EXHIBIT 10.74
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DEBT EXCHANGE AGREEMENT AND INVESTOR QUESTIONNAIRE
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This Debt Exchange Agreement and Investor Questionnaire (the "Agreement")
is made and entered into as of the date set forth below by and between the
person or entity set forth on the signature page below (the "Investor") and
Performance Health Technologies, Inc. ("PHT").
RECITALS
WHEREAS, PHT has authorized the issuance of PHT's equity units up to an
aggregate amount of $350,000 (the "Units"), in exchange for up to $350,000 of
outstanding non-convertible promissory notes (the "Old Notes");
WHEREAS, for each $1,000 of principal and interest of Old Notes tendered,
the tendering Investor will receive $1,000 of Units (the "Exchange Offer");
WHEREAS, each Unit consists of (i) an unsecured convertible note in the
amount of $1,000 (collectively referred to herein as the "Notes") and (ii) 4,000
warrants to purchase PHT common stock, 2,000 of which have an exercise price of
$0.75 per share and 2,000 of which have an exercise price of $1.50 per share
(collectively referred to herein as the "Warrants"); and
WHEREAS, the Investor desires to exchange the Old Notes held by the
Investor for Units on the terms set forth herein;
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. EXCHANGE
1.1 At the Closing (as defined below) the Investor shall acquire from PHT
and PHT shall issue to the Investor, subject to all of the terms and conditions
hereof, Units in the amount set forth on the signature page in exchange for Old
Notes. Old Notes will be exchanged into Units in increments of $1,000 and for
each $1,000 of principal and interest of Old Notes tendered the Investor will
receive $1,000 of Units. Amounts outstanding on Old Notes tendered of less than
$1,000 will be paid in cash at the closing.
2. CLOSING
2.1 Date of Closing. The closing (the "Closing") of the exchange of the
Units for Old Notes shall take place on June 15, 2007 as determined by PHT (the
"Closing Date").
2.2 Items to be Delivered by the Investor to PHT. The following shall be
delivered by the Investor to PHT on the Closing Date:
(a) this Agreement executed by the Investor; and
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(b) the Old Notes.
2.3 Items to be Delivered to the Investor by PHT. The following shall be
delivered by PHT to the Investor on the Closing Date: the Notes and Warrants
included in the Units purchased by the Investor in the form attached hereto as
Exhibits A and B.
3. REPRESENTATIONS AND WARRANTIES OF PHT
PHT hereby represents and warrants to the Investor as follows:
3.1 Corporate Existence and Power. PHT is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware.
PHT has all corporate power and all material governmental permits required to
carry on its business as now conducted.
3.2 Corporate Authorization; Enforceability. The execution, delivery and
performance by PHT of this Agreement, the Notes and the Warrants are within
PHT's corporate powers and have been duly authorized by the Board of Directors
of PHT and no other corporate action on the part of PHT is necessary to
authorize this Agreement or issuance of the Notes or the Warrants. This
Agreement has been, and the Notes and Warrants will be, duly executed and
delivered by PHT. This Agreement constitutes the valid and binding agreement of
PHT, enforceable against PHT in accordance with its terms, except to the extent
that its enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity.
3.3 No Conflict. The execution, delivery and performance by PHT of this
Agreement, and the consummation of the transactions contemplated hereby,
including issuance of the Units, do not and will not at the Closing, (a) violate
any provision of law, statute, rule or regulation, or any ruling, writ,
injunction, order, judgment or decree of any court, administrative agency or
other governmental body applicable to PHT, or any of its properties or assets,
(b) conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute (with due notice or lapse of time, or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, or result in the creation of any encumbrance upon any of the properties
or assets of PHT under any material contract to which PHT is a party or (c)
violate any organizational document of PHT.
3.4 Notes and Warrants. The Notes and Warrants included in the Units and
common stock issuable upon conversion of the Notes (the "Conversion Shares") and
upon exercise of the Warrants (the "Warrant Shares" and together with the
Conversion Shares, the "Common Shares"), when issued and delivered in accordance
with the terms of this Agreement (and the terms of the Notes or Warrants, as the
case may be) will be duly authorized, validly issued, fully paid, non-assessable
and free and clear of any lien or other limitation or restriction.
3.5 Securities Matters. Subject to the accuracy of the representations of
the Investor set forth in Section 4.4 hereof the offer, sale and issuance of the
Units as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act. PHT has
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complied and will comply with all applicable state "blue sky" or securities laws
in connection with the offer, sale and issuance of the Units as contemplated by
this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor hereby represents and warrants to PHT as follows:
4.1 Organization and Good Standing; Power and Authority. Any Investor that
is not a natural person (a) is an organization that is duly organized, validly
existing and in good standing under the laws of its organization, and (b) has
all requisite power and authority and all authorizations, licenses and material
permits necessary to own, lease and operate its properties, to carry on its
business as presently conducted and as proposed to be conducted and to enter
into and carry out the transactions contemplated by this Agreement.
4.2 Authorization of the Agreement; Title to Old Notes.
(a) This Agreement constitutes a valid and legally binding obligation of
the Investor except to the extent that enforceability may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
by general principles of equity.
(b) Investor is the beneficial owner and owner of record of the Notes and
owns the Notes free and clear of any and all liens or other encumbrances of any
nature. Investor has not permitted any set-off to be made under, or made any
transfer or assignment of, the Notes or made any agreement for the foregoing.
Investor has no knowledge of any defenses against performance under the Notes
that any party may have. The Investor has and will convey to PHT good title to
the Notes, free of liens, claims and encumbrances.
4.3 No Conflict. The execution, delivery and performance by the Investor of
this Agreement and the consummation by the Investor of the transactions
contemplated hereby do not and will not at the Closing (a) violate any provision
of law, statute, rule or regulation, or any ruling, writ, injunction, order,
judgment or decree of any court, administrative agency or other governmental
body applicable to the Investor, or any of its properties or assets, (b)
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute (with due notice or lapse of time, or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, or result in the creation of any encumbrance upon any of the properties
or assets of the Investor under any material contract to which the Investor is a
party or (c) violate any organizational document of any Investor that is not a
natural person.
4.4 Investment Representation.
(a) The Investor has received and reviewed the following (the "PHT
Documents"):
Letter dated June 8, 2007, describing terms of the Exchange Offer
and certain risk factors.
(b) The Investor or Investor's designated representatives have
concluded a satisfactory due diligence investigation of PHT and
have had an
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opportunity to review the PHT Documents and to have all of their
questions related thereto satisfactorily answered.
(c) The Investor acknowledges that the Notes and Warrants included in
the Units (and Common Shares) are speculative and involve a high
degree of risk and the Investor represents that it is able to
sustain the loss of the entire amount of its investment.
(d) The Investor (or its members and/or officers) has previously
invested in unregistered securities and has sufficient financial
and investing expertise to evaluate and understand the risks of
the Notes and Warrants included in the Units (and Common Shares).
(e) The Investor has received from PHT, and is relying on, no
representations or projections with respect to PHT's business and
prospects except as set forth in this Agreement and the PHT
Documents.
(f) The Investor is an "accredited investor" within the meaning of
Regulation D under the Securities Act.
(g) The Investor is acquiring the Notes and Warrants included in the
Units (and Common Shares) for investment purposes only without
intent to distribute the same, and acknowledges that the Notes
and Warrants included in the Units (and Common Shares) have not
been registered under the Securities Act and applicable state
securities laws, and accordingly, constitute "restricted
securities" for purposes of the Securities Act and such state
securities laws.
(h) The Investor acknowledges that it will not be able to transfer
the Notes and Warrants included in the Units (and Common Shares)
except upon compliance with the registration requirements of the
Securities Act and applicable state securities laws or exemptions
therefrom.
(i) The certificates and/or instruments evidencing the Notes and
Warrants included in the Units (and Common Shares) will contain
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM,
SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN
COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT
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REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID ACT."
5. REGISTRATION RIGHTS
5.1 Participation in Registered Offerings. If PHT proposes or is required
to register any of its shares or other equity securities for public sale for
cash under the Securities Act (other than on Forms S-4 or S-8 or similar
registration forms), it will at each such time or times give written notice to
the Investor of its intention to do so. Upon the written request of the Investor
given within twenty (20) days after receipt of any such notice, PHT shall use
its best efforts to cause to be included in such registration any Common Shares
held by the Investor requested to be registered (the "Registrable Securities");
provided, that if the managing underwriter advises that less than all of the
shares requested to be registered should be offered for sale so as not
materially and adversely to affect the price or salability of such Exchange
Offer being registered by PHT, the Investor (but not PHT to the extent it
desires to include shares for its own account) shall reduce the number of its
Common Shares to be included in the registration statement as required by the
underwriter to the extent requisite of all prospective sellers of the securities
proposed to be registered (other than PHT) on a pro rata basis according to the
amounts of securities proposed to be registered by all prospective sellers to
permit the sale or other disposition (in accordance with the intended method of
disposition thereof as aforesaid) by the prospective seller or sellers of the
securities so registered. The registration requested pursuant to this Section
5.1 is referred to herein as the "Piggyback Registration".
5.2 Obligations of Investor. It shall be a condition precedent to the
obligation of PHT to register any Common Shares pursuant to this Section 5 that
the Investor shall furnish to PHT such information regarding the Common Shares
held and the intended method of disposition thereof and other information
concerning the Investor as PHT shall reasonably request and as shall be required
in connection with the registration statement to be filed by PHT. If after a
registration statement becomes effective PHT advises the Investor that PHT
considers it appropriate to amend or supplement the applicable registration
statement, the Investor shall suspend further sales of the Registrable
Securities until PHT advises the Investor that such registration statement has
been amended or supplemented.
5.3 Registration Proceedings. Whenever PHT is required by the provisions of
this Section 5 to effect the registration of the Registrable Securities under
the Securities Act, PHT shall:
(i) Prepare and promptly file with the SEC a registration statement
with respect to such securities and use its best efforts to cause
such registration statement to become effective within 60 days of
filing and remain effective;
(ii) Prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration
statement effective;
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(iii) Furnish to the Investor and to the underwriters of the
securities being registered such reasonable number of copies of
the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public Exchange
Offer of such securities;
(iv) Use its best efforts to register or qualify the securities
covered by such registration statement under such state
securities or Blue Sky Laws of such jurisdictions as the Investor
may reasonably request within twenty (20) days following the
original filing of such registration statement, except that PHT
shall not for any purpose be required to execute a general
consent to service of process or to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so
qualified;
(v) Notify the Investor, promptly after it shall receive notice
thereof, of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of
such registration statement has been filed;
(vi) Notify the Investor promptly of any request by the SEC for the
amending or supplementing of such registration statement or
prospectus or for additional information; and
(vii) Prepare and promptly file with the SEC and promptly notify the
Investor of the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be
delivered under the Securities Act, any event shall have occurred
as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement of
a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances in
which they were made, not misleading. Notwithstanding any
provision herein to the contrary, PHT shall not be required to
amend, supplement, or update a prospectus contained in any
registration statement if to do so would result in an unduly
burdensome expense to PHT.
5.4 Expenses. With respect to the inclusion of the Registrable Securities
in a registration statement pursuant to this Section 5, all registration
expenses, fees, costs and expenses of and incidental to such registration, shall
be borne by PHT; provided, however, that Investor shall bear its own
professional fees and pro rata share of the underwriting discounts and
commissions. The fees, costs and expenses of registration to be borne by PHT
shall include, without limitation, all registration, filing, and printing
expenses, fees and disbursements of counsel and accountants for PHT, fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if PHT and/or selling security holders are required to bear such fees and
disbursements), and all legal fees and disbursements and other expenses of
complying
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with state securities or Blue Sky laws of any jurisdiction in which the
securities to be offered are to be registered or qualified.
5.5 Indemnification of the Investor. Subject to the conditions set forth
below, in connection with any registration of the Common Shares pursuant to this
Section 5, PHT agrees to indemnify and hold harmless the Investor, any
underwriter for the Exchange Offer and each of their officers and directors and
agents and each other person, if any, who controls Investor or their underwriter
(each, an "Investor Indemnified Party"), within the meaning of Section 15 of the
Securities Act, as follows:
(i) Against any and all loss, claim, damage and expense whatsoever
arising out of or based upon (including, but not limited to, any
and all expense whatsoever reasonably incurred in investigating,
preparing or defending any litigation, commenced or threatened,
or any claim whatsoever based upon) any untrue or alleged untrue
statement of a material fact contained in any preliminary
prospectus (if used prior to the effective date of the
registration statement), the registration statement or the
prospectus (as from time to time amended and supplemented), or in
any application or other document executed by PHT or based upon
written information furnished by PHT filed in any jurisdiction in
order to qualify PHT's securities under the securities laws
thereof, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make
the statements therein not misleading, or any other violation of
applicable federal or state statutory or regulatory requirements
or limitations relating to action or inaction by PHT in the
course of preparing, filing, or implementing such registered
Exchange Offer; provided, however, that the indemnity agreement
contained in this section shall not apply to any loss, claim,
damage, liability or action arising out of or based upon any
untrue or alleged untrue statement or omission made in reliance
upon and in conformity with any information furnished in writing
to PHT by or on behalf of the Investor expressly for use in
connection therewith or arising out of any action or inaction of
the Investor;
(ii) Subject to the proviso contained in Subsection (i) above, against
any and all loss, liability, claim, damage and expense whatsoever
to the extent of the aggregate amount paid in settlement of any
litigation, commenced or threatened, or of any claim whatsoever
based upon any untrue statement or omission (including, but not
limited to, any and all expense whatsoever reasonably incurred in
investigating, preparing or defending against any such litigation
or claim) if such settlement is effected with the written consent
of PHT; and
(iii) In no case shall PHT be liable under this indemnity agreement
with respect to any claim made against any Investor Indemnified
Party unless PHT shall be notified, by letter or by facsimile
confirmed by letter, of any action commenced against such
Investor Indemnified Party, promptly after
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such person shall have been served with the summons or other
legal process giving information as to the nature and basis of
the claim. The failure to so notify PHT, if prejudicial in any
material respect to PHT's ability to defend such claim, shall
relieve PHT from its liability to the indemnified person under
this Section 5.5, but only to the extent that PHT was prejudiced.
The failure to so notify PHT shall not relieve PHT from any
liability which it may have otherwise than on account of this
indemnity agreement. PHT shall be entitled to participate at its
own expense in the defense of any suit brought to enforce any
such claim, but if PHT elects to assume the defense, such defense
shall be conducted by counsel chosen by it, provided such counsel
is reasonably satisfactory to the Investor Indemnified Party in
any suit so brought. In the event PHT elects to assume the
defense of any such suit and retain such counsel, the Investor
Indemnified Party in the suit shall, after the date they are
notified of such election, bear the fees and expenses of any
counsel thereafter retained by them, as well as any other
expenses thereafter incurred by them in connection with the
defense thereof; provided, however, that if the Investor
Indemnified Party reasonably believes that there may be available
to it any defense or counterclaim different than those available
to PHT or that representation of the Investor Indemnified Party
by counsel for PHT presents a conflict of interest for such
counsel, then the Investor Indemnified Party shall be entitled to
defend such suit with counsel of its own choosing and PHT shall
bear the fees, expenses and other costs of such separate counsel.
5.6 Indemnification of PHT. The Investor agrees to indemnify and hold
harmless PHT, each underwriter for the Exchange Offer, and each of their
officers and directors and agents and each other person, if any, who controls
PHT and the underwriter within the meaning of Section 15 of the Securities Act
and any other stockholder selling securities against any and all such losses,
liabilities, claims, damages and expenses as are indemnified against by PHT
under Section 5.5 (i), (ii) and (iii) above; provided, however, that such
indemnification by Investor hereunder shall be limited to any losses,
liabilities, claims, damages, or expenses to the extent caused by any untrue
statement of a material fact or omission of a material fact (required to be
stated therein or necessary to make statements therein not misleading), if any
made (or in settlement of any litigation effected with the written consent of
such Investors, alleged to have been made) in any preliminary prospectus, the
registration statement or prospectus or any amendment or supplement thereof or
in any application or other document in reliance upon, and in conformity with,
written information furnished in respect of such Investor by or on behalf of
such Investor expressly for use in any preliminary prospectus, the registration
statement or prospectus or any amendment or supplement thereof or in any such
application or other document or arising out of any action or inaction of such
Investor in implementing such registered Exchange Offer. Notwithstanding the
foregoing, the indemnification obligation of Investor shall not exceed the
purchase price of the Units paid by Investor. In case any action shall be
brought against PHT, or any other person so indemnified, in respect of which
indemnity may be sought against any Investor, such Investor shall have the
rights and duties given to PHT, and each other person so indemnified shall have
the rights and duties given to Investor, by the
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provisions of Section 5.5. The person indemnified agrees to notify the Investor
promptly after the assertion of any claim against the person indemnified in
connection with the sale of securities.
5.7 Contribution. If the indemnification provided for in Sections 5.5 and
5.6 above are unavailable or insufficient to hold harmless an indemnified party
in respect of any losses, claims, damages or liabilities (or actions in respect
thereof) referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the indemnified
party, on one hand, and such indemnifying party, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, or liabilities (or actions in respect thereof). The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
indemnified party, on one hand, or such indemnifying party, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. No person who has
committed fraudulent misrepresentation (within the meaning of the Securities
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this Section shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
5.8 Assignment of Registration Rights. The right to have PHT register
Registrable Securities pursuant to this Agreement shall be automatically
assignable to any transferee of all or any portion of the Registrable Securities
if: (a) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to PHT within a
reasonable time after such assignment, (b) PHT is, within a reasonable time
after such transfer or assignment, furnished with written notice of (i) the name
and address of such transferee or assignee, and (ii) the securities with respect
to which such registration rights are being transferred or assigned, (c)
following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws and, (d) at or before the time PHT receives the
written notice contemplated by clause (b) of this sentence, the transferee or
assignee agrees in writing with PHT to be bound by all of the provisions
contained herein (the foregoing a "Permitted Transferee").
6. MISCELLANEOUS
6.1 Definitions.
"Business Day" means a day that is not a Saturday, Sunday or a day on which
commercial banking institutions located in New York City, New York are
authorized or required to close.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
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"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
6.2 Confidentiality.
(a) The Investor agrees to keep confidential any and all non-public
information delivered or made available to the Investor by PHT
except for disclosures, as necessary, made by the Investor to the
Investor's officers, directors, employees, agents, counsel and
accountants each of whom shall be notified by the Investor of
this confidentiality covenant and for whom the Investor shall be
liable in the event of any breach of this covenant by any such
individual or individuals; provided, however, that nothing herein
shall prevent the Investor from disclosing such information (i)
upon the order of any court or administrative agency, (ii) upon
the request or demand of any regulatory agency or authority
having jurisdiction over the Investor, (iii) which has been
publicly disclosed or (iv) to any of its members provided that
any such members agree in writing (with a copy provided to PHT)
to be bound by confidentiality provisions in form and substance
substantially as are contained herein. In the event of a
mandatory disclosure as described in clause (i) and/or (ii) of
the preceding sentence, the Investor shall promptly notify PHT in
writing of any applicable order, request or demand for such
information, cooperate with PHT if and to the extent that PHT
elects to seek an appropriate protective order or other relief
from such order, request, or demand, and disclose only the
minimal amount of information ultimately required to be
disclosed. No Investor shall use for its own benefit, nor permit
any other person to use for such person's benefit, any of PHT's
non-public information including, without limitation, in
connection with the purchase and/or sale of PHT's securities.
(b) PHT shall in no event disclose non-public information to the
Investor, advisors to or representatives of the Investor unless
prior to disclosure of such information PHT marks such
information as "Non-Public Information - Confidential" and
provides the Investor, such advisors and representatives with the
opportunity to accept or refuse to accept such non-public
information for review. PHT may, as a condition to disclosing any
non-public information hereunder, require the Investor's advisors
and representatives to enter into a confidentiality agreement in
form reasonably satisfactory to PHT and the Investor.
(c) Nothing herein shall require PHT to disclose non-public
information to the Investor or its advisors or representatives,
and PHT represents that it does not disseminate non-public
information to any Investors who purchase stock in PHT in a
public Exchange Offer, to money managers or to securities
analysts.
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6.3 Costs and Expenses. PHT and the Investor shall bear their own costs and
expenses in connection with this transaction.
6.4 Survival. All agreements, covenants, representations and warranties
made by PHT or by the Investor herein shall survive the execution and delivery
of this Agreement.
6.5 Notices. Except as otherwise provided herein, all notices, requests,
demands, consents, instructions or other communications to or upon PHT, or the
Investor under this Agreement shall be in writing and facsimiled, mailed or
delivered to each party at the facsimile number or its address as provided below
(or to such other facsimile number or address as the recipient of any notice
shall have notified the other in writing). All such notices and communications
shall be effective (a) when sent by Federal Express or other overnight service
of recognized standing, on the Business Day following the deposit with such
service; (b) when mailed, by registered or certified mail, first class postage
prepaid and addressed as aforesaid through the United States Postal Service,
upon receipt; (c) when delivered by hand, upon delivery; and (d) when
facsimiled, upon confirmation of receipt to the following:
Performance Health Technologies, Inc.
000 Xxxxx Xxxx Xxxxx
Xxxxxxx, XX 00000
Attn.: Xxxxxx Xxxxxxxx, President and CEO
Fax: (000) 000-0000
To the Investor at the Address Set Forth on the Investor Questionnaire.
6.6 Nonwaiver. No failure or delay on any party in exercising any right
hereunder shall operate as a waiver thereof or of any other right nor shall any
single or partial exercise of any such right preclude any other further exercise
thereof or of any other right.
6.7 Amendments and Waivers. This Agreement may not be amended or modified,
nor may any of its terms be waived, except by written instruments signed by all
of the parties. Such waiver or consent under any provision hereof shall be
effective only in the specific instances for the purpose for which given.
6.8 Assignments. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
6.9 Partial Invalidity. If at any time any provision of this Agreement is
or becomes illegal, invalid or unenforceable in any respect under the law of any
jurisdiction, neither the legality, validity or enforceability of the remaining
provisions of this Agreement nor the legality, validity or enforceability of
such provision under the law of any other jurisdiction shall in any way be
affected or impaired thereby.
6.10 Headings. Headings in this Agreement are for convenience of reference
only and are not part of the substance hereof or thereof.
6.11 Entire Agreement. This Agreement constitutes and contains the entire
agreement of the parties hereto and supersedes any and all prior agreements,
negotiations, correspondence,
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understandings and communications among the parties, whether written or oral,
respecting the subject matter hereof.
6.12 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without reference to conflicts
of law rules.
6.13 Jurisdiction. Any suit, action or proceeding seeking to enforce any
provision of, or based on any matter arising out of or in connection with, this
Agreement or the transactions contemplated hereby may be brought in the courts
of the State of New York located in the County of New York and the federal
courts of the United States of America located in such State and County. Each of
the parties (a) consents to the exclusive jurisdiction of such courts (and of
the appropriate appellate courts therefrom) in any such suit, action or
proceeding, (b) irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum, (c) will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (d)
will not bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any other court. Process in any such suit,
action or proceeding may be served on any party anywhere in the world, whether
within or without the jurisdiction of any such court. Without limiting the
foregoing, each party agrees that service of process on such party as provided
in Section 6.6 will be deemed effective service of process on such party.
6.14 JURY TRIAL. EACH PARTY HERETO, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY
ISSUE.
6.15 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but such counterparts shall together
constitute but one and the same agreement.
12
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth below.
IF INVESTOR IS AN INDIVIDUAL:
__________________________________ ____________________________________
Signature of Investor Print Name of Investor
$________________ of Principal of Notes dated __________ Plus Accrued and Unpaid
Interest thereunder to be Exchanged for Units Under this Agreement
Date:______________________, 2007
IF INVESTOR IS AN ENTITY:
___________________________________
Print Name of Entity
_________________________________ ___________________________________
Signature of Officer, Print Name of Officer,
Trustee or Partner, as applicable Trustee or Partner, as applicable
$________________ of Principal of Notes dated __________ Plus Accrued and Unpaid
Interest thereunder to be Exchanged for Units Under this Agreement
Date:______________________, 2007
ACCEPTED:
Date: _____________, 2007 PERFORMANCE HEALTH TECHNOLOGIES, INC.
By: ________________________________
Name:
Title:
13
ACCREDITED INVESTOR QUESTIONNAIRE
The Investor understands that:
o In making a decision to participate in the Exchange Offer, the Investor
must rely on its own examination of PHT and the terms of the Exchange Offer,
including the merits and risks involved.
o The Exchange Offer has not been recommended or approved by any federal or
state securities commission or regulatory authority.
o The Investor should consult his or her own competent counsel, including,
without limitation, legal counsel, accountant, or business advisor as to legal,
tax, financial, and related matters concerning an acquisition of the Units.
An investment in the Units involves a high degree of risk. Among other factors,
Investors should consider the following risk factors, which are included in the
PHT Documents. Investors should carefully review the entire PHT Documents,
however, for a more complete description of PHT and the risks involved in an
investment in our Units.
RISKS CONCERNING THE UNITS AND THE EXCHANGE OFFER
-------------------------------------------------
THIS IS AN ILLIQUID INVESTMENT AND THERE IS NO CURRENT TRADING MARKET FOR OUR
SECURITIES. There is no established trading market for the Notes or our common
stock or any or our securities and no assumption should be made that one will
ever exist. On May 14, 2007, we filed a Form 10-SB to become a reporting company
under the Exchange Act. The Staff of the SEC is currently reviewing the Form
10-SB and we expect that we will be updating and revising certain information
contained in the Form 10-SB in the future. There can be no assurance that the
Form 10-SB will be declared effective by the SEC in the near future or at all.
We intend to file, through a market maker, an information statement pursuant to
Section 15c-211 with the National Association of Securities Dealers, Inc. in
order to obtain approval for quotation of our common stock on the
Over-the-Counter Bulletin Board once the Form 10-SB is effective. There is no
assurance that the National Association of Securities Dealers, Inc. will approve
our application. Since our common stock has not traded on any public market
before, we cannot predict the extent to which an active public market for our
common stock will develop. For this and other reasons, THERE IS SUBSTANTIAL RISK
OF NON-PAYMENT OF THE NOTES. The Units, Notes, Warrants, and the common stock
(including the common stock which may be issued in payment of interest due under
the Notes and into which the Notes may be converted or issuable upon exercise of
the Warrants) are and will be "restricted securities." As restricted securities
they may be sold only upon registration under the Securities Act and applicable
state securities laws, or upon reliance on an exemption from the registration
requirements. Offerees should consider purchasing the Units only as a long-term
investment. Offerees may not be able to promptly liquidate their investment at a
reasonable price, or for any price, in the event of a personal financial
emergency or otherwise.
14
WE MAY NOT BE ABLE TO OBTAIN THE SIGNIFICANT FINANCING THAT WE NEED TO CONTINUE
TO OPERATE AND ANY ADDITIONAL FINANCING MAY BE ON TERMS ADVERSE TO YOUR
INTERESTS. We are currently offering up to $600,000 of units on the same terms
of the Units to meet our working capital needs. This will result in dilution to
existing security holders, including Investors who acquire Units in this
Exchange Offer. We are also seeking other financial initiatives. Our operating
plan seeks to minimize our capital requirements, but further commercialization
of our products will require additional capital. We expect that product
development and operating and production expenses will increase significantly as
we continue to develop, produce and sell products.
No assurance can be given that we will be successful in completing this Exchange
Offer or any other financings at the minimum level necessary to fund our capital
requirements, current operations or at all. If we are unsuccessful in completing
these financings at such minimum level, we will not be able to fund our capital
requirements or current expenses. If we are unsuccessful in completing these
financings at or near the maximum level or an additional financing, we will not
be able to pursue our business strategy. Additional financing may not be
available on terms favorable to us or at all.
We estimate that we will need approximately $3.4 million to continue to operate
over the next 12 months in order to implement our business plan in addition to
the remaining proceeds provided from privately placed bridge loans of $1.95
million that closed from April 2006 to May 2007. These remaining bridge loan
proceeds may not be sufficient to meet our needs until the standby equity
distribution agreement described below is available for us to draw on.
Our long-term financing needs are expected to be provided from the standby
equity distribution agreement we entered into in January 2006 with Cornell
Capital Partners, L.P. Pursuant to the standby equity distribution agreement we
may, at our discretion, periodically sell to Cornell Capital shares of our
common stock for a total purchase price of up to $10 million. We will need to
register under the Securities Act the shares to be issued under the standby
equity distribution agreement before such shares can be issued to Cornell
Capital in the future. We have not yet registered such shares with the SEC and
there can be no assurance that we will register such shares or draw down funds
under the standby equity distribution agreement.
In addition, we will not be in a position to access the capital under the
standby equity distribution agreement until our securities are quoted on the
Over-the-Counter Bulletin Board. Our common stock is presently not traded on any
public market or securities exchange. There can be no assurance that we will
successfully list our securities for quotation on the Over-the-Counter Bulletin
Board. For this and other reasons, THERE IS SUBSTANTIAL RISK OF NON-PAYMENT OF
THE NOTES.
THERE IS NO MINIMUM AMOUNT OF UNITS; CONSUMMATION OF THE EXCHANGE OFFER IS IN
MULTIPLE CLOSINGS. There is no minimum amount of Units that must be subscribed
for in order for us to close on any Units. We intend to use the proceeds we
receive from any Unit subscriptions we accept when and if received, irrespective
of the amount of Unit subscriptions we receive. This Exchange Offer of Units
will be subject to multiple closings, if and when we receive any subscriptions.
All subscriptions we receive and accept will be treated exactly the same,
15
irrespective of whether we receive certain subscriptions earlier and a closing
was effectuated with respect thereto in advance of our receipt of other
subscriptions in this Exchange Offer.
THE NOTES ARE UNSECURED. We will not pledge any assets to secure the payment of
the Notes. The Notes will be general unsecured obligations of PHT. The terms of
the Notes allow us to incur indebtedness and obligations that may be secured by
its assets. Any such secured indebtedness and obligations will have a claim to
our assets prior to the claims of any holder of a Note. All general unsecured
claims against us will be equal to the claims of any holder of a Note.
PAYMENT OF INTEREST IN COMMON STOCK MAY BE WORTH LESS THAN CASH PAYMENTS. We may
elect to pay interest under the Notes in cash, common stock, or a combination of
cash and common stock. Any payment of interest in common stock will be at the
Conversion Rate. The value of the common stock may be worth substantially less
than cash payments.
NO ADVICE IS GIVEN AS TO THE TAX ASPECTS OF THE UNITS. Offerees are advised that
we are giving no advice as to the tax implications of an investment in the
Units, the payment of interest in common stock, the conversion of a Note into
common stock, or the exercise of the Warrants. The characterization of the Notes
as debt or equity, the treatment of the payment of interest either in cash or in
common stock, the treatment of gain or loss on the sale or maturity of the
Notes, the conversion of the Notes to common stock, and the exercise of the
Warrants may all have tax implications to an Offeree. Offerees should obtain
their own tax advice prior to making a decision to purchase a Unit.
THE INTEREST RATE OF THE NOTES, THE NUMBER OF SHARES TO BE ISSUED UPON
CONVERSION OR IN PAYMENT OF INTEREST OF EACH NOTE, AND THE EXERCISE PRICE OF THE
WARRANTS HAS BEEN ARBITRARILY SET BY THE BOARD OF DIRECTORS. The interest rate
of the Notes, the number of shares to be issued upon conversion or in payment of
interest of each Note, and the exercise price of the Warrants have been or will
be determined by the Board of Directors, based, in part, on the cost of the
Exchange Offer, the prospects in the industry, and an assessment of our
financial condition and other factors deemed relevant. The interest rate of the
Notes, the number of shares to be issued upon conversion or in payment of
interest of each Note, and the exercise price of the Warrants, however, are not
based on historical earnings, the book value of the common stock, or any other
objective criteria and should not be deemed to be an indication of the value of
the common stock.
THE INVESTOR HAS BEEN ADVISED BY PHT THAT AN INVESTMENT IN PHT WILL INVOLVE AN
EXTREMELY HIGH DEGREE OF RISK AND SHOULD ONLY BE MADE IF INVESTOR CAN AFFORD A
COMPLETE LOSS OF ITS INVESTMENT.
16
A. INDIVIDUALS (IF INVESTOR IS AN INDIVIDUAL, COMPLETE THIS PART A)
1. Name of Investor(s)(1)____________________________________________________
__________________________________________________________________________
Address (including Zip Code)______________________________________________
Telephone No. ( )_________________________________
Facsimile No. ( )_________________________________
2. Indicate type of ownership subscribed for:
____ Individual
____ Joint Tenants with Rights of Survivorship
____ Tenant in Common
____ Tenants by the Entirety
3. Social Security Number(s)_________________________________________________
4. Date(s) of Birth__________________________________________________________
5. Employment Position(s)____________________________________________________
6. State(s) from which driver's license is issued____________________________
7. State(s) in which registered to vote______________________________________
_________________
(1) If there is more than one Investor other than husband and wife, a
separate Investor Questionnaire must be completed for each such
Investor and attached to this Investor Questionnaire. If Investors are
husband and wife, please include both names, be certain to complete
item 2 and include both social security numbers (indicating to which
individual each social security number belongs) in item 3.
17
8. Each Investor must initial at least one of the following statements:
____ (a) Investor certifies that he/she is a director or executive
officer of PHT.
____ (b) Investor certifies that he/she is a natural person whose
individual net worth, or joint net worth with his/her
spouse, at the time of his/her Loan to PHT exceed
$1,000,000 (inclusive of the value of his/her home, home
furnishings and automobiles).
____ (c) Investor certifies that he/she is a natural person who
has an individual income(2) in excess of $200,000 in each
of the two most recent years or joint income with his/her
spouse in excess of $600,000 in each of those years, and
has a reasonable expectation of reaching the same income
level in the current year.
B. ENTITIES (IF INVESTOR IS AN ENTITY, COMPLETE THIS PART B)
1. Name of Investor_____________________________________________________________
_____________________________________________________________________________
Address (including Zip Code)_________________________________________________
_____________________________________________________________________________
Telephone No. ( )____________________________
Telecopy No. ( )____________________________
2. Indicate type of entity:
____ Corporation ____ Trust ____ Limited Partnership
____ General Partnership ____ XXX ____ Pension Plan or Trust
Other: _______________________________
3. Date of formation or incorporation:__________________________________________
4. State of formation or incorporation:_________________________________________
5. Indicate whether Investor was organized for the specific purpose of acquiring
Common Stock of PHT.
Yes ____ No ____
__________________
(2) In determining income, a Investor should add to his or her adjusted
gross income any amounts attributable to tax-exempt income received,
losses claimed as a limited partner in any limited partnership,
deductions claimed for depletion, contributions to XXX or Xxxxx
retirement plans, alimony payments and any amount by which income from
long-term capital gains has been reduced in arriving at adjusted gross
income.
18
6. Indicate the individual(s) authorized to execute documents on behalf of the
Entity Investor in connection with this investment:
Name:__________________________
Title:_________________________
7. Taxpayer Identification Number:________________________________
8. Each Investor must initial at least one of the following statements:
____ (a) Investor certifies that it is a bank as defined in
Section 3(a)(2) of the Securities Act of 1933, as amended
(the "Act"), or any savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Act,
whether acting in its individual or fiduciary capacity.
____ (b) Investor certifies that it is an insurance company as
defined in Section 2(13) of the Act.
____ (c) Investor certifies that it is a broker/dealer registered
pursuant to the Securities Exchange Act of 1934, as
amended.
____ (d) Investor certifies that it is an investment company
registered under the Investment Company Act of 1940, as
amended, or business development company as defined in
Section 2(a)(48) of such Act.
____ (e) Investor certifies that it is a Small Business Investment
Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958.
____ (f) Investor certifies that it is an employee benefit plan
within the meaning of Title I of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and
either (i) the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of ERISA, which is
either a bank, savings and loan association, insurance
company or registered investment adviser, (ii) the
employee benefit plan has total assets in excess of
$5,000,000, or (iii) if a self-directed plan, investment
decisions are made solely by persons that are "accredited
investors" as defined in Rule 501(a) of Regulation D
promulgated under the Act.
____ (g) Investor certifies that it is a private business
development company as defined in Section 202(a)(22) of
the Investment Advisers Act of 1940, as amended.
____ (h) Investor certifies that it is a corporation, partnership,
a Massachusetts or similar business trust or other trust
(if the trust's purchase of securities is directed by a
sophisticated person as described in Rule 506(b)(2)(ii)
of
19
Regulation D under the Act) or other organization
described in Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended, not formed for the specific
purpose of acquiring the Common Stock, with total assets
in excess of $5,000,000.
____ (i) Investor certifies that it is an entity in which all of
the equity owners are "accredited investors" as defined
in Rule 501(a) of Regulation D promulgated under the Act.
____ (j) None of the statements in clauses (a) through (i) are
applicable to the Entity Investor and the Entity Investor
is otherwise not an "accredited investor" as defined in
Rule 501(a) of Regulation D promulgated under the Act.
9. Investor agrees to provide, upon request by PHT, the following information:
(A) Corporations will provide the articles of incorporation, by-laws and
corporate resolution authorizing the Loan and authorizing the
person(s) signing this Investor Questionnaire. All the documents must
be certified by the Secretary or Assistant Secretary of the
corporation as being true and correct copies thereof and in full force
and effect.
(B) Partnerships and limited liability companies will provide a copy of
the partnership agreement, articles of organization, and/or operating
agreement showing the date of formation and giving evidence of the
authority of the person(s) signing this Investor Questionnaire.
(C) Trusts will provide a copy of the trust agreement showing the date of
formation and giving evidence of the authority of the person(s)
signing this Investor Questionnaire.
20
C. ACKNOWLEDGEMENTS AND REPRESENTATIONS TO BE MADE BY ALL INVESTORS (EVERY
INVESTOR MUST COMPLETE THIS PART C)
Investor understands that PHT will be relying on the accuracy and
completeness of the representations made above as well as Investor's responses
to the questions contained in this Investor Questionnaire. Investor understands
that a false representation may constitute a violation of law, and that any
person who suffers damage as a result of a false representation may have a claim
for damages as a result of such false representation.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. However, Investor agrees that PHT may present this Investor
Questionnaire to such parties as PHT deems appropriate if called upon to
establish that the Loan is exempt from registration under the Securities Act of
1933, as amended, or meets the requirements of applicable state securities law.
Investor represents and warrants to PHT as follows (each Investor must
initial all of the following):
_______ a) The representations and the answers to the questions in this
Investor Questionnaire are complete and correct and may be relied
upon by PHT and its counsel.
_______ b) Investor has full power and authority to subscribe for and
purchase the Units.
_______ c) The Investor Questionnaire has been duly and validly authorized,
executed, and delivered by Investor and constitutes the valid,
binding, and enforceable agreement of Investor.
_______ d) Investor has reviewed the PHT Documents and has received all
information Investor has deemed relevant and has had all of
Investor's questions answered with respect to the purchase of the
Units and PHT and has made such independent investigation into
PHT as Investor has deemed necessary.
_______ e) The purchase of the Units is made solely for the account of
Investor with a view to and for investment and not with a view to
or for distribution, assignment, participation, or resale.
Investor has no contract, undertaking, agreement, or arrangement
with any person to sell, transfer, or pledge the Units, or any
interest therein. There are substantial restrictions on the
transferability of the Units. Investor is prepared to bear the
economic risk involved in the purchase of the Units for an
indefinite term.
21
_______ f) Investor acknowledges there is a substantial economic risk with
respect to Investor's investment in the Units and that Investor
has such knowledge and experience in financial and business
matters that Investor is able to evaluate the risks and merits of
the investment in the Units and is making an informed decision to
purchase the Units.
_______ g) Investor did not learn about the offer to purchase the Units
through any advertisement, article, notice, or other
communication published in any newspaper, magazine, or similar
media or broadcast over television, radio, or the internet or at
any seminar or meeting to which Investor was invited by a general
solicitation or advertising.
_______ h) Investor hereby agrees to indemnify PHT and its affiliates and
each and any of their respective officers, directors,
shareholders, "controlling persons", agents, and employees and to
hold each of such entities and persons harmless from and against
any and all liabilities, loss, damages, costs, or expenses
(including reasonable attorneys' fees) to which they, or any of
them, may be put or which they, or any of them, may incur by
reason of any breach of the representations and warranties made
by Investor in the Subscription Agreement or this Investor
Questionnaire.
_______ i) Investor will notify PHT immediately of any material change in
any representation made above or any statement made herein that
occurs prior to the closing of the sale of the Units.
_______ j) Investor will provide such further information as may be
requested by PHT or its counsel to verify the information
contained herein.
_______ k) In evaluating the suitability of Investor's decision to purchase
the Units, Investor has relied solely upon the information
provided in the Memorandum and the exhibits and schedules
attached hereto and Investor's own independent investigation of
PHT, and acknowledges that no representations (oral or written)
have been made to the Investor with respect thereto.
_______ l) In making a decision to invest in the Exchange Offer, the
Investor must rely on its own examination of PHT and the terms of
the Exchange Offer, including the merits and risks involved.
_______ m) The Exchange Offer has not been recommended or approved by any
federal or state securities commission or regulatory authority.
22
_______ n) The Investor should consult his or her own competent counsel,
including, without limitation, legal counsel, accountant, or
business advisor as to legal, tax, financial, and related matters
concerning a purchase of the Units.
_______ o) The Investor acknowledges that there is no public market for
PHT's Common Stock and no assumption should be made that one will
ever exist; the Common Stock, Warrants and Common Stock
underlying the warrants are and will be "restricted securities";
as restricted securities, they may be sold only upon registration
under the Securities Act and applicable state securities laws, or
upon reliance on an exemption from such registration
requirements. Investors should consider purchasing the Units only
as a long-term investment. Investors may not be able to promptly
liquidate at a reasonable price, or for any price, in the event
of a personal financial emergency or otherwise.
_______ p) The Investor acknowledges that: In the future, PHT's financial
needs may be such that it is forced to offer for sale its Common
Stock on terms more favorable than the terms offered to investors
in this Exchange Offer. If such an event were to occur, investors
purchasing Units in this Exchange Offer would have the right to
participate in such future Exchange Offer on the terms and
conditions of such future Exchange Offer. The ownership interest
percentages of Investors who do not wish to participate in such
future Exchange Offer will be diluted to the extent of the Common
Stock sold by us in the future Exchange Offer.
_______ q) The Investor acknowledges that: If the Investor purchases in this
Exchange Offer, the Investor will pay a price that was not
established in a competitive market but was been determined by
PHT's management, based, in part, on the price paid by our prior
investors, the prospects in our industry, an assessment of our
financial condition and other factors deemed relevant. The price,
however, is not based on historical earnings, the book value of
PHT, or any other objective criteria. The Exchange Offer price
should not be deemed an indication of our value. An Investor
should consider in making an investment in our Common Stock that
we have insufficient assets to meet our obligations and we have a
working capital deficit.
_______ r) The Investor acknowledges that PHT is continuing to seek
financing initiatives to meet its working capital needs. PHT's
operating plan seeks to minimize its capital requirements, but
further commercialization of its products will require additional
capital. PHT expects that product development and operating and
production expenses will increase significantly as it continues
to develop, produce and sell products. The Investor further
acknowledges that no assurance can be given that PHT will be
successful in completing this Exchange Offer or any other
23
financings at the minimum level necessary to fund its capital
requirements, current operations or at all. If PHT is
unsuccessful in completing these financings at such minimum
level, PHT will not be able to fund its capital requirements or
current expenses. If PHT is unsuccessful in completing these
financings at or near the maximum level or an additional
financing, PHT will not be able to pursue its business strategy.
Additional financing may not be available on terms favorable to
PHT or at all.
IF INVESTOR IS AN INDIVIDUAL:
_________________________________ ___________________________________
Signature of Investor Print Name of Investor
_________________________________ ___________________________________
Signature of Spouse, if applicable Print Name of Spouse, if applicable
Date:____________________________
IF INVESTOR IS AN ENTITY:
_________________________________ ___________________________________
Signature of Officer, Print Name of Officer,
Trustee or Partner, as applicable Trustee, or Partner, as applicable
Date:____________________________
24
EXHIBIT A
---------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM,
SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SAID ACT.
FORM OF CONVERTIBLE NOTE
Trenton, New Jersey
June 15, 2007 $________
FOR VALUE RECEIVED, PERFORMANCE HEALTH TECHNOLOGIES, INC., a Delaware
corporation (hereinafter called the "Borrower"), hereby promises to pay to the
order of _________________or registered assigns (the "Holder") the sum of
_________, on June 15, 2008 (such date, the "Maturity Date"), and to pay
interest on the unpaid principal balance hereof at the rate of ten percent (10%)
per annum from the date of this Note (the "Issue Date") until the same becomes
due and payable, whether at maturity or upon acceleration or by prepayment or
otherwise. Interest shall commence accruing on the Issue Date, shall be computed
on the basis of a 365-day year and the actual number of days elapsed and shall
be payable in shares of Common Stock at the Conversion Price (as defined below)
on the Maturity Date or at the time of conversion of the principal to which such
interest relates in accordance with Article I below.
All amounts due hereunder (to the extent not converted into Common Stock by
the Holder or redeemed by the Borrower in accordance with the terms hereof)
shall be made in shares of Common Stock of the Borrower valued at the then
applicable Conversion Price. All payments due hereunder shall be made at such
address as the Holder shall hereafter give to the Borrower by written notice
made in accordance with the provisions of this Note.
Whenever any amount expressed to be due by the terms of this Note is due on
any day which is not a business day, the same shall instead be due on the next
succeeding day which is a business day and, in the case of any interest payment
date which is not the date on which this Note is paid in full, the extension of
the due date thereof shall not be taken into account for purposes of determining
the amount of interest due on such date. As used in this Note, the term
"business day" shall mean any day other than a Saturday, Sunday or a day on
which commercial banks in the city of New York, New York are authorized or
required by law or executive order to remain closed. Each capitalized term used
herein, and not otherwise defined, shall have the meaning ascribed thereto in
that certain Subscription Agreement between the Holder and the Borrower to which
this Note relates, as amended from time to time, pursuant to which the Holder
subscribed to purchase this Note (the "Subscription Agreement").
25
This Note is free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of shareholders of the Borrower and will not impose
personal liability upon the Holder thereof.
The following terms shall apply to this Note:
1. CONVERSION RIGHTS
The Holder shall have the following conversion rights with respect to this
Note (the "Conversion Rights"):
A. Holder Right to Convert. The Holder is entitled, at its option, to
convert, and sell on the same day, at any time and from time to time commencing
on the date hereof until the Maturity Date, all or any part of the principal
amount of the Note into shares (the "Conversion Shares") of the Borrower's
Common Stock, at the price per share equal to the lesser of (i) $0.75 or (ii)
70% of the average of the closing bid price for the Borrower's Common Stock for
the 20 days preceding the Conversion Notice, as reported by the exchange on
which the Company's Common Stock is then traded, but in no event less than $0.30
per share (the "Conversion Price"). No fraction of shares or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. To convert this Note, the
Holder hereof shall deliver written notice thereof, substantially in the form of
Exhibit "A" to this Note, with appropriate insertions (the "Conversion Notice"),
to the Borrower at its address as set forth herein. The date upon which the
conversion shall be effective (the "Conversion Date") shall be deemed to be the
date set forth in the Conversion Notice.
B. Mandatory Conversion.
1. If this Note is outstanding in whole or in part on the Mandatory
Conversion Date it shall automatically and without any action on the part of the
Holder, convert into a number of fully paid and nonassessable shares of Common
Stock equal to the quotient of (i) $1,000 divided by (ii) the Conversion Price
in effect on the Mandatory Conversion Date.
2. As used herein, "Mandatory Conversion Date" shall be the Maturity
Date of this Note. The Mandatory Conversion Date and the Voluntary Conversion
Date collectively are referred to herein as the "Conversion Date."
3. On the Mandatory Conversion Date, any amounts outstanding under
this Note shall be converted automatically without any further action by the
Holder and whether or not this Note surrendered to the Borrower; provided,
however, that the Borrower shall not be obligated to issue the shares of Common
Stock issuable upon conversion of this Note unless this Note is either delivered
to the Borrower or the Holder notifies the Borrower that such Note has been
lost, stolen, or destroyed, and executes an agreement satisfactory to the
Borrower to indemnify the Borrower from any loss incurred by it in connection
therewith. Upon the occurrence of the automatic conversion of this Note pursuant
to this Section, the Holder shall surrender this Note to the Borrower and the
Borrower shall deliver the shares of Common Stock issuable upon such conversion
to the Holder within three (3) business days of the Holder's delivery of this
Note.
26
C. Reservation of Common Stock. The Borrower shall reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of this Note, such number of shares of
Common Stock as shall from time to time be sufficient to effect such conversion,
based upon the Conversion Price. If at any time the Borrower does not have a
sufficient number of Conversion Shares authorized and available, then the
Borrower shall call and hold a special meeting of its stockholders within thirty
(30) days of that time for the sole purpose of increasing the number of
authorized shares of Common Stock.
D. Conversion Restrictions. The Holder may not convert this Note or
receive shares of Common Stock hereunder to the extent such conversion would
result in the Holder, together with any affiliate thereof, beneficially owning
as determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules promulgated thereunder (the "Exchange Act") in
excess of 9.99% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of, and payment of interest on, this
Note held by such Holder after application of this Section. Since the Holder
will not be obligated to report to the Borrower the number of shares of Common
Stock it may hold at the time of a conversion hereunder, unless the conversion
at issue would result in the issuance of shares of Common Stock in excess of
9.99% of the then outstanding shares of Common Stock without regard to any other
shares which may be beneficially owned by the Holder or an affiliate thereof,
the Holder shall have the authority and obligation to determine whether the
restriction contained in this Section will limit any particular conversion
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
principal amount of this Note is convertible shall be the responsibility and
obligation of the Holder. If the Holder has delivered a Conversion Notice for a
principal amount of this Note that, without regard to any other shares that the
Holder or its affiliates may beneficially own, would result in the issuance in
excess of the permitted amount hereunder, the Borrower shall notify the Holder
of this fact and shall honor the conversion for the maximum principal amount
permitted to be converted on such Conversion Date and, at the option of the
Holder, either retain any principal amount tendered for conversion in excess of
the permitted amount hereunder for future conversions or return such excess
principal amount to the Holder. The provisions of this Section may be waived by
a Holder (but only as to itself and not to any other Holder) upon not less than
65 days prior notice to the Borrower. Other Holders shall be unaffected by any
such waiver. No interest shall be paid by the Borrower for any portion of this
Note which is not permitted to be converted on any Conversion Date or the
Maturity Date because of the conversion restrictions set forth herein.
2. RIGHT OF REDEMPTION
At any time after the Borrower is a reporting company under the Exchange
Act and prior to the Maturity Date the Borrower at its option shall have the
right, with ten (10) business days advance written notice (the "Early Redemption
Notice"), to redeem a portion or all amounts outstanding under this Note in an
amount equal to the principal amount outstanding and accrued interest being
redeemed (the "Early Redemption Amount"). The Borrower shall deliver to the
Holder the Early Redemption Amount on the tenth (10th) business day after the
Early Redemption Notice.
27
In the event that the Borrower redeems a portion of the amount outstanding
under this Note, or the Holder converts a portion of the principal amount
outstanding and accrued interest under this Note as contemplated herein, the
Borrower shall be entitled to an off-set of the amount of principal and accrued
interest due equal to the amount of principal and accrued interest redeemed or
converted.
Notwithstanding the foregoing in the event that the Borrower has elected to
redeem a portion of the outstanding principal amount and accrued interest under
this Note the Holder shall still be entitled to effectuate conversions as
contemplated under Section 1.
3. EVENTS OF DEFAULT
If any of the following events of default (each, an "Event of Default")
shall occur:
A. Failure to Pay Principal or Interest. The Borrower fails to pay the
principal hereof or interest thereon when due on this Note, whether at maturity,
upon acceleration or otherwise;
B. Conversion and the Shares. The Borrower fails to issue shares of Common
Stock to the Holder (or announces or threatens that it will not honor its
obligation to do so) upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Note, or fails to transfer or cause
its transfer agent to transfer (electronically or in certificated form) any
certificate for shares of Common Stock issued to the Holder upon conversion of
or otherwise pursuant to this Note as and when required by this Note, and any
such failure shall continue uncured (or any announcement, statement or threat
not to honor its obligations shall not be rescinded in writing) for ten (10)
days after the Borrower shall have been notified thereof in writing by the
Holder;
C. Receiver or Trustee. The Borrower or any subsidiary of the Borrower
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial part of
its property or business, or such a receiver or trustee shall otherwise be
appointed;
D. Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower or any
subsidiary of the Borrower which remains unvacated, unbonded or unstayed for a
period of thirty (30) days;
then, upon the occurrence and during the continuation of any Event of
Default specified in Section 3.A or B, at the option of the Holders of a
majority of the aggregate principal amount of the outstanding Notes exercisable
through the delivery of written notice to the Borrower by such Holders (the
"Default Notice"), and upon the occurrence of an Event of Default specified in
Section 3.C or D, the Notes shall become immediately due and payable (the
"Mandatory Prepayment Date") and the Borrower shall deliver to the Holder, in
full satisfaction of its obligations hereunder, shares of Common Stock of the
Borrower in an amount equal to the then outstanding principal amount of this
Note for purposes of determining the lowest applicable Conversion Price,
multiplied by (b) the highest Closing Price for the Common Stock during the
period beginning on the date of first occurrence of the Event of Default and
ending one day prior
28
to the Mandatory Prepayment Date (the "Default Amount") and all other amounts
payable hereunder shall immediately become due and payable, all without demand,
presentment or notice, all of which hereby are expressly waived, together with
all costs, including, without limitation, legal fees and expenses, of
collection, and the Holder shall be entitled to exercise all other rights and
remedies available at law or in equity. If the Borrower fails to pay the Default
Amount within five (5) business days of written notice that such amount is due
and payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice, to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
Upon an Event of Default, notwithstanding any other provision of this Note,
the Holder shall have no obligation to comply with or adhere to any limitations,
if any, on the conversion of this Note or the sale of the underlying shares of
Common Stock.
4. MISCELLANEOUS
A. Failure or Indulgence Not Waiver. No failure or delay on the part of the
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privileges. All rights and remedies existing hereunder are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
B. Notices. Any notice herein required or permitted to be given shall be in
writing and may be personally served or delivered by courier or sent by United
States mail and shall be deemed to have been given upon receipt if personally
served (which shall include telephone line facsimile transmission) or sent by
courier or three (3) days after being deposited in the United States mail,
certified, with postage pre-paid and properly addressed, if sent by mail. For
the purposes hereof, the address of the Holder shall be as shown on the records
of the Borrower; and the address of the Borrower shall be 000 Xxxxx Xxxx Xxxxx,
Xxxxxxx, XX 00000 facsimile number: (000) 000-0000. Both the Holder and the
Borrower may change the address for service by service of written notice to the
other as herein provided.
C. Amendments. This Note and any provision hereof may only be amended by an
instrument in writing signed by the Borrower and the Holder. The term "Note" and
all reference thereto, as used throughout this instrument, shall mean this
instrument as originally executed, or if later amended or supplemented, then as
so amended or supplemented.
D. Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to be the benefit of the Holder and its
successors and assigns. Each transferee of this Note must be an "accredited
investor" (as defined in Rule 501(a) of the Securities Act). Notwithstanding
anything in this Note to the contrary, this Note may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement, subject
to all applicable federal and state securities laws.
29
E. Governing Law. THIS NOTE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICT OF LAWS. THE BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT
TO ANY DISPUTE ARISING UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH
PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE
OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY
RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE 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. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS'
FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE.
F. Denominations. At the request of the Holder, upon surrender of this
Note, the Borrower shall promptly issue new Notes in the aggregate outstanding
principal amount hereof, in the form hereof, in such denominations of at least
$1,000 as the Holder shall request.
G. No Preemptive Rights. Except as provided herein no Holder of this Note
shall be entitled to rights to subscribe for, purchase or receive any part of
any new or additional shares of any class, whether now or hereinafter
authorized, or of bonds or Notes, or other evidences of indebtedness convertible
into or exchangeable for shares of any class, but all such new or additional
shares of any class, or any bond, Notes or other evidences of indebtedness
convertible into or exchangeable for shares, may be issued and disposed of by
the Board of Directors on such terms and for such consideration (to the extent
permitted by law), and to such person or persons as the Board of Directors in
their absolute discretion may deem advisable.
30
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by its duly authorized officer.
PERFORMANCE HEALTH TECHNOLOGIES, INC.
By: _____________________________
Name:
Title:
31
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Notes)
The undersigned hereby irrevocably elects to convert $__________ principal
amount of the Note (defined below) into shares of common stock, par value $.01
per share ("Common Stock"), of Performance Health Technologies, Inc., a Delaware
corporation (the "Borrower") according to the conditions of the convertible
Notes of the Borrower dated as of June 15, 2007 (the "Notes"), 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 and is delivering herewith such certificates. No fee will be
charged to the Holder for any conversion, except for transfer taxes, if any. A
copy of each Note is attached hereto (or evidence of loss, theft or destruction
thereof).
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Notes shall be made pursuant to registration of the securities under the
Securities Act of 1933, as amended (the "Act"), or pursuant to an exemption from
registration under the Act.
Date of Conversion:___________________________
Applicable Conversion Price:____________________
Number of Shares of Common Stock to be Issued Pursuant to
Conversion of the Notes:______________
Signature:___________________________________
Name:______________________________________
Address:____________________________________
The Borrower shall issue and deliver shares of Common Stock to an overnight
courier not later than three (3) business days following receipt of the original
Note(s) to be converted, and shall make any applicable payments pursuant to the
Notes for the number of business days such issuance and delivery is late.
32
EXHIBIT B
---------
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED OR DISPOSED OF
EXCEPT PURSUANT TO (1) A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR (2) UPON
DELIVERY OF A LEGAL OPINION TO THE COMPANY, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE COMPANY, THAT ANY SUCH TRANSACTION IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
Dated: June 15, 2007
FORM OF WARRANT
To Purchase _____ shares of
Common Stock, $.01 par value
of
PERFORMANCE HEALTH TECHNOLOGIES, INC.
Expiring June 15, 2012
THIS IS TO CERTIFY THAT, for value received, __________, or his registered
assigns (hereinafter referred to as the ("Holder"), is entitled to subscribe and
purchase from PERFORMANCE HEALTH TECHNOLOGIES, INC., a DELAWARE corporation (the
"Company"), commencing on the date hereof, ______ shares of Common Stock, $.01
par value, of the Company (the "Shares"), at the place where the Warrant Agency
(as hereinafter defined) is located, at the Exercise Price (as hereinafter
defined), all subject to adjustment and upon the terms and conditions as
hereinafter provided, and is entitled also to exercise the other appurtenant
rights, powers and privileges hereinafter described; provided, however, that in
no event shall the Holder be entitled to exercise this Warrant for a number of
Shares in excess of that number of Shares which, upon giving effect to such
exercise, would cause the aggregate number of shares of Company Common Stock
beneficially owned by the Holder and its affiliates to exceed 9.99% of the
outstanding shares of the Company Common Stock following such exercise, except
within sixty (60) days of the Expiration Date. For purposes of the foregoing
proviso, the aggregate number of shares of Common Stock beneficially owned by
the Holder and its affiliates shall include the number of shares of Common Stock
issuable upon exercise of this Warrant with respect to which the determination
of such proviso is being made, but shall exclude shares of Common Stock which
would be issuable upon (i) exercise of the remaining, unexercised Warrants
beneficially owned by the holder and its affiliates and (ii) exercise or
33
conversion of the unexercised or unconverted portion of any other securities of
the Company beneficially owned by the holder and its affiliates (including,
without limitation, any convertible notes or preferred stock) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein. Except as set forth in the preceding sentence, for purposes of this
paragraph, beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this
Warrant, in determining the number of outstanding shares of Common Stock a
Holder may rely on the number of outstanding shares of Common Stock as reflected
in (1) the Company's most recent Form 10-QSB or Form 10-KSB, as the case may be,
(2) a more recent public announcement by the Company or (3) any other notice by
the Company or its transfer agent setting forth the number of shares of Common
Stock outstanding. Upon the written request of any holder, the Company shall
promptly, but in no event later than one (1) Business Day following the receipt
of such notice, confirm in writing to any such holder the number of shares of
Common Stock then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the exercise of Warrants
(as defined below) by such holder and its affiliates since the date as of which
such number of outstanding shares of Common Stock was reported.
Capitalized terms used in this Warrant and not otherwise defined shall have
the meanings set forth in Article IV hereof.
ARTICLE I
EXERCISE OF WARRANTS
Section 1.01 Method of Exercise. To exercise this Warrant in whole or in
part, the Holder shall deliver to the Company at the Warrant Agency, (a) this
Warrant, (b) a written notice, in substantially the form of the Subscription
Notice attached hereto, of such Holder's election to exercise this Warrant,
which notice shall specify the number of Shares to be purchased, the
denominations of the share certificate or certificates desired and the name or
names in which such certificates are to be registered and (c) the aggregate
Exercise Price for the Shares purchased (unless the Holder chooses the "cashless
exercise" option provided in the third paragraph of this Section 1.01).
The Company shall, as promptly as practicable and in any event within
seventy-two hours thereafter, execute and deliver or cause to be executed and
delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of Shares specified in said notice. The Share
certificate or certificates so delivered shall be in such denominations as
determined by the Company, or as may be specified in such notice, and shall be
issued in the name of the Holder or such other name or names as shall be
designated in such notice. Such certificate or certificates shall be deemed to
have been issued, and such Holder or any other person so designated to be named
therein shall be deemed for all purposes to have become holders of record of
such Shares, as of the date the aforementioned notice is received by the
Company. If this Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of the certificate or certificates, deliver to
the Holder a new Warrant evidencing the rights to purchase the remaining Shares
called for by this Warrant, which new Warrant shall in all other respects be
identical with this Warrant, or, at the request of the Holder, appropriate
notation may be made on this Warrant which shall then be returned to the Holder.
The Company shall pay all expenses, payable in connection with the preparation,
issuance and delivery of Share
34
certificates and new Warrants as contemplated by Section 2.07 below (other than
transfer, income or similar taxes in connection with the transfer of
securities), except that, if Share certificates or new Warrants shall be
registered in a name or names other than the name of the Holder, funds
sufficient to pay all transfer taxes payable as a result of such transfer shall
be paid by the Holder at the time of delivering the aforementioned notice of
exercise or promptly upon receipt of a written request of the Company for
payment.
In lieu of a monetary payment of the aggregate Exercise Price, the Holder
may elect to receive, without the payment of any additional consideration,
Shares equal to the value of this Warrant or portion thereof by the surrender of
such Warrant to the Company with the "cashless exercise" election marked in the
form of Subscription Notice. Thereupon, the Company shall issue to the Holder,
such number of fully paid and non-assessable Shares as is computed using the
following formula:
Y(A-B)
X = ------
A
Where X= the number of Shares to be issued to the Holder pursuant to this
Section 1.01 upon such cashless exercise election.
Y= the number of Shares covered by this Warrant in respect of which
the cashless exercise election is made.
A= the Fair Market Value (as defined in Article IV hereof) of one
Share, as at the time the cashless exercise election is made.
B= the Exercise Price in effect under this Warrant at the time the
cashless exercise election is made.
Section 1.02 Shares To Be Fully Paid and Non-assessable. All Shares issued
upon the exercise of this Warrant (the "Warrant Shares") pursuant to Section
1.01 above shall be validly issued, fully paid and nonassessable and the Company
shall at all times reserve and keep available out of its authorized shares of
Common Stock a sufficient number of Shares for the purpose of issuance of the
Warrant Shares upon the exercise of this Warrant.
Section 1.03 No Fractional Shares To Be Issued. The Company shall not be
required to issue fractions of Shares upon exercise of this Warrant. If any
fraction of a Share would, but for this Section, be issuable upon any exercise
of this Warrant, in lieu of such fractional Share the Company shall pay to the
Holder or Holders, as the case may be, in cash, an amount equal to the same
fraction of the Fair Market Value per share of outstanding Shares on the
Business Day immediately prior to the date of such exercise.
Section 1.04 Share Legend. Each certificate for Shares issued upon exercise
of this Warrant shall bear the legend set forth below, unless Holder's Counsel
(as defined below) shall render an opinion in form and substance reasonably
satisfactory to the Company that such legend is not required or at the time of
exercise such Shares are registered under the Securities Act:
35
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT
PURSUANT TO (1) A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR (2) UPON DELIVERY OF A
LEGAL OPINION TO THE COMPANY, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY
TO THE COMPANY, THAT ANY SUCH TRANSACTION IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the
Securities Act) shall also bear such legend unless, in the opinion (in form and
substance reasonably satisfactory to the Company) of counsel selected by the
Holder of such certificate and who is reasonably acceptable to the Company
("Holder's Counsel"), the securities represented thereby need no longer be
subject to restrictions on resale under the Securities Act.
ARTICLE II
WARRANT AGENCY; TRANSFER,
EXCHANGE AND REPLACEMENT OF WARRANTS
Section 2.01 Warrant Agency. Until such time, if any, as an independent
agency shall be appointed by the Company to perform services with respect to the
Warrants described herein (the "Warrant Agency"), the Company shall perform the
obligations of the Warrant Agency provided herein at its principal office
address or such other address as the Company shall specify by prior written
notice to all Holders.
Section 2.02 Ownership of Warrant. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by any person
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in this Article II.
Section 2.03 Transfer of Warrant. The Company agrees to maintain at the
Warrant Agency books for the registration of transfers of this Warrant and all
rights hereunder shall be registered, in whole or in part, on such books, upon
surrender of this Warrant at the Warrant Agency, together with a written
assignment of this Warrant duly executed by the Holder or its duly authorized
agent or attorney. Subject to applicable law and regulation and Section 2.04
hereof, upon surrender of this Warrant as provided for herein, the Company shall
execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denominations specified in the instrument of assignment,
and this Warrant shall promptly be
36
canceled. Notwithstanding the foregoing, a Warrant may be exercised by a new
Holder which has become the registered Holder of such Warrant without having a
new Warrant issued.
Section 2.04 Restrictions on Transfer. The Holder, by its acceptance
hereof, represents that this Warrant is being acquired for its own account, as
an investment and not with a view towards the further resale or the distribution
thereof in violation of the Securities Act, and agrees that this Warrant may not
be transferred, sold, assigned, hypothecated or otherwise disposed of, in whole
or in part, except as provided in the legend on the first page hereof and
provided that the Holder shall have furnished to the Company an opinion of
Holder's Counsel, in form and substance reasonably satisfactory to the Company,
to the effect that such transfer is exempt from the registration requirements of
the Securities Act and any applicable state securities laws.
Section 2.05 Division or Combination of Warrants. This Warrant may be
divided or combined with other Warrants upon surrender hereof and of any Warrant
or Warrants with which this Warrant is to be combined at the Warrant Agency,
together with a written notice specifying the names and denominations in which
the new Warrant or Warrants are to be issued, signed by the holders hereof and
thereof or their respective duly authorized agents or attorneys. Subject to
compliance with Section 2.04 as to any transfer which may be involved in the
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
Section 2.06 Loss, Theft, Destruction of Warrant Certificates. Upon receipt
by the Company of a written notice (or other evidence reasonably satisfactory to
the Company) of the loss, theft, destruction or mutilation of any Warrant and,
in the case of any such loss, theft or destruction, upon receipt of indemnity or
security reasonably satisfactory to the Company or, in the case of any such
mutilation, upon surrender and cancellation of such Warrant, the Company will
make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant,
a new Warrant of like tenor and representing the right to purchase the same
aggregate number of Shares.
Section 2.07 Expenses of Delivery of Warrants. The Company shall pay all
expenses (other than transfer taxes) and other charges payable in connection
with the preparation, issuance and delivery of Warrants and Warrant Shares
hereunder.
ARTICLE III
COMPANY COVENANTS AND REPRESENTATIONS
Section 3.01 Company Covenants. In case at any time the Company shall (a)
declare any dividend or distribution on its Shares, whether payable in cash,
stock or other property, (b) offer to all holders of Shares any additional
shares of Common Stock, or any option, right or warrant to subscribe therefore,
or (c) declare a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or propose a sale of
substantially all of its property, assets and business as an entirety, then the
Company shall give written notice to the Holder of the date on which the books
of the Company shall close or a record shall be taken for such action. Such
notice shall also specify the date as of which the holders of Shares of record
shall participate in such dividend or distribution. Such written notice shall be
given at least 30 days and not more than 90 days prior to the action in
question, and not
37
less than 15 days prior to the relevant record date or the date fixed for
determining stockholders entitled to participate therein, as the case may be.
Section 3.02 Authority, Execution and Delivery. The Company hereby
represents and warrants that the Company has full corporate power and authority
to enter into this Warrant and to issue Shares in accordance with the terms
hereof. The execution, delivery and performance of this Warrant by the Company
have been duly and effectively authorized by the Company. This Warrant has been
duly executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.
Section 3.03 Information Requirements. To the extent applicable, the
Company shall promptly furnish the Holder with copies of all reports, proxy
statements and similar materials that it mails to holders of its Common Stock.
ARTICLE IV
CERTAIN DEFINITIONS
The following terms, as used in this Warrant, have the following respective
meanings:
"Business Days" means each day in which banking institutions in New York
are not required or authorized by law or executive order to close.
"Exercise Price" means $[0.75] [1.50] per share, subject to adjustment
pursuant to Article V.
"Fair Market Value" means the value of a share of Common Stock on a
particular date, determined as follows: (i) if the Common Stock is not listed on
such date on any national securities exchange but is traded in the
over-the-counter market, the closing "bid" quotations of a share of Common Stock
on such date (or if none, on the most recent date on which there were bid
quotations of a share of Common Stock), as reported on the National Association
of Securities Dealers, Inc. Automated Quotation System, or, if not so reported,
as reported by the National Quotation Bureau, Incorporated, or any other similar
service selected by the Board; or (ii) if the Common Stock is listed on such
date on one or more national securities exchanges, the last reported sale price
of a share of Common Stock on such date as recorded on the composite tape
system, or, if such system does not cover the Common Stock, the last reported
sale price of a share of Common Stock on such date on the principal national
securities exchange on which the Common Stock is listed, or if no sale of Common
Stock took place on such date, the last reported sale price of a share of Common
Stock on the most recent day on which a sale of a share of Common Stock took
place as recorded by such system or on such exchange, as the case may be; or
(iii) if the Common Stock is neither listed on such date on a national
securities exchange nor traded in the over-the-counter market, as determined by
the Company.
ARTICLE V
ADJUSTMENTS
Section 5.01 Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant
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subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, any Warrant Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant will be proportionately
increased. If the Company at any time after the date of issuance of this Warrant
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, any
Warrant Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares issuable upon
exercise of this Warrant will be proportionately decreased. Any adjustment under
this Section 5.01 shall become effective at the close of business on the date
the subdivision or combination becomes effective.
Section 5.02 Notices. Immediately upon any adjustment of the Warrant
Exercise Price, the Company will give written notice thereof to the holder of
this Warrant, setting forth in reasonable detail, and certifying, the
calculation of such adjustment.
ARTICLE VI
MISCELLANEOUS
Section 6.01 Notices. Any notice or other communication to be given
hereunder shall be in writing and shall be delivered by recognized courier,
telecopy or certified mail, return receipt requested, and shall be conclusively
deemed to have been received by a party hereto and to be effective on the day on
which delivered or telecopied to such party at its address set forth below (or
at such other address as such party shall specify to the other parties hereto in
writing), or, if sent by certified mail, on the third business day after the day
on which mailed, addressed to such party at such address. In the case of the
Holder, such notices and communications shall be addressed to its address as
shown on the books maintained by the Warrant Agency, unless the Holder shall
notify the Company and the Warrant Agency that notices and communications should
be sent to a different address, in which case such notices and communications
shall be sent to the address specified by the Holder, and in either case a copy
of such notices and communications shall be sent to Xxxxxx X. Gallagher,
Gallagher, Xxxxxx & Xxxxxx, 000 Xxxxxxx Xxxxxxxxx, Xxxxxxxxx, Xxx Xxxxxx 00000
Fax: (000) 000-0000. In the case of the Company, such notices and communications
shall be addressed as follows (until notice of a change is given as provided
herein): Performance Health Technologies, Inc., 000 Xxxxx Xxxx Xxxxx, Xxxxxxx,
Xxx Xxxxxx 00000, Attention: Xxxxxx Xxxxxxxx, Fax: (000) 000-0000.
Section 6.02 Waivers; Amendments. No failure or delay of the Holder in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of such right or power, or any abandonment
or discontinuance of steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any rights
or remedies which it would otherwise have. The provisions of this Warrant may be
amended, modified or waived with (and only with) the written consent of the
Company and Holders holding a majority of Warrants at the time outstanding (or
any permitted transferee of all of the Warrant). In the event of any such
amendment, modification or waiver the Company shall give prompt notice thereof
to all Holders of Warrants and, if appropriate, notation thereof shall be
39
made on all Warrants thereafter surrendered for registration of transfer or
exchange. No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
Section 6.03 Governing Law. This Warrant shall be construed in accordance
with and governed by the laws of the State of Delaware without regard to choice
of law doctrine.
Section 6.04 Covenants To Bind Successor and Assigns. All covenants,
stipulations, promises and agreements in this Warrant contained by or on behalf
of the Company shall bind its successors and assigns, whether so expressed or
not.
Section 6.05 Severability. In case any one or more of the provisions
contained in this Warrant shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
Section 6.06 Section Headings. The section headings used herein are for
convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
Section 6.07 No Rights as Stockholder. This Warrant shall not entitle the
Holder to any rights as a stockholder of the Company.
Section 6.08 No Requirement to Exercise. Nothing contained in this Warrant
shall be construed as requiring the Holder to exercise this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in
its corporate name by one of its officers thereunto duly authorized, and
attested by its Secretary or an Assistant Secretary, all as of the day and year
first above written.
PERFORMANCE HEALTH TECHNOLOGIES, INC.
By: ____________________________
Name:
Title:
40
SUBSCRIPTION NOTICE
(To be executed upon exercise of Warrant)
To: Performance Health Technologies, Inc. (the "Company")
The undersigned hereby irrevocably elects:
(i) to exercise the right of purchase represented by the attached Warrant
for, and to purchase thereunder, __________ Shares, as provided for therein, and
tenders herewith payment of the Exercise Price in full in the form of certified
or bank cashier's check or wire transfer; or
(ii) the "cashless exercise" of its rights under the Section 1.01 of the
attached Warrant with respect to ___________ Shares otherwise available for
purchase to it under the Warrant and receive such number of Shares as provided
in the formula set forth in such Section 1.01.
Please issue a certificate or certificates for such Shares in the following
name or names and denominations:
___________________________________________________________________________
___________________________________________________________________________
In connection with the exercise of the Warrant, the undersigned hereby
represents and warrants that:
(i) it recognizes that the Shares issuable pursuant to the attached Warrant
have not been registered under the Securities Act and may not be sold, pledged
or otherwise transferred except pursuant to the exceptions set forth on the
legend on such Shares which is also set forth in Section 1.04 of the attached
Warrant;
(ii) it has received all material information with respect to the Company
which it deems necessary with its decision to exercise the attached Warrant and
it has been given an opportunity to ask questions and receive answers from
representatives of the Company;
(iii) it is purchasing the Shares for its own account, for the purpose of
investment only, and not with a view towards the further resale or distribution
thereof; and
(iv) it is an "Accredited Investor" within the meaning of Rule 501 of
Regulation D under the Securities Act of 1933, as amended.
If said number of Shares shall not be all the Shares issuable upon exercise of
the attached Warrant, a new Warrant is to be issued in the name of the
undersigned for the balance remaining of such Shares less any fraction of a
Share paid in cash.
By: _____________________________
Name: __________________________
Its: _____________________________
Dated: ____________________
NOTE: The above signatory should correspond exactly with the name on the
face of the attached Warrant or with the name of the assignee appearing in the
assignment form below.
41
ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received and in accordance with Section 2.03 of the attached Warrant,
____________________ hereby sells, assigns and transfers unto
___________________________ the attached Warrant, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
__________________ attorney to transfer said Warrant on the books of Performance
Health Technologies, Inc. with full power of substitution in the premises.
By: ___________________________
Name: _________________________
Its: __________________________
Dated:____________________
NOTE: The above signatory should
correspond exactly with the name
on the face of the attached
Warrant.
Consented to and approved in accordance with
Section 2.03 of the attached Warrant
PERFORMANCE HEALTH TECHNOLOGIES, INC.
By: ____________________________
Name: ______________________
Its: _______________________
42
