective purchasers of the Company's securities in connection
with the performance of Zanett's services hereunder; and (iii) does not assume
responsibility for the accuracy or completeness of the SEC Documents.
d. In addition to the foregoing, the Company hereby incorporates by
reference all of the representations and warranties and covenants to be set
forth in the Securities Purchase Agreement and the other Offering Documents with
the same force and effect as if specifically set forth herein.
e. So long as Zanett and/or affiliates own any securities of the
Company issued pursuant to the Offering Documents or this Agreement, (i) the
Company shall provide Zanett, within three (3) business days of the filing or
preparation thereof, with such financial and other statements including, without
limitation, management letters and consolidated financial statements as are
provided to any other lenders to or security holders of the Company; (ii) in the
event any current officer, director, employee, consultant or other agent ceases,
subsequent to the date hereof, to have such relationship with the Company and
such cessation has, or is likely to have, a material adverse effect on the
Company, taken as a whole, the Company shall promptly notify Zanett of such
event, which notification shall comprehensively describe such circumstances;
(iii) the Company shall, on a regular basis, provide to Zanett updates of any
material litigation and/or governmental proceedings which could reasonably be
expected to have a material adverse effect on the business of the Company; and
(iv) the Company shall promptly provide to Zanett notice of any event of default
under any agreement or other document with any lender or holder of any security
of the Company. Zanett shall hold in confidence and shall not make any
disclosure (except to an Investor) or use of any such information disclosed to
it pursuant to clauses (i) through (iv) above which the Company determines in
good faith to be confidential, and of which determination Zanett is so notified,
unless (a) the release
<PAGE>
of such information is ordered pursuant to a subpoena or other order from a
court or government body of competent jurisdiction or (b) the information has
been made generally available to the public other than by disclosure in
violation of this or any other agreement. Anything contained herein to the
contrary notwithstanding, Placement Agent's obligations to proceed with the
Offering is conditioned upon Placement Agent's due diligence investigation of
the Company. Zanett shall be fully informed by the Company of any events which
might have a material affect on the financial condition of the Company. If, in
Zanett's opinion, the condition of the Company, financial or otherwise, and its
prospects are affected in a material and/or adverse manner and do not fulfill
Zanett's expectations, Zanett shall have the sole discretion to review and
determine its continued interest in the Offering.
f. So long as Zanett and/or affiliates own any securities of the
Company, the Company shall make available, during regular business hours, all
records and books of account of the Company for inspection by Zanett, subject to
the execution of an acceptable confidentiality agreement. The Company shall
permit Zanett, at its expense and during regular business hours, to inspect its
properties with three days notice and in a manner that does not disrupt
operations.
g. The Company has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement and the Placement
Warrants in accordance with the terms hereof. The execution, delivery and
performance of this Agreement and the Placement Warrants by the Company and the
consummation by it of the transactions contemplated hereby (including, without
limitation, the reservation for issuance and issuance of the Placement Warrant
Shares issuable upon exercise thereof) have been duly authorized by the
Company's Board of Directors and no further consent or authorization of the
Company, its Board of Directors, or its shareholders is required, except, as to
stockholder approval, as set forth on Schedule 3(f) to the Securities Purchase
Agreement. This Agreement constitutes, and upon execution and delivery by the
Company of the Placement Warrants, such Placement Warrants will constitute,
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms.
h. The Placement Warrants and the Placement Warrant Shares issuable
upon the exercise thereof are duly authorized and, upon issuance of the
Placement Warrant Shares upon exercise of the Placement Warrants in accordance
with the terms thereof, the Placement Warrant Shares will be validly issued,
fully paid and non-assessable, and free from all taxes, liens and charges with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of the shareholders of the Company.
i. Except as set forth on Schedule 3(f) to the Securities Purchase
Agreement, the execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby will not (A) result in a violation of the Company's Articles of
Incorporation or By-laws or (B) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company is
a party, or result in a violation of any law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company is
bound or affected (except, with respect to clause (B), for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a material adverse
<PAGE>
effect on the operation, properties, prospects or financial condition of the
Company ("MATERIAL ADVERSE EFFECT")). The Company is not in violation of its
Articles of Incorporation or By-laws and is not in default (and no event has
occurred which with notice or lapse of time of both would put the Company in
default) under, nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company is
a party, except for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company is not
being conducted, and shall not be conducted, in violation of any law, ordinance
or regulation of any governmental entity, except for possible violations which
either singly or in the aggregate do not have a Material Adverse Effect. Except
as specifically contemplated by this Agreement and as required under the
Securities Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or self
regulatory agency in order for it to execute, deliver or perform any of its
obligations under this Agreement in accordance with the terms hereof.
j. The Company shall at all times have authorized, and reserved for
the purpose of issuance, a sufficient number of Placement Warrant Shares to
provide for the full exercise of the outstanding Placement Warrants.
k. The Company shall promptly secure the listing of the Placement
Warrant Shares upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Placement Warrant Shares
from time to time issuable upon exercise of the Placement Warrants; PROVIDED,
HOWEVER, that the Placement Agent acknowledges and agrees that the Company will
be required to obtain shareholder approval for the issuance of the Placement
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).
l. The Placement Agent represents and warrants to the Company that:
(i) The Placement Agent is acquiring the Placement Warrants
and the Placement Warrant Shares for its own account and not with a present view
towards the public sale or distribution thereof, except pursuant to sales that
are exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act.
(ii) The Placement Agent is an "ACCREDITED INVESTOR" as that
term is defined in Rule 501(a) of Regulation D.
(iii) The Placement Agent understands that the Placement
Warrants and the Placement Warrant Shares are being issued 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 Placement Agent's compliance with, the
representations, warranties, agreements, acknowledgments and understandings set
forth herein in order to determine the availability of such exemptions and the
eligibility of Placement Agent to acquire the Placement Warrants and the
Placement Warrant Shares.
<PAGE>
(iv) The Placement Agent understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Placement Warrants and the Placement Warrant Shares issuable upon exercise
thereof have not been and are not being registered under the Securities Act or
any state securities laws, and may not be transferred unless (a) the resale of
the Securities has been registered thereunder; or (b) Placement Agent 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 Placement Agent who agrees to sell or otherwise transfer such
securities only in accordance with the provisions of the terms hereof and who is
an Accredited Investor; and (ii) neither the Company nor any other person is
under any obligation to register such Securities under the Securities Act or any
state securities laws (other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, such securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement.
(v) This Agreement has been duly and validly authorized,
executed and delivered on behalf of Placement Agent and is the valid and binding
agreement of Placement Agent enforceable against Placement Agent in accordance
with its
terms.
(vi) The Placement Agent is a registered broker dealer (as
such term is defined under the Securities Act of 1933, as amended) and has not
made any general solicitations (as such term is defined under the Securities Act
of 1933, as amended) with respect to the sale of the Securities.
4. PUBLICITY. The Company shall not make any reference to Zanett or to any
of its affiliates in any release or other communication without Zanett's prior
written consent. Without Zanett's prior written consent, no advice rendered by
Zanett in connection with the services performed by Zanett pursuant to this
Agreement will be quoted by the Company, its affiliates or representatives nor
will any such advice be referred to in any report, document, release or other
communication, whether oral or written, prepared or issued or transmitted by
such person, except to the extent required by law (in which case the appropriate
party shall so advise Zanett in writing prior to such use and shall consult with
Zanett with respect to the form and timing of the disclosure).
5. INDEMNIFICATION AND CONTRIBUTION.
a. To the extent permitted by law, each party hereto (such party
being the "INDEMNIFYING PARTY") will indemnify, hold harmless and defend the
other party hereto and each of its directors, officers, partners, members,
employees, agents and each person who controls such other party within the
meaning of the Securities Act or the Exchange Act, if any, (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (a) where the
Company is the Indemnifying Party, (i) any transaction contemplated by this
Agreement, the retention of Zanett as
<PAGE>
Placement Agent under this Agreement, the performance of services by Zanett
hereunder or any involvement or alleged involvement of Zanett in the Offering or
(ii) any breach of any of the Company's representations, warranties or covenants
contained herein or (b) where Zanett is the Indemnifying Party, any breach of
any of Zanett's representations or warranties contained herein. The Indemnifying
Party shall reimburse each of the Indemnified Persons, promptly as such expenses
are incurred and are due and payable, for any reasonable legal fees or other
reasonable 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 5(a) shall not (i) apply in instances where the Claims were the result
of Zanett's or the Company's, in each case as the Indemnified Person, gross
negligence or based on Zanett's or the Company's, in each case as the
Indemnified Person, wilful misconduct, and (ii) apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld.
b. Promptly after receipt by an Indemnified Person under this
Section 5 of notice of the commencement of any action (including any
governmental action), such Indemnified Person shall, if a Claim in respect
thereof is made against the Indemnifying Party under this Section 5, 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, to assume control of the defense thereof with
counsel mutually satisfactory to the Indemnifying Party and the Indemnified
Person; PROVIDED, HOWEVER, that an Indemnified Person 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
Indemnified Person, the representation by such counsel of the Indemnified Person
and the Indemnifying Party would be inappropriate due to actual or potential
differing interests between such Indemnified Person and any other party
represented by the Indemnifying Party's counsel in such proceeding. The
Indemnifying Party shall pay for only one separate legal counsel for the
Indemnified Persons, and such legal counsel shall be selected by Placement
Agent, where the Company is the Indemnifying Party, or the Company, where the
Placement Agent is the Indemnifying Party. The failure to deliver written notice
to the Indemnifying Party within a reasonable time of the commencement of any
such action shall not relieve the Indemnifying Party of any liability to the
Indemnified Person under this Section 5, except to the extent that the
Indemnifying Party is actually prejudiced in its ability to defend such action.
The indemnification required by this Section 5 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.
c. To the extent any indemnification by the Indemnifying Party of an
Indemnified Person is prohibited or limited by law or otherwise unavailable in
respect of any Claim, the Indemnifying Party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under this Section 5 to the fullest extent permitted by law. In this regard, the
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Person as a result of any such Claim (i) in such portion as is
appropriate to reflect the relative benefits received by the Indemnifying Party,
on the one hand, and the Indemnified Person, on the other, from the structuring
and issuance of the securities in the Offering or any other transaction in which
Zanett rendered services hereunder or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred
<PAGE>
to in clause (i) above but also the relative fault of the Indemnifying Party, on
the one hand, and of the Indemnified Person, on the other, in connection with
untrue statements or omissions or other actions (or alleged untrue statements,
omissions or other actions) which resulted in such Claim as well as any other
relevant equitable considerations. The relative benefits received by the
Indemnifying Party, on the one hand, and the Indemnified Person, on the other,
shall be deemed to be in the same proportion as the total gross proceeds
received by the Indemnifying Party in the Offering or any other financing bears
to such Indemnified Person's compensation. The relative fault of the
Indemnifying Party on the one hand and of the Indemnified Person on the other
shall be determined by reference to, among other things, whether such untrue
statements or omissions or other actions (or alleged untrue statements,
omissions or other actions) relate to information supplied or action taken by
the Indemnifying Party, on the one hand, or by the Indemnified Person, on the
other, and the relevant persons' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statements,
omission or actions. The amount paid or payable by a party as a result of the
Claim shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim. The Company and Zanett agree that it would not be just and equitable
if contribution pursuant to this Section 5 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above.
d. The aforesaid indemnity and contribution agreements shall apply
to any related activities engaged in by any Indemnified Person prior to this
date and to any modification of Zanett's engagement hereunder, and shall remain
in full force and effect regardless of any investigation made by or on behalf of
Indemnified Person or any of its agents, employees, officers, directors or
controlling persons and shall survive the issuance of any securities in any
transaction referred to hereunder (including the Offering) and any termination
of this Agreement or Placement Agent's engagement hereunder. Each party hereto
agrees to promptly notify the other party hereto of the commencement of any
litigation or proceeding against it or any of its directors, officers, agents or
employees in connection with the transactions contemplated hereby.
e. The Company also agrees that no Indemnified Person shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company, its owners, creditors or security holders for or in connection with
advice or services rendered or to be rendered by Zanett pursuant to this
Agreement, the transactions contemplated hereby or any Indemnified Person's
actions or inactions in connection with any such advice, services or
transactions except for liabilities (and related expenses) of the Company that
are determined by a final judgment of a court of competent jurisdiction to have
resulted primarily from such Indemnified Party's gross negligence or wilful
misconduct in connection with any such advice, actions, inactions or services.
6. SURVIVAL OF CERTAIN PROVISIONS. The representations, warranties,
covenants and provisions contained in Section 2(f), Section 3, Section 4 and
Section 5 hereof shall survive in full force and effect until Zanett no longer
owns any Placement Warrants or Placement Warrant Shares, regardless of (a) any
completion or termination of any financing contemplated by this Agreement
(including the Offering), (b) any termination of this Agreement, or (c) any
investigation made by or on behalf of Placement Agent or any affiliate of
Placement Agent, and shall be binding upon, and shall inure to the benefit of,
any successors, assigns, heirs and personal representatives of the Company,
Zanett, the Indemnified Parties and any holder of Placement Warrants.
<PAGE>
7. MISCELLANEOUS.
a. All notices, requests, demands and other communications which are
required or may be given hereunder shall be in writing and shall be deemed to
have been duly given when delivered personally, receipt acknowledged or five (5)
days after being sent by registered or certified mail, return receipt requested,
postage prepaid. All notices shall be made to the parties at the addresses
designated above or at such other or different addresses which party may
subsequently provided with notice thereof, and, to their respective legal
counsel, as follows:
(i) IF TO PLACEMENT AGENT, to
The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, NY 10017
Attention: Claudio Guazzoni
-with a copy simultaneously transmitted by like means to -
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Attention: Stephen T. Burdumy, Esquire
(ii) IF TO THE COMPANY, to
Henley Healthcare, Inc.
120 Industrial Boulevard
Sugar Land, Texas 77478-3128
Telecopy: 281-276-7038
Attn: Chief Financial Officer
b. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
c. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York (without regard to its conflict of laws
provisions). The Company hereby agrees to submit to the exclusive jurisdiction
of an arbitration panel of the National Association of Securities Dealers, Inc.
located in the City of New York in the State of New York in connection with any
suit, action or proceeding related to this Agreement or any of the matters
contemplated hereby, irrevocably waives any defense of lack of personal
jurisdiction and irrevocably agrees that all claims in respect of any suit,
action or proceeding may be heard and determined in by
<PAGE>
such panel. The Company irrevocably waives, to the fullest extent it may
effectively do so under applicable law any objection which it may now or
hereafter have to the laying of venue of any such suit, action or proceeding
brought before any such court and any claims that any such suit, action or
proceeding brought in any such arbitration panel has been brought in an
inconvenient forum. The Company further agrees to pay or reimburse Zanett for
all reasonable costs and expenses incurred by Placement Agent in connection with
the enforcement of any of its rights under this Agreement, including without
limitation, all attorneys' fees and expenses of its counsel.
d. The section headings in this Agreement have been inserted as a
matter of convenience of reference and are not a part of this Agreement.
e. This Agreement may not be modified or amended except in writing
duly sworn by the parties hereto.
f. If any term, provision, covenant or restriction contained in this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void, unenforceable or against its regulatory policy, the remainder of
the terms, provisions, covenants and restrictions contained in this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
g. Each party to this Agreement has participated in the negotiation
and drafting of this Agreement. As such, the language used herein shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party to
this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Please sign and return the original and one copy of this letter to
indicate your acceptance of the terms set forth herein whereupon this letter and
your acceptance shall constitute a binding agreement between you and the
Company.
Very truly yours,
HENLEY HEALTHCARE, INC.
By: /s/ MICHAEL M. BARBOUR
Name: Michael M. Barbour
Title: President & CEO
Accepted and Agreed to
this 12th day of April, 1999.
THE ZANETT SECURITIES CORPORATION
By: /s/ CLAUDIO GUIAZZONI
Name: Claudio Guiazzoni
Title: President
