THIS WARRANT AND SHARES ISSUABLE ON EXERCISE OF THIS WARRANT MAY NOT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
APPLICABLE STATE SECURITIES LAWS BY REASON OF EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND SUCH STATE SECURITIES LAWS AND MAY NOT BE SOLD,
PLEDGED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION THEREFROM UNDER SUCH ACT OR LAWS.
WARRANT
No. W-1 Exercisable Only On or
Before October 15, 2006
NEXTHEALTH, INC.
This certifies that, for value received, APOLLO REAL ESTATE
INVESTMENT FUND II, L.P., a Delaware limited partnership, or its registered
assigns, is entitled to subscribe for and purchase, at any time and from time
to time during the Effective Period, a number of shares of duly authorized,
validly issued, fully paid and non-assessable Common Stock, including
fractional shares, equal to the Initial Number of Shares at an initial exercise
price of $1.50 per share, subject to adjustment as hereinafter provided, upon
the terms and subject to the conditions hereinafter set forth.
1 Definitions. For the purposes of this Warrant, the following
terms have the following meanings:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Corporation after the date hereof other than (i)
Common Stock issued to Apollo Real Estate Investment Fund II, L.P. or any
Person controlling, controlled by or under common control with it, and (ii)
Common Stock issued upon exercise of options granted prior to the date hereof
pursuant to the Corporation's Employee Stock Option Plan and Non-Employee
Director Stock Option Plan.
"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks in New York, New York are
required by law to close.
"Common Stock" shall mean the Corporation's Common Stock, par
value $0.01 per share, and, in the case of a reclassification, recapitalization
or other similar change
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in such Common Stock or in the case of a consolidation or merger of the
Corporation with or into another Person, such consideration to which a holder
of a share of Common Stock would have been entitled upon the occurrence of such
event.
"Common Stock Equivalent" shall mean any Convertible Security
or warrant, option or other right to subscribe for or purchase any shares of
Common Stock or any Convertible Security.
"Convertible Securities" shall mean evidences of
indebtedness, shares of Stock or other securities which are or may be at any
time convertible into or exchangeable for shares of Common Stock, including
without limitation any shares of the Corporation's preferred stock which are
convertible into or exchangeable for shares of Common Stock. The term
"Convertible Security" shall mean one of the Convertible Securities.
"Corporation" shall mean NextHealth, Inc., a Delaware
corporation, and its successors and assigns.
"Effective Period" shall mean the period beginning on the
date hereof and ending on October 15, 2006 at 5:00 p.m. Pacific/Mountain
Standard Time.
"Exercise Date" shall mean the date on which an exercising
Holder has submitted to the Corporation this Warrant and the subscription form
attached hereto as Exhibit A and, if applicable, has paid the exercise price as
required by Section 3.3.1 hereof.
"Fair Market Value" of a share of Common Stock as of any date
shall mean, as of any date, the average of the closing prices of Common Stock
for the twenty (20) consecutive Trading Days next preceding the date five (5)
days prior to the date in question.
The closing price for each day shall be:
(i) the average of the closing sale price or, in the
absence of a closing sale price, the highest bid and
lowest asked prices of one share of Common Stock
quoted in the NASDAQ National Market System or any
similar system of automated dissemination of
quotations of securities prices then in common use,
if so quoted; or
(ii) if not quoted as described in clause (i), the
average of the highest bid and lowest offered
quotations for one share of Common Stock as reported
by the National Quotation Bureau Incorporated if at
least two securities dealers have inserted both bid
and offered quotations for Common Stock on at least
five (5) of the twenty (20) consecutive Trading Days
next preceding the date five (5) days prior to the
date in question; or
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(iii) if the Common Stock is listed or admitted for
trading on any national securities exchange, the
last sale price, or the closing bid price if no sale
occurred, of one share of Common Stock on the
principal securities exchange on which the Common
Stock is listed or admitted for trading.
If none of the conditions set forth above is met, the closing price of one
share of Common Stock on any day or the average of such closing prices for any
period shall be the Fair Market Value of Common Stock for such day or period as
determined by a member firm of the New York Stock Exchange selected by the
Corporation and approved by the Holder. If the Corporation and the Holder are
unable to agree on the selection of a member firm, then the issue of selection
of a member firm shall be submitted to the American Arbitration Association.
"Holder" shall mean Apollo Real Estate Investment Fund II,
L.P., as the original registered holder of this Warrant, and any registered
transferee of a Holder.
"Initial Number of Shares" shall initially mean One Hundred
Thousand (100,000) shares of Common Stock and thereafter such number of shares
of Common Stock as shall result from the adjustments specified in Section 5
hereof.
"Person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization, limited liability
company, limited liability partnership, government organization or agency or
political subdivision thereof, association, sole proprietorship or any other
form of entity not specifically listed herein.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar Federal statute then in effect.
"Stock" shall include any and all shares, interests or other
equivalents (however designated) of, or participations in, the capital stock of
the Corporation of any class.
"Subsidiary" shall mean any corporation at least 50% of whose
outstanding capital stock shall at the time be owned directly or indirectly by
the Corporation or by one or more Subsidiaries or by the Corporation and one or
more Subsidiaries.
"Trading Day" shall mean, with respect to the Common Stock:
(i) if the Common Stock is quoted on the NASDAQ National Market System, any
similar system of automated dissemination or quotations of securities prices,
or the National Quotation Bureau Incorporated, each day on which quotations may
be made on such system; or (ii) if the Common Stock is listed or admitted for
trading on any national securities exchange, days on which such national
securities exchange is open for business; or (iii) if shares of the
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Common Stock are not quoted on any system or listed or admitted for trading on
any securities exchange, a Business Day.
"Warrant" shall mean this Warrant.
"Warrant Price" shall initially mean $1.50 per share of
Common Stock and thereafter such other prices as shall result from the
adjustments specified in Section 5 hereof.
"Warrant Spread" as of any date shall mean the difference
between (i) the Fair Market Value of a share of Common Stock as of that date
and (ii) the Warrant Price.
2 Duration. The right to exercise this Warrant to subscribe for and
purchase shares of Common Stock represented hereby shall commence on date
hereof and shall expire at the end of the Effective Period.
3 Method of Exercise; Payment; Issuance of New Warrant; Transfer and
Exchange.
3.1 The purchase right represented by this Warrant may be
exercised at any time during the Effective Period.
3.2 The Holder hereof may exercise this Warrant, in whole or
in part, by delivery to the Corporation at its office at 0000 Xxxxx Xxxx xxx
Xxx Xxxxxxx, Xxxxxx, Xxxxxxx 00000, Attention Xxxx Xxxxxxx (or such other
address as the Corporation may specify to Holder from time to time), of (i) a
written notice of Holder's election to exercise this Warrant, which notice
shall specify the number of shares of Common Stock to be purchased, (ii)
payment of the Warrant Price in the manner provided in Section 3.3 and (iii)
this Warrant. Such notice shall be substantially in the form of the
subscription form appearing at the end of this Warrant as Exhibit A, duly
executed by Holder or its agent or attorney. In the event of any exercise of
the rights represented by this Warrant, (i) certificates for the shares of
Common Stock so purchased shall be dated the date of such exercise and
delivered to the Holder hereof within a reasonable time, not exceeding 15 days
after such exercise, and the Holder hereof shall be deemed for all purposes to
be the Holder of the shares of Common Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof within such time.
Any such warrant shall be dated the date hereof and shall be identical with
this Warrant except as to the number of shares of Common Stock issuable
pursuant thereto.
3.3 Subject to the provisions of this Warrant, this Warrant
may be exercised in the manner set forth in either Section 3.3.1 or Section
3.3.2 below:
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3.3.1 Upon presentation to the Corporation at the
office specified in Section 3.2 of this Warrant with the subscription form
appearing at the end of this Warrant as Exhibit A duly completed, indicating a
cash exercise and signed by the Holder, and upon payment of an amount equal to
the product of the Warrant Price and the number of shares of Common Stock to be
purchased, by, at the option of Holder, (i) wire transfer to an account in a
bank located in the United States designated for such purpose by the
Corporation or (ii) certified or official bank check, the Corporation shall
issue and cause to be delivered to or upon the written order of the Holder and
in such name or names as Holder may designate, a certificate for the shares of
Common Stock issued upon such exercise.
3.3.2 Upon presentation to the Corporation at the
office specified in Section 3.2 of this Warrant with the subscription form
appearing at the end of this Warrant as Exhibit A duly completed, indicating a
non-cash exercise and signed by the Holder, the Corporation shall issue and
cause to be delivered to or upon the written order of the Holder and in such
name or names as Holder may designate, a certificate for a number of shares of
Common Stock equal to the result of dividing (i) the product of (A) the number
of shares of Common Stock for which this Warrant may be exercised and (B) the
Warrant Spread on the Exercise Date, by (ii) the Fair Market Value of a share
of Common Stock on the Exercise Date.
3.4 Subject to compliance with Section 7 hereof, this Warrant
may be transferred on the books of the Corporation by the Holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant at the
principal office of the Corporation, properly endorsed and upon payment of any
necessary transfer tax or other governmental charge imposed upon such transfer.
Subject to compliance with Section 7 hereof, this Warrant is exchangeable at
the aforesaid principal office of the Corporation for warrants for the purchase
of the same aggregate number of shares of Common Stock, each new warrant to
represent the right to purchase such number of shares of Common Stock as the
Holder hereof shall designate at the time of such exchange. All warrants issued
on transfers or exchanges shall be dated the date hereof and shall be identical
with this Warrant except as to the number of shares of Common Stock issuable
pursuant hereto.
3.5 The Corporation will, at its own expense, from time to
time take all action which may be necessary to obtain and keep effective any
and all permits, consents, orders and approvals of governmental agencies and
authorities which are or become required or necessary so that any Common Stock,
immediately upon its issuance upon the exercise of this Warrant, will be listed
on each securities exchange or listing or quotation services, if any, on which
Common Stock of the Corporation is then listed.
4 Stock Fully Paid; Reservation of Shares.
4.1 The Corporation covenants and agrees that all shares of
Common Stock which may be issued upon the exercise of the rights represented by
this Warrant will, upon issuance, be fully paid and non-assessable and free
from all taxes, liens and charges with
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respect to issuance. The Corporation further covenants and agrees that during
the Exercise Period, the Corporation will at all times have authorized and
reserved for the purpose of the issue upon exercise of this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant. If the Warrant Price is at any time less
than the par value of the Common Stock, the Corporation also covenants and
agrees to cause to be taken such action (whether by decreasing the par value of
the Common Stock, the conversion of the Common Stock from par value to no par
value, or otherwise) as will permit the exercise of this Warrant and the
issuance of the Common Stock without any additional payment by the Holder
hereof (other than payment of the Warrant Price and applicable transfer taxes,
if any), which Common Stock, upon such issuance, will be fully paid and
non-assessable.
4.2 The Corporation shall not by any action, including,
without limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the Holder hereof against impairment. Without limiting the generality
of the foregoing, the Corporation will (a) not increase the par value of any
shares of Common Stock above the amount payable therefor upon the exercise of
this Warrant immediately prior to such increase in par value and (b) take all
such action as may be necessary or appropriate in order that the Corporation
may validly and legally issue fully paid and nonassessable shares of Common
Stock, free and clear of any liens, claims, encumbrances and restrictions
(other than as provided herein) upon the exercise of this Warrant.
5 Adjustment of Purchase Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the amount
of the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as follows:
5.1 Recapitalization, Reorganization, Reclassification,
Consolidation or Merger. In case of any recapitalization or reorganization of
the Corporation or any reclassification or change of outstanding Stock issuable
upon exercise of this Warrant (other than a change in par value, or from par
value to no par value, or from no par value to par value or as a result of a
subdivision of combination), or in case of any consolidation or merger of the
Corporation with or into another corporation (other than a merger with another
corporation in which the Corporation is the surviving corporation and which
does not result in any reclassification or change (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination) of outstanding Stock issuable upon
exercise of this Warrant), the Holder of this Warrant shall be entitled to
receive, upon exercise of this Warrant, the kind and the highest amount of
shares of Stock, other securities, money and property receivable upon such
recapitalization, reorganization, reclassification, change, consolidation or
merger by a Holder of one share of
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Common Stock as if this Warrant had been exercised immediately prior to such
recapitalization, reorganization, reclassification, change, consolidation or
merger. The provisions of this Section 5.1 shall similarly apply to successive
recapitalizations, reorganizations, reclassifications, changes, consolidations
and mergers.
5.2 Subdivision or Combination of Shares. If the Corporation,
at any time while this Warrant is outstanding, shall subdivide or combine any
class or classes of its Common Stock, the Warrant Price shall be
proportionately reduced, in case of subdivision of shares, to reflect the
increase in the total number of shares of Common Stock outstanding as a result
of such subdivision, as at the effective date of such subdivision, or if the
Corporation shall take a record of holders of any class or classes of its
Common Stock for the purpose of so subdividing, as at the applicable record
date, whichever is earlier, or shall be proportionately increased, in the case
of combination of shares, to reflect the reduction in the total number of
shares of Common Stock outstanding as a result of such combination, as at the
effective date of such combination or, if the Corporation shall take a record
of holders of any class or classes of its Common Stock for the purpose of so
combining, as at the applicable record date, whichever is earlier.
5.3 Stock Dividends. If the Corporation, at any time while
this Warrant is outstanding, shall pay a dividend in, or make any other
distribution of, Common Stock, the Warrant Price shall be adjusted, as at the
date the Corporation shall take a record of the holders of such class or
classes of Common Stock, for the purpose of receiving such dividend or other
distribution (or if no such record is taken, as at the date of such payment on
other distribution), to that price determined by multiplying the Warrant Price
in effect immediately prior to the record date (or if no such record is taken,
then immediately prior to such payment or other distribution), by a fraction
(i) the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution (plus in the event
that the Corporation paid cash for fractional shares, the number of additional
shares which would have been outstanding had the Corporation issued fractional
shares in connection with said dividends).
5.4 Issuance of Additional Shares of Common Stock. If the
Corporation, at any time while this Warrant is outstanding, shall issue any
Additional Shares of Common Stock (otherwise than as provided in the foregoing
Sections 5.1 through 5.3), at a price per share less than the Warrant Price or
without consideration, then the Warrant Price upon each such issuance shall be
adjusted to that issuance price. The provisions of this Section 5.4 shall not
apply under any of the circumstances for which an adjustment is provided in
Sections 5.1, 5.2 or 5.3. No adjustment of the Warrant Price shall be made
under this Section 5.4 upon the issuance of any Additional Shares of Common
Stock which are issued pursuant to any Common Stock Equivalent if upon the
issuance of such Common Stock Equivalent (a) any adjustment shall have been
made pursuant to Section 5.5 or (b) no adjustment was required pursuant to
Section 5.5.
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5.5 Issuance of Common Stock Equivalents. If the Corporation
shall, at any time while this Warrant is outstanding, issue any Common Stock
Equivalent, and the price per share for which Additional Shares of Common Stock
may be issuable thereafter pursuant to such Common Stock Equivalent shall be
less than the current Warrant Price then in effect, or if, after any such
issuance of Common Stock Equivalents, the price per share for which Additional
Shares of Common Stock may be issuable thereafter is amended, and such price as
so amended shall be less than the current Warrant Price in effect at the time
of such amendment, then the Warrant Price upon each such issuance or amendment
shall be adjusted as provided in the first sentence of Section 5.4 on the basis
that Additional Shares of Common Stock issuable pursuant to such Common Stock
Equivalents shall be deemed to have been issued (whether or not such Common
Stock Equivalents are actually then exercisable, convertible or exchangeable in
whole or in part) as of the earlier of (a) the date on which the Corporation
shall enter into a firm contract for the issuance of such Common Stock
Equivalent, or (b) the date of actual issuance of such Common Stock Equivalent.
No adjustment of the Warrant Price shall be made under this Section 5.5 upon
the issuance of any Convertible Security which is issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor, if
any adjustment shall previously have been made in the Warrant Price then in
effect upon the issuance of such warrants or other rights pursuant to this
Section 5.5.
5.6 Other Provisions Applicable to Adjustments Under this
Section 5. The following provisions shall be applicable to the making of
adjustments in the Warrant Price hereinbefore provided in this Section 5:
5.6.1 Computation of Consideration. The
consideration received by the Corporation shall be deemed to be the following:
to the extent that any Additional Shares of Common Stock or any Common Stock
Equivalents shall be issued for a cash consideration, the consideration
received by the Corporation therefor; or, if such Additional Shares of Common
Stock or Common Stock Equivalents are offered by the Corporation for
subscription, the subscription price; or, if such Additional Shares of Common
Stock or Common Stock Equivalents are sold to underwriters or dealers for
public offering without a subscription offering, the initial public offering
price, in any such case excluding any amounts paid or receivable for accrued
interest or accrued dividends and without deduction of any compensation,
discounts, commissions, or expenses paid or incurred by the Corporation for or
in connection with the underwriting thereof or otherwise in connection with the
issue thereof. The consideration for any Additional Shares of Common Stock
issuable pursuant to any Common Stock Equivalents shall be the consideration
received by the Corporation for issuing such Common Stock Equivalents, plus the
additional consideration payable to the Corporation upon the exercise,
conversion or exchange of such Common Stock Equivalents. In case of the
issuance at any time of any Additional Shares of Common Stock or Common Stock
Equivalents in payment or satisfaction of any dividend upon any class of Stock
other than Common Stock, the Corporation shall be deemed to have received for
such Additional Shares of Common Stock or Common Stock Equivalents a
consideration equal to the amount of such dividend so paid or satisfied. In any
case in which
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the consideration to be received or paid shall be other than cash, the Board of
Directors of the Corporation shall determine in good faith the fair market
value of such consideration and promptly notify the Holder of its determination
of the fair market value of such consideration prior to payment or accepting
receipt thereof. If, within thirty (30) days after receipt of said notice, the
Holder shall notify the Board of Directors of the Corporation in writing of its
objection to such determination, a determination of fair market value of such
consideration shall be made by an appraiser selected by the Corporation and
approved by the Holder. If the Corporation and the Holder are unable to agree
on the selection of an appraiser, the issue of selection of an appraiser shall
be submitted to the American Arbitration Association.
5.6.2 Readjustment of Warrant Price. Upon the expiration of
the right to convert, exchange or exercise any Common Stock Equivalent the
issuance of which effected an adjustment in the Warrant Price, if such Common
Stock Equivalent shall not have been converted, exercised or exchanged, the
number of shares of Common Stock deemed to be issued and outstanding by reason
of the fact that they were issuable upon conversion, exchange or exercise of
any such Common Stock Equivalent shall no longer be computed as set forth
above, and the Warrant Price shall forthwith be readjusted and thereafter be
the price which it would have been (but reflecting any other adjustments in the
Warrant Price made pursuant to the provisions of this Section 5 after the
issuance of such Common Stock Equivalent) had the adjustment of the Warrant
Price been made in accordance with the issuance or sale of the number of
Additional Shares of Common Stock actually issued upon conversion, exchange or
issuance of such Common Stock Equivalent and thereupon only the number of
Additional Shares of Common Stock actually so issued shall be deemed to have
been issued and only the consideration actually received by the Corporation
(computed as in Section 5.6.1) shall be deemed to have been received by the
Corporation.
5.7 Treasury Shares. In making any adjustments in the Warrant Price
hereinbefore provided in this Section 5, the number of shares of Common Stock
at any time outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Corporation or any of its
Subsidiaries.
5.8 Other Action Affecting Common Stock. In case after the date hereof
the Corporation shall take any action affecting its Common Stock, other than an
action described in any of the foregoing Sections 5.1 through 5.6, inclusive,
and the failure to make any adjustment would not fairly protect the purchase
rights represented by this Warrant in accordance with the essential intent and
principals of this Section 5, then the Warrant Price shall be adjusted in such
manner as the Board of Directors of the Corporation shall in good faith
determine to be equitable in the circumstances.
5.9 Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price pursuant to any provision of this Section 5, the number of shares
of Common Stock purchasable hereunder shall be adjusted, to the nearest whole
share, to the product obtained by multiplying the number of such shares
purchasable immediately prior to such adjustment in the Warrant Price by a
fraction, the numerator of which shall be the Warrant Price
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immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter. If the Corporation shall be in default
under any provision contained in the last sentence of Section 4.2 of this
Warrant so that such shares, upon issuance, would not be validly issued under
applicable law at the Warrant Price adjusted in accordance with this Section 5,
the adjustment of shares provided in the foregoing sentence shall nonetheless
be made and the Holder of this Warrant shall be entitled to purchase such
greater number of shares at the lowest price at which such shares may be
validly issued under applicable law. Such exercise shall not constitute a
waiver of any claim arising against the Corporation by reason of its default
under Section 4.2 of this Warrant.
6 Notice of Adjustments. Whenever the Warrant Price or number of
shares of Common Stock purchasable upon exercise of this Warrant shall be
adjusted pursuant to Section 5 hereof, the Corporation shall cause the
independent accounting firm then regularly engaged by it to report on its
financial statements to prepare and execute a certificate setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Board of Directors of the Corporation
made any determination hereunder), and the Warrant Price and number of shares
of Common Stock purchasable hereunder after giving effect to such adjustment,
and shall cause copies of such certificate to be mailed (by first class mail
postage prepaid) to the Holder of this Warrant promptly after each adjustment.
7 Restrictions on Transferability. The Warrant and the Common Stock
issued upon exercise of the Warrant shall not be transferred, hypothecated or
assigned before satisfaction of the conditions specified in this Section 7
(unless transferred or assigned pursuant to Section 8), which conditions are
intended to ensure compliance with the provisions of the Securities Act and
state securities or "blue sky" laws with respect to the transfer, hypothecation
or assignment of any Warrant or Common Stock issued upon exercise of any
Warrant. Holder, by acceptance of this Warrant, agrees to be bound by the
provisions of this Section 7.
Prior to any transfer, hypothecation or assignment or
attempted transfer, hypothecation or assignment of the Warrant or any Common
Stock issued upon exercise of the Warrant, the Holder of such Warrant or Common
Stock shall give ten (10) days prior written notice (a "Transfer Notice") to
the Corporation of such Holder's intention to effect such transfer,
hypothecation or assignment, describing the manner and circumstances of the
proposed transfer, hypothecation or assignment, and provide the Corporation
with a written opinion of counsel addressed to the Corporation that the
proposed transfer, hypothecation or assignment of the Warrant or such Common
Stock may be effected without registration under the Securities Act and
applicable state securities or "blue sky" laws. After receipt of the Transfer
Notice and written opinion, the Corporation shall, within five (5) days
thereof, so notify the Holder of the Warrant or such Common Stock in writing
and such Holder shall thereupon be entitled to transfer, hypothecate or assign
the Warrant or Common Stock, in accordance with the terms of the Transfer
Notice. The Holder of the Warrant or such Common Stock, as the case may be,
giving the Transfer Notice shall not be entitled to
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transfer the Warrant or such Common Stock until receipt of notice from the
Corporation under this Section 7.2.
8 REGISTRATION RIGHTS
8.1 Optional Registrations. If at any time or times after the
date hereof, the Company shall determine to register any of its Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock
under the Securities Act (whether in connection with a public offering of
securities by the Company (a "primary offering"), a public offering thereof by
shareholders (a "secondary offering"), or both, but not in connection with a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Securities and
Exchange Commission (the "Commission") under the Securities Act is applicable),
it agrees to do the following:
8.1.1 The Company shall promptly give written notice of
registration under this Section 8.1 to the holders of Registrable Securities
(as hereinafter defined) then outstanding (the "Holders"), and will use its
best efforts to effect the registration under the Securities Act of all
Registrable Securities for which the Holders may request registration in a
writing delivered to the Company within fifteen (15) days after such notice
given by the Company; provided, however, that in the case of the registration
of Common Stock by the Company in connection with an underwritten public
offering, the Company shall not be required to register Registrable Securities
of the Holders in excess of the amount, if any, of Common Stock which the
principal underwriter of an underwritten offering shall reasonably and in good
faith agree in writing to include in such offering.
8.1.2 If any Registrable Securities are not to be registered
pursuant to this Section 8.1 because the number of Registrable Securities for
which registration has been requested by the Holders pursuant to paragraph (a)
above exceeds the amount of Common Stock which the principal underwriter of an
underwritten offering shall reasonably and in good faith agree in writing to
include in such offering, the Holders who have requested participation shall be
entitled to participate in such registration and offering proportionately in
accordance with the number of shares of Common Stock owned or obtainable by
them upon exercise of rights (including conversion rights) with respect to
other securities (including Preferred Stock) owned by them.
8.1.3 If the Company includes in a registration under this
Section 8.1 any securities to be offered by it, all expenses of the
registration and offering and the reasonable fees and expenses of not more than
one independent counsel for the Holders shall be borne by the Company, except
that the Holders shall bear underwriting commissions attributable to their
Registrable Securities being registered and transfer taxes on shares being sold
by such Holders. If the registration under this Section 8.1 is exclusively a
secondary offering, as defined in this Section 8.1, the Holders shall bear
their proportionate share of the expenses of the registration and offering
(provided all shareholders registering shares thereunder bear
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their proportionate share of expenses), except expenses which the Company would
have incurred whether or not registration was attempted, including, without
limitation, the expense of preparing normal audited or unaudited financial
statements or summaries consistent with this Agreement or applicable Commission
filings.
8.1.4 Without in any way limiting the types of registrations
to which this Section 8.1 shall apply, in the event that the Company shall
effect a "shelf registration", under Rule 415 promulgated under the Securities
Act, or any other similar rule or regulation ("Rule 415"), the Company shall
take all necessary action, including, without limitation, the filing of
post-effective amendments, to permit the Holders to include their shares in
such registration in accordance with the terms of this Section 8.1.
8.2 Required Registrations. If on any two (2) occasions at
least one year apart, after June 30, 1997, one or more of the Holders of an
aggregate of a majority of the Registrable Securities then outstanding and held
by the Holders, including any shares of Common Stock issued or issuable upon
conversion of the Warrants then outstanding, shall notify the Company in
writing that he or they intend to offer or cause to be offered for public sale
all or any portion of their Registrable Securities having an offering price of
not less than $500,000, the Company will notify all of the Holders who would be
entitled to notice of a proposed registration under Section 8.1 of its receipt
of such notification from such Holder or Holders. Upon the written request of
any such Holder delivered to the Company within fifteen (15) days after receipt
from the Company of such notification, the Company will either (i) elect to
make a primary offering in which case the rights of the Holders shall be as set
forth in Section 8.1, except that the Company shall not be permitted to limit
the number of shares which may be registered by any Holder, or (ii) use its
best efforts to cause such of the Registrable Securities as may be requested by
any Holders (including the Holders giving the initial notice of intent to
register hereunder) to be registered under the Securities Act in accordance
with the terms of this Section 8.2. All expenses of such registrations and
offerings and the reasonable fees and expenses of not more than one independent
counsel for the Holders shall be borne by the Company, except that the Holders
shall bear underwriting commissions attributable to their Registrable
Securities being registered, transfer taxes on shares being sold by such
Holders and the expense of any special audit of the Company's financial
statements if the notice requesting registration does not reasonably permit the
use of existing or contemplated audited statements. The Company shall not be
required to cause a registration statement requested pursuant to this Section
8.2 to become effective prior to sixty (60) days following the effective date
of a registration statement initiated by the Company, if the request for
registration has been received by the Company subsequent to the giving of
written notice by the Company, made in good faith, to the Holders of
Registrable Securities to the effect that the Company is commencing to prepare
a Company-initiated registration statement (other than a registration effected
solely to implement an employee benefit plan or a transaction to which Rule 145
or any other similar rule of the Commission under the Securities Act is
applicable); provided, however, that the Company shall use its best efforts to
achieve such effectiveness promptly following such sixty (60) day period if the
request pursuant to this Section 8.2 has been made prior to the
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expiration of such ninety (90) day period. The Company may postpone the filing
of any registration statement required hereunder for a reasonable period of
time, not to exceed thirty (30) days, if the Company has been advised by legal
counsel that such filing would require the disclosure of a material transaction
or other factor and the Company determines reasonably and in good faith that
such disclosure would have a material adverse effect on the Company.
8.3 Selection of Underwriter. In the case of any registration
effectuated pursuant to Section 8.1, the Company shall have the right to
designate the managing underwriter subject to the approval of a majority of the
Holders who have requested registration.
8.4 Stand Off Agreement. Each Holder of more than 5% of the
Common Stock on a fully-converted basis, if requested by the Company and an
underwriter of Common Stock or other securities of the Company, shall agree not
to sell or otherwise transfer or dispose of any Registrable Shares or other
securities of the Company held by such Holder for a specified period of time
(not to exceed 90 days) following the effective date of a Registration
Statement, provided all persons holding not less than the number of shares of
Common Stock held by such Holder (including shares of Common Stock issuable
upon the conversion of Shares, or other convertible securities, or upon the
exercise of options, warrants or rights) enter into similar agreements.
Such agreements shall be in writing in a form satisfactory to
the Company and such underwriter. The Company may impose stop-transfer
instructions with respect to the Registrable Shares or other securities subject
to the foregoing restriction until the end of the standoff period.
8.5 Registrable Securities. For the purposes of this Section
8, the term "Registrable Securities" shall mean any shares of Common Stock
owned by a Holder or issuable upon exercise of this Warrant or upon conversion
of preferred stock of the Company, including without limitation any Common
Stock issued or issuable with respect thereto by way of a share dividend or
share split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganizations.
8.6 Further Obligations of the Company. Whenever under the
preceding sections of this Section 8 the Company is required to register Common
Stock, it agrees that it shall also do the following:
8.6.1 Use its best efforts diligently to prepare for filing
with the Commission a registration statement and such amendments and
supplements to said registration statement and the prospectus used in
connection therewith as may be necessary to keep said registration statement
effective and to comply with the provisions of the Securities Act with respect
to the sale of securities covered by said registration statement for the period
necessary to complete the proposed public offering;
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8.6.2 Furnish to each selling Holder such copies of each
preliminary and final prospectus and such other documents as such Holder may
reasonably request to facilitate the public offering of his or its Common
Stock;
8.6.3 In the case of Section 8.1, enter into an underwriting
agreement with provisions reasonably required by the proposed underwriter for
the selling Holders, if any; and
8.6.4 Use its best efforts to register or qualify the Common
Stock covered by said registration statement under the securities or "blue-sky"
laws of such jurisdictions as any selling Holder may reasonably request,
provided that the Company shall not be required to register in any states which
require it to qualify to do business or subject itself to general service of
process.
8.7 Form S-3. If the Company becomes eligible to use Form S-3
under the Securities Act or a comparable successor form, the Company shall use
its best efforts to continue to qualify at all times for registration on Form
S-3 or such successor form. At any time and from time to time after the Company
becomes eligible to use Form S-3 or such successor form, the Holders of an
aggregate of not less than ten percent (10%) of Registrable Securities then
outstanding and held by the Holders shall have the right to request and have
effected a registration of shares of Registrable Securities on Form S-3 or such
successor form for a public offering of shares of Registrable Securities having
an aggregate proposed offering price of not less than $100,000.00 (such
requests shall be in writing and shall state the number of shares of
Registrable Securities to be disposed of and the intended method of disposition
of such shares by such Holder or Holders). The Company shall not be required to
cause a registration statement requested pursuant to this Section 8.7 to become
effective prior to ninety (90) days following the effective date of a
registration statement initiated by the Company, if the request for
registration has been received by the Company subsequent to the giving of
written notice by the Company, made in good faith, to the Holders of
Registrable Securities to the effect that the Company is commencing to prepare
a Company-initiated registration statement (other than a registration effected
solely to implement an employee benefit plan or a transaction to which Rule 145
or any other similar rule of the Commission under the Securities Act is
applicable); provided, however, that the Company shall use its best efforts to
achieve such effectiveness promptly following such ninety (90) day period if
the request pursuant to this Section 8.7 has been made prior to the expiration
of such ninety (90) day period. The Company may postpone the filing of any
registration statement required hereunder for a reasonable period of time, not
to exceed sixty (60) days, if the Company has been advised by legal counsel
that such filing would require the disclosure of a material transaction or
other factor and the Company determines reasonably and in good faith that such
disclosure would have a material adverse effect on the Company. The Company
shall give notice to all Holders of the receipt of a request for registration
pursuant to this Section 8.7 and shall provide a reasonable opportunity for
such Holders to participate in the registration. Subject to the foregoing, the
Company will use its best efforts to effect promptly the registration of all
shares of Common Stock on Form S-3 or such
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successor form to the extent requested by the Holder or Holders thereof for
purposes of disposition. If so requested by any Holder in connection with a
registration under this Section 8.7, the Company shall take such steps as are
required to register such Holder's Registrable Securities for sale on a delayed
or continuous basis under Rule 415, and to keep such registration effective
until all of such Holder's Registrable Securities registered thereunder are
sold. All expenses incurred in connection with a registration requested
pursuant to this Section 8.7, including, without limitation, all registration,
qualification, printing, and accounting and counsel fees, shall be paid by the
Holders participating in such registration on a pro-rata basis in proportion to
such participation. Notwithstanding the foregoing, the Company shall not be
required to effect a registration under this Section 8.7 if, in the opinion of
counsel for the Company, which counsel and opinion shall be acceptable to the
Holders, such Holders may then sell all Registrable Securities proposed to be
sold in the manner proposed without registration under the Securities Act.
8.8 Indemnification. Incident to any registration statement
referred to in this Section 8, and subject to applicable law, the Company will
indemnify each underwriter, each Holder of Registrable Securities so
registered, and each person controlling any of them, against all claims,
losses, damages and liabilities, including legal and other expenses reasonably
incurred in investigating or defending against the same, arising out of any
untrue statement of a material fact contained therein, or any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or arising out of any violation by the
Company of the Securities Act, any state securities or "blue-sky" laws or any
rule or regulation thereunder in connection with such registration, except
insofar as the same may have been caused by an untrue statement or omission
based upon information furnished in writing to the Company by such underwriter,
Holder, or controlling person, respectively, expressly for use therein, and
with respect to such untrue statement or omission in the information furnished
in writing to the Company by such Holder, such Holder will indemnify the
underwriters, the Company, its directors and officers, the other Holders and
each person controlling any of them against any losses, claims, damages,
expenses (including legal or other expenses) or liabilities to which any of
them may become subject to the same extent.
8.9 Rule 144 Requirements. The Company will use its best
efforts to file with the Commission such information as the Commission may
require under the reporting requirements of either Section 13 or Section 15(d)
of the Securities Exchange Act of 1934, as amended, and in such event, the
Company shall use its best efforts to take all action as may be required as a
condition to the availability of Rule 144 under the Securities Act (or any
successor exemptive rule hereafter in effect). The Company shall furnish to any
Holder of Registrable Securities upon request a written statement executed by
the Company as to the steps it has taken to comply with the current public
information requirement of Rule 144 or such successor rule.
8.10 Transfer of Registration Rights. The registration rights
of the Holders under this Section 8 may be transferred to any transferee of
Registrable Securities who is (a)
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a Holder, (b) who is an affiliate, as that term is defined in the Securities
Act, of a Holder (including a partner of such Holder), or (c) who is a
shareholder or partner of a Holder who receives Registrable Securities as a
distribution from such Holder. Each such transferee shall be deemed to be a
"Holder" for purposes of this Section 8.
8.11 Amendment or Waiver of Registration Rights. The
registration rights provided for in this Section 8 may not be waived otherwise
than by a written instrument signed by the party so waiving such rights;
provided, however, that changes in or additions to, and any consents required
by this Section 8 may be made, and compliance with any term, covenant,
condition or provision set forth in this Section 8 may be omitted or waived
(either generally or in a particular instance and either retroactively or
prospectively) by a consent or consents in writing signed by Purchaser Holders
holding a majority in interest of the Registrable Securities held by the
Purchaser Holders and (in the case of any such change or addition) the Company.
Any amendment or waiver effected in accordance with this Section 8.9 shall be
binding upon each Holder of Registrable Securities, each transferee of a Holder
under Section 8.8 and the Company.
9 Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Corporation and the Holder.
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10 Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
(WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH
STATE).
11 Replacement. On receipt of evidence reasonably satisfactory to the
Corporation of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity
agreement or bond reasonably satisfactory in form and amount to the Corporation
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Corporation, at its expense, will execute and deliver in lieu of this
Warrant, a new warrant of like tenor.
12 Specific Performance. The Holder shall have the right to specific
performance by the Corporation of the provisions of this Warrant. The
Corporation hereby irrevocably waives, to the extent that it may do so under
applicable law, any defense based on the adequacy of a remedy at law which may
be asserted as a bar to the remedy of specific performance in any action
brought against the Corporation for specific performance of this Warrant by the
Holder.
Dated: October 15, 1996 NEXTHEALTH, INC.
Attest: By:________________________
Name:
Title:
-------------------------
Secretary
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EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
Cash Exercise Method
The undersigned registered owner of the attached Warrant
irrevocably exercises, by the Cash Exercise Method in accordance with Section
3.3.1 of the Warrant, the attached Warrant for the purchase of ________ shares
of Common Stock, $0.01 par value, of NextHealth, Inc. and herewith makes
payment therefor, to the order of the Corporation in the amount of
$_________________ as payment of the Exercise Price in accordance with the
terms set forth in Section 3.3.1.
Non-cash Exercise Method
The undersigned registered owner of the attached Warrant
irrevocably exercises, by the Non-cash Exercise Method in accordance with
Section 3.3.2 of the Warrant, the attached Warrant for the purchase of _______
shares of Common Stock, $0.01 par value, of NextHealth, Inc., calculated as
follows:
(a) Number of shares of Common Stock for which the Warrant may be
exercised: _____________________
(b) The Warrant Spread on the Exercise Date: __________________
(c) The Fair Market Value of a share of Common Stock on the Exercise
Date: _____________________________
(d) Number of shares of Common Stock to be purchased (line (a) times
line (b) divided by line (c)): _________________________________
Issuance Instructions
The undersigned requests that a certificate for such Common
Stock be registered in the name of
_______________________________________________ whose address is
___________________________________________________________________ and that
such certificate be delivered to ____________________________________ whose
address is ___________________________________________________________________.
If such number of shares of Common Stock is less than all of the shares of
Common Stock
C/M: 11926.0033 414869.5
which may be purchased upon the exercise of the Warrant, the undersigned hereby
requests that a new Warrant representing the remaining balance of this Warrant
be registered in the name of _______________________________________________
whose address is ___________________________________________________________
and that such Warrant be delivered to _______________________________________
whose address is ________________________________________________________.
--------------------------------
Name of Registered Owner
--------------------------------
Signature of Registered Owner
--------------------------------
--------------------------------
Address
--------------------------------
Federal ID Number
C/M: 11926.0033 414869.5
