SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of March 17,
1997 by and among HEARX LTD., a Delaware corporation, with headquarters located
at 0000 Xxxxxxxxxx Xxxxxxx, Xxxx Xxxx Xxxxx, Xxxxxxx 00000 (the "COMPANY"), and
each of the purchasers set forth on the signature pages hereto (the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under Regulation D ("REGULATION D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT");
B. The Company has authorized the following new series of preferred
stock: 1997 Convertible Preferred Stock, par value $1.00 per share (the "1997
PREFERRED STOCK"), convertible into shares of Common Stock, par value $.10 per
share, of the Company (the "COMMON STOCK") upon the terms and subject to the
limitations and conditions set forth in the Certificate of Designations,
Preferences and Rights attached hereto as EXHIBIT A (the "CERTIFICATE OF
DESIGNATION");
C. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, such number of shares of 1997 Preferred Stock as is set forth
on the signature page hereto executed by Buyer; and
D. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as EXHIBIT B (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws;
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. Purchase of Preferred Shares. The Company shall issue and sell to
each Buyer and each Buyer severally agrees to purchase from the Company such
number of shares of 1997 Preferred Stock as is set forth on the signature page
hereto executed by Buyer (together with any 1997 Preferred Stock issued in
replacement thereof or as a dividend thereon or otherwise with respect thereto
in accordance with the terms thereof, the "PREFERRED SHARES") at a price per
share equal to One Thousand Dollars ($1,000.00), the stated value thereof (the
"PER SHARE PURCHASE PRICE").
b. Form of Payment. On the Closing Date (as defined below), (i) each
Buyer shall pay the purchase price for the Preferred Shares to be issued and
sold (the "PURCHASE PRICE") by wire transfer to First Union National Bank of
Georgia (the "Escrow Agent") in accordance with the terms of that certain Escrow
Agreement dated March 17, 1997 by and among the Company, Zanett Securities,
Inc., Buyers and the Escrow Agent (the "Escrow Agreement"), and (ii) the Company
shall deliver to the Escrow Agent, pursuant to the Escrow Agreement, duly
executed certificate(s) representing such number of Preferred Shares which such
buyer is purchasing.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Preferred Shares pursuant to this Agreement (the
"CLOSING DATE") shall be 12:00 noon Eastern Standard Time on March 17, 1997 or
such other mutually agreed upon time. The closing shall occur on the Closing
Date at the offices of Xxxxx Xxxx LLP, 000 Xxxxxxxxxx Xxxxxx, X.X., Xxxxxxxxxx,
XX 00000 or such other mutually agreed place.
2. BUYER'S REPRESENTATIONS AND WARRANTIES
Each Buyer severally represents and warrants to the Company that:
a. Investment Purpose. The Buyer is purchasing the Preferred Shares and
the shares of Common Stock issuable upon conversion thereof (the "CONVERSION
SHARES") (collectively, the "SECURITIES") for its own account, not as nominee or
agent, for investment only and not with a present view towards the public sale
or distribution thereof, except pursuant to sales registered under the 0000 Xxx.
b. Accredited Investor Status. The Buyer is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Buyer understands that the Preferred
Shares are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Preferred Shares.
d. Information. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been requested by the Buyer or its advisors. The Buyer and its advisors, if
any, have been afforded the opportunity to ask questions of the Company and have
received what the Buyer believes to be satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer understands that its investment in the
Securities involves a high degree of risk.
e. Governmental Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the 1933 Act or any state securities laws, and
may not be transferred unless (a) subsequently registered thereunder, or (b) the
Buyer shall have delivered to the Company an opinion of counsel, in form,
substance and scope reasonably acceptable to the Company, to the effect that
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the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration or (c) sold pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule); (ii) any sale of such Securities made
in reliance on Rule 144 may be made only in accordance with the terms of said
Rule and further, if said Rule is not applicable, any resale of such Securities
under circumstances in which the seller (or the person through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 0000
Xxx) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other person is under any obligation to register such Securities under the
1933 Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder (in each case, other than pursuant to the
Registration Rights Agreement).
g. Legends. The Buyer understands that the Preferred Shares and, until
such time as the Conversion Shares have been registered under the 1933 Act, the
certificates for the Conversion Shares, may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The securities
have been acquired for investment and 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 reasonably acceptable to the Company, that registration is
not required under said Act or unless sold pursuant to Rule 144 under
said Act."
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the sale of
such Security is registered under the 1933 Act, or (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope reasonably
acceptable to the Company, to the effect that a public sale or transfer of such
Security may be made without registration under the 1933 Act or (c) such holder
provides the Company with reasonable assurances that such Security can be sold
pursuant to Rule 144 under the 1933 Act (or a successor rule thereto) without
any restriction as to the number of Securities acquired as of a particular date
that can then be immediately sold. The Buyer agrees to sell all Securities,
including those represented by a certificate(s) from which the legend has been
removed, in compliance with applicable securities law.
h. Organization; Authorization; Enforcement. Buyer is duly organized
and existing under the laws of its organization and has all requisite corporate
or partnership (as the case may be) power and authority to purchase the
Preferred Shares pursuant to this Agreement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of the Buyer and are valid and binding agreements of the Buyer
enforceable in accordance with their terms.
i. Residency. The Buyer is a resident of the jurisdiction set forth
under such Buyer's name on the signature page hereto executed by such Buyer.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Buyer that:
a. Organization and Qualification; Subsidiaries. The Company is a
corporation duly organized and existing in good standing under the laws of the
State of Delaware, and has the requisite corporate power to own its properties
and to carry on its business as now being conducted. The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted by it makes
such qualification necessary and where the failure so to qualify would have a
Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the operations, properties, financial condition or prospects of the
Company or on the transactions contemplated hereby. None of the Company's
subsidiaries are engaged in any activities which are material to the operations
of the Company and its subsidiaries taken as a whole.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Escrow Agreement and the Registration Rights Agreement, and to issue the
Securities, in accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement and the Registration Rights Agreement by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including without limitation the issuance of the Preferred Shares and
the issuance and reservation for issuance of the Conversion Shares issuable upon
conversion thereof) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board or
Directors, or its stockholders is required, (iii) this Agreement has been duly
executed and delivered by the Company, and (iv) this Agreement constitutes, and
upon execution and delivery by the Company of the Escrow Agreement and the
Registration Rights Agreement, such instrument will constitute, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.
c. Capitalization. As of February 28, 1997, the authorized capital
stock of the Company consisted of (i) 130,000,000 shares of Common Stock of
which 84,131,158 shares were issued and outstanding, 4,466,475 shares were
reserved for issuance pursuant to the Company's stock option plans, and
23,378,247 shares were reserved for issuance pursuant to securities exercisable
for, or convertible into or exchangeable for any shares of Common Stock; and
(ii) 2,000,000 shares of preferred stock, of which no shares of 1996-Series A
Convertible Preferred Stock, 750 shares of 1996 Series B-1 Convertible Preferred
Stock, and 1,000 shares of 1996 Series B-2 Convertible Preferred Stock are
issued and outstanding. All of such outstanding shares of capital stock have
been validly issued, fully paid and nonassessable. As of the date hereof,
4,325,000 shares of Common Stock are reserved for issuance upon conversion of
the Preferred Shares to be issued hereunder (subject to adjustment pursuant to
the Company's covenant set forth in Section 4(h) below). As of the date hereof,
10,000 shares of 1997 Preferred Stock are duly authorized for issuance by the
Company. Except as disclosed in SCHEDULE 3(C), no shares of capital stock of the
Company are subject to preemptive rights or any other similar rights of the
stockholders of the Company or, to the Company's knowledge, any liens or
encumbrances. Except as disclosed in SCHEDULE 3(C), as of the date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any
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shares of capital stock of the Company or any of its subsidiaries, or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries, and (ii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
its or their securities under the 1933 Act (except the Registration Rights
Agreement). The Company has furnished to the Buyer true and correct copies of
the Company's Amended and Restated Certificate of Incorporation as in effect on
the date hereof ("CERTIFICATE OF INCORPORATION") and the Company's By-laws, as
in effect on the date hereof (the "BY-LAWS").
d. Issuance of Shares. The Preferred Shares and Conversion Shares are
duly authorized and, upon issuance in accordance with the terms of this
Agreement, upon conversion of the Preferred Shares, the Securities shall be
validly issued, fully paid and non-assessable, and free from all taxes, liens
and charges with respect to the issue thereof and shall not be subject to
preemptive rights or other similar rights of stockholders of the Company which
have not been waived. The term Conversion Shares includes the shares of Common
Stock issuable upon conversion of the Preferred Shares, including without
limitation, such additional shares, if any, as are issuable as a result of the
events described in Article VI.E. of the Certificate of Designation.
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Escrow Agreement and the Registration Rights Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including without limitation, the issuance and reservation
for issuance of the Preferred Shares and Conversion Shares) will not (i) result
in a violation of the Certificate of Incorporation or By-laws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). The Company is not in violation of its Certificate of
Incorporation or By-laws and is not in default (and no event has occurred which
with notice or lapse of time of both would put the Company in default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its subsidiaries are not being conducted, and shall not be
conducted so long as a Buyer owns any of the Securities, in violation of any
law, ordinance or regulation of any governmental entity, except for possible
violations which either singly or in the aggregate do not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Escrow Agreement or the
Registration Rights Agreement in accordance with the terms hereof or thereof.
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f. SEC Documents, Financial Statements. Since December 31, 1994, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act of 1934, as amended (the "1934 ACT") (all of the foregoing
filed prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being hereinafter referred to herein as the
"SEC DOCUMENTS"). The Company has delivered to each Buyer true and complete
copies of the SEC Documents, except for such exhibits, schedules and
incorporated documents. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
December 29, 1995 and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
g. Absence of Certain Changes. Since December 29, 1995 there has been
no material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company.
h. Absence of Litigation. There is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its subsidiaries, threatened against or affecting the Company, the
Common Stock or any of the Company's subsidiaries which, individually or in the
aggregate, not material to the financial condition or operating results of the
Company.
i. Disclosure. All information relating to or concerning the Company
set forth in this Agreement and provided to the Buyers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the
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statements made herein or therein, in light of the circumstances under which
they were made, not misleading.
j. Acknowledgment Regarding Buyers' Purchase of Preferred Shares. The
Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no Buyer
is acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any advice given by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Buyers' purchase of the
Preferred Shares. The Company further represents to each Buyer that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to the Buyers at the applicable closing pursuant to
this Agreement under applicable securities or "blue sky" laws of the states of
the United States, and shall provide evidence of any such action so taken to
each Buyer on or prior to such Closing Date.
c. Reporting Status. So long as any Buyer beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the SEC pursuant to the 1934 Act, and the Company shall not terminate its status
as an issuer required to file reports under the 1934 Act even if the 1934 Act or
the rules and regulations thereunder would permit such termination.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Preferred Shares for the Company's internal working capital purposes,
including the opening of new centers. The Company shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person.
e. Expenses. Except as otherwise provided in Section 5 of the
Registration Rights Agreement, each party hereto shall be responsible for the
payment of its own expenses incurred in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
agreements to be executed in connection herewith.
f. Additional Equity Capital. The Company agrees that during the period
beginning on the date hereof and ending one hundred eighty (180) days following
the Closing Date (THE "LOCK-UP PERIOD"), the Company will not, without the prior
written consent of each of the
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Buyers then holding shares of 1997 Preferred Stock, negotiate or contract with
any party to obtain additional equity financing (including debt financing with
an equity component) in any form ("FUTURE OFFERINGS"). In addition, the Company
agrees that it will not conduct any Future Offering during the period beginning
on the date hereof and ending one (1) year after the Closing Date unless it
shall have first provided to Zanett Securities, Inc. at least ten (10) days
prior to the closing of such Future Offering, written notice describing the
proposed Future Offering, including the terms and conditions thereof, and
providing Zanett Securities, Inc. an option during such ten (10) day period to
purchase up to fifty percent (50%) of the proposed Future Offering on the same
terms as contemplated by such Future Offering (the "CAPITAL RAISING
LIMITATION"). The Capital Raising Limitation shall not apply to any commercial
banking loan or issuances of securities in connection with a merger,
consolidation or sale of assets, or in connection with any strategic partnership
or joint venture (the primary purpose of which is not to raise equity capital),
or in connection with the disposition or acquisition of a business, product or
license by the Company or exercise of options by employees, consultants or
directors. The Capital Raising Limitation also shall not apply to the issuance
of securities pursuant to an underwritten public offering or upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or restricted stock plan for the benefit of the Company's employees,
directors or consultants.
g. Financial Information. The Company agrees to send the following
reports to each Buyer until such Buyer transfers, assigns, or sells all of the
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K; and (ii) within one (1) day after release, copies
of all press releases issued by the Company or any of its subsidiaries.
h. Reservation of Shares. The Company shall at all times have
authorized, and reserved for the purpose of issuance (the "RESERVED AMOUNT") ,
125% of the number of shares of Common Stock necessary to provide for the full
conversion of the outstanding Preferred Shares and issuance of the Conversion
Shares in connection therewith at such time (the "TOTAL COMMON SHARES"). The
foregoing notwithstanding, (i) if the Reserved Amount is at any time less than
125% of the Total Common Shares, the Company shall thereafter be obligated to
have authorized and reserved for issuance, 150% of the Total Common Shares, (ii)
the Company shall not issue any shares of Common Stock, other than shares upon
conversion of 1997 Preferred Stock and shares which are currently reserved for
issuance and disclosed in Section 3(c) hereof, if at such time the Reserved
Amount is less than 200% of the Total Common Shares, and (iii) if the Company
breaches the provisions of clause (ii) above, the Company shall thereafter at
all times be obligated to have authorized and reserved for issuance 200% of the
Total Common Shares.
i. Listing. The Company shall promptly secure the listing of the
Conversion Shares upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Conversion Shares from time
to time issuable upon conversion of the Preferred Shares.
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j. Corporate Existence. So long as a Buyer beneficially owns any
Preferred Shares, the Company shall maintain its corporate existence, except in
the event of a merger, consolidation or sale of all or substantially all of the
Company's assets, as long as the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose Common Stock is listed for trading on the
American Stock Exchange ("AMEX"), the New York Stock Exchange or the Nasdaq
National Market System.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Buyer or its nominee, for the Conversion Shares
in such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares. Prior to registration of the Conversion
Shares under the 1933 Act, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than such instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof, in the case of the
Conversion Shares, prior to registration of the Conversion Shares under the 1933
Act, will be given by the Company to its transfer agent and that the Securities
shall otherwise be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement and the Registration Rights
Agreement. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement set forth in Section 2(g) hereof to comply with all
applicable securities laws upon resale of the Securities. If a Buyer provides
the Company with an opinion of counsel, reasonably satisfactory to the Company
in form, substance and scope, that registration of a resale by such Buyer of any
of the Securities is not required under the 1933 Act, the Company shall permit
the transfer, and, in the case of the Conversion Shares promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Preferred
Shares to a Buyer at the closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions thereto, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion. The obligation of the Company to
issue and sell Preferred Shares to any Buyer is distinct from its obligation to
issue and sell Preferred Shares to another Buyer.
With respect to the closing:
(i) Such Buyer shall have executed this Agreement, the
Registration Rights Agreement and the Escrow Agreement, and delivered the same
to the Company and, in the case of the Escrow Agreement, to the Escrow Agent.
(ii) Such Buyer shall have wire transferred the Purchase Price
to the Escrow Agent in accordance with Section 1(b) above.
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(iii) The Certificate of Designation shall have been accepted
for filing with the Secretary of State of the State of Delaware.
(iv) The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Preferred Shares
at the closing, as applicable, is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for such Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
With respect to the closing:
(i) The Company shall have executed this Agreement, the Registration
Rights Agreement and the Escrow Agreement, and delivered the same to the Buyer
and, in the case of the Escrow Agreement, to the Escrow Agent.
(ii) The Certificate of Designation shall have been accepted for filing
with the Secretary of State of the State of Delaware, and a copy thereof
certified by such Secretary of State shall have been delivered to such Buyer.
(iii) The Company shall have delivered duly executed certificates (in
such denominations as such Buyer shall request) representing the Preferred
Shares being so purchased to the Escrow Agent in accordance with Section 1(b)
above.
(iv) The Common Stock shall be authorized for quotation on AMEX, and
trading in the Common Stock (or on AMEX generally) shall not have been suspended
by the SEC or AMEX.
(v) The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. Such Buyer shall have received a
certificate, executed by the chief executive officer of the Company, dated as of
the Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer.
(vi) Such Buyer shall have received an opinion of the Company's
counsel, dated as of the date of the Closing Date, in form, scope and substance
reasonably satisfactory to such Buyer and in substantially the same form as
EXHIBIT C attached hereto.
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(vii) Such Buyer shall have received the officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
(viii) The Company shall have delivered evidence reasonably
satisfactory to Buyer's counsel that no approval of the Company's stockholders
is required under the rules of the AMEX in order to issue any of the Preferred
Shares at the closing hereunder or to issue the Conversion Shares.
(ix) The Company shall have obtained all necessary consents, including
without limitation, the consent of the current registered holders of 1996 Series
B-1 Convertible Preferred Stock and 1996 Series B-2 Convertible Preferred Stock,
necessary to file the Certificate of Designations and otherwise consummate the
transactions contemplated hereby.
(x) The Irrevocable Transfer Agent Instructions, in the form attached
hereto as Exhibit D, shall have been delivered to and acknowledged in writing by
the Company's transfer agent. In the event the Company is unable to obtain the
transfer agent's acknowledgment at the time of the Closing, the Company
undertakes to use its best efforts to obtain such acknowledgment as soon s
possible.
8. COMPANY'S POST CLOSING OBLIGATIONS.
(a) As soon as practicable after the Closing Date, all of the
Conversion Shares issuable upon conversion of the Preferred Shares sold at the
Closing shall be listed upon AMEX (subject to official notice of issuance).
(b) Within fifteen (15) days of the Closing Date, the Company shall
file a Registration Statement covering the resale of the Registrable Securities
(as defined in the Registration Rights Agreement) underlying the Preferred
Shares issued at the Closing. The Company shall use its reasonable best efforts
to cause such registration statement to become effective within one hundred
twenty (120) days of the Closing Date. In the event that such registration is
not effective within the one hundred twenty (120) days following the Closing
Date, the Company shall incur penalties as set forth in Section 2(c) of the
Registration Rights Agreement.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the Delaware without regard to the principles of
conflict of laws. The parties hereto submit to the exclusive jurisdiction of the
U.S. federal courts located in New York, New York, with respect to any dispute
arising under this Agreement, the agreements entered into in connection herewith
or the transaction contemplated hereby or thereby.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party.
11
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier and shall be effective
five days after being placed in the mail, if mailed, or upon receipt or refusal
of receipt, if delivered personally or by courier, in each case addressed to a
party. The addresses for such communications shall be:
If to the Company:
HEARx LTD.
0000 Xxxxxxxxxx Xxxxxxx
Xxxx Xxxx Xxxxx, XX 00000
Attention: Xxxx X. Xxxxx, M.D.
Chairman of the Board
With copy to:
Xxxxx Xxxx LLP
000 00xx Xxxxxx, X.X.
Xxxxx 000
Xxxxxxxxxx, XX 00000
Attention: XxXxxx Xxxxxx, Esquire
If to Buyers:
Zanett Securities, Inc.
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxxx
With copy to:
Klehr, Harrison, Xxxxxx, Branzburg & Xxxxxx
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0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxxxxx, Esq.
If to any other Buyer, to such address set forth under such Buyer's
name on the signature page hereto executed by such Buyer.
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, any Buyer may assign its rights hereunder to any
of its "affiliates," as that term is defined under the 1934 Act, without the
consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person other than Zanett Securities, Inc. and its affiliates and
assigns.
i. Survival. The representations and warranties of the Company set
forth in Section 3 shall survive the closings for a period of two (2) year
notwithstanding any due diligence investigation conducted by or on behalf of the
Buyers. The covenants and agreements contained herein shall survive the Closing
for the longer of (i) the expiration thereof pursuant to their specific terms,
or (ii) the date upon which all shares of 1997 Preferred Stock have been
converted or redeemed and all shares of Common Stock issuable upon exercise
thereof have been sold. The Company agrees to indemnify and hold harmless each
of the Buyers for loss or damage arising as a result of or related to any breach
or alleged breach by the Company of any of its representations set forth in
Section 3 hereof or the Company's agreement set forth in Section 9(m) below,
including advancement of expenses as they are incurred.
j. Publicity. The Company and each of the Buyers shall have the right
to approve before issuance any press releases, SEC, AMEX or NASD filings, or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of each of the Buyers, to make any press release or SEC, AMEX or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although each of the Buyers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
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l. Termination. In the event that the Closing shall not have occurred
on or before fifteen (15) business days from the date hereof, unless the parties
agree otherwise, this Agreement shall terminate at the close of business on such
date.
m. Finders. The Company acknowledges that it has engaged a finder in
connection with the sale of the Preferred Shares, which finder may have formally
or informally engaged other finders or agents on its behalf. The Company shall
be responsible for the payment of any finder's or placement agreement's fees
relating to or arising out of the transactions contemplated hereby.
14
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused
this Agreement to be duly executed as of the date first above written.
HEARx LTD.
By: /s/ Xxxx X. Xxxxx
-----------------------------------
Name: Xxxx X. Xxxxx, M.D.
Its: Chairman and CEO
Olympus Securities, Ltd.
By: /s/ Xxxx Xxxxx
-----------------------------------
Name: Xxxx Xxxxx
Its: Alternate Director
RESIDENCE: Bermuda
ADDRESS:
AGGREGATE SUBSCRIPTION AMOUNT: $2,125,000
Number of Shares of 1997 Convertible Preferred Stock: 2,125
Aggregate Purchase Price: $2,125,000
[Signatures Continued on Next Page]
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[Signatures Continued From Prior Page]
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused
this Agreement to be duly executed as of the date first above written.
HEARx LTD.
By: /s/ Xxxx X. Xxxxx, MD
-------------------------------------
Name: Xxxx X. Xxxxx, MD
Its: Chairman and CEO
XXXXXX PARTNERS
By: /s/ Xxxx Xxxxx
-------------------------------------
Name: Xxxx Xxxxx
Its: Alternate Director
RESIDENCE: Bermuda
ADDRESS:
AGGREGATE SUBSCRIPTION AMOUNT: $2,125,000
Number of Shares of 1997 Convertible Preferred Stock: 2,125
Aggregate Purchase Price: $2,125,000
16
[Signatures Continued From Prior Page]
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused
this Agreement to be duly executed as of the date first above written.
HEARx LTD.
By: /s/ Xxxx X. Xxxxx, MD
------------------------------------
Name: Xxxx X. Xxxxx, MD
Its: Chairman and CEO
ZANETT LOMBARDIER, LTD.
By: /s/ G. A. Cicogna
------------------------------------
Name: G. A. Cicogna
Title: Director
RESIDENCE: Caymen Islands
ADDRESS:
AGGREGATE SUBSCRIPTION AMOUNT: $1,500,000
Number of Shares of 1997 Convertible Preferred Stock: 1,500
Aggregate Purchase Price: $1,500,000
17
[Signatures Continued From Prior Page]
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused
this Agreement to be duly executed as of the date first above written.
HEARx LTD.
By: /s/ Xxxx X. Xxxxx, MD
------------------------------------
Name: Xxxx X. Xxxxx, MD
Its: Chairman and CEO
CAPITAL VENTURES INTERNATIONAL
By: /s/ Heights Capital Management
------------------------------------
By: /s/ Xxxxxx Xxxxx
Name: Xxxxxx Xxxxx
Title: President
RESIDENCE: Caymen Islands
ADDRESS:
AGGREGATE SUBSCRIPTION AMOUNT: $4,250,000
Number of Shares of 1997 Convertible Preferred Stock: 4,250
Aggregate Purchase Price: $4,250,000
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SCHEDULE 3(c)
CONTRACTUAL "PREEMPTIVE" RIGHTS
Rights of the "Buyers" under that Securities Purchase Agreement dated
as of May 3, 1996 relating to the sale and issuance of the 1996 Series B-1
Convertible Preferred Stock and the 1996 Series B-2 Convertible Preferred Stock.
OUTSTANDING OPTIONS, WARRANTS, CONVERTIBLE SECURITIES AND OTHER RIGHTS
1. Warrant Certificate for Purchase of Stock dated February 20, 1991
issued to Minnesota Mining and Manufacturing Company ("3M"), covering 5,000
shares of "Senior Preferred Stock convertible into common voting stock"
(subsequently known as Senior Preferred Stock, Series C) and, since the
Company's listing on the American Stock Exchange, covering 500,000 shares of
common stock.
2. Warrant Certificate for Purchase of Stock dated February 20, 1991
issued to 3M, covering 6,000 shares of "Senior Preferred Stock convertible into
common voting stock" (subsequently known as Senior Preferred Stock, Series C)
and, since the Company's listing on the American Stock Exchange, covering
600,000 shares of common stock.
3. Option to Purchase dated May 15, 1992, granted to 3M to purchase up
to 8,000 shares of Senior Preferred Stock, Series F which, since the Company's
listing on the American Stock Exchange, covers 800,000 shares of common stock.
4. Currently outstanding other options to purchase common stock of the
Company:
(a) Non-Incentive Stock Option Agreements between the Company and Xxxxx
Xxxxxx and Xxxxxxxxx Xxxxxx;
(b) Non-Incentive Stock Option Agreement between the Company and Xxxxxx
Xxxxxxxxx;
(c) Options to employees granted under the Company's stock option
plans;
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(d) Option to Xxxx X. Xxxxx to acquire 100,000 shares of common stock;
and
(e) Director stock options issued to Non-Employee Directors.
5. Warrants to purchase up to 2,290,488 shares of common stock issued
in connection with prior private placements.
6. Warrants to purchase up to 110,000 shares of common stock issued in
connection with certain finders fees for prior private placements.
7. Class A Warrants to purchase up to 11,070,480 shares of common stock
issued in connection with 1996 private placement of 1996 Senior Preferred Stock.
8. Warrants to purchase up to 2,283,278 shares of common stock issued
as a finders fee (the "Invemed Warrants") in connection with 1996 private
placement of 1996 Senior Preferred Stock and common stock purchase Warrants
(described above).
9. 750 shares of 1996 Series B-1 Convertible Preferred Stock and 1,000
shares of 1996 Series B-2 Preferred Stock, plus warrants to acquire up to
3,750,000 shares of common stock issued (or issuable) upon conversion of the
1996 Series B-1 Convertible Preferred Stock.
10. Company commitment to issue warrants to Zanett Securities, Inc. to
purchase a total of 750,000 shares of common stock (subject to certain vesting
requirements).
OUTSTANDING REGISTRATION RIGHTS
1. Certain registration rights granted to Minnesota Mining and
Manufacturing Company ("3M") in connection with certain convertible preferred
stock purchases and options to purchase certain convertible preferred stock (now
common stock).
2. Registration rights granted pursuant to a Registration Rights
Agreement dated January 26, 1996 in connection with the 1996 private placement
of 1996 Senior Preferred Stock and common stock purchase warrants.
3. Registration rights granted pursuant to a Registration Rights
Agreement dated as of May 3, 1996 in connection with the offer and sale of the
1996 Series B-1 Convertible Preferred Stock and the 1996 Series B-2 Convertible
Preferred Stock.
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