GUARANTEE FEE, REIMBURSEMENT AND INDEMNIFICATION AGREEMENT
EXHIBIT
A
This
GUARANTEE
FEE, REIMBURSEMENT AGREEMENT AND INDEMNIFICATION AGREEMENT (as
amended from time to time, this “Agreement”),
dated
as of March 16, 2007, is made and entered into by and between MEDICAL
SOLUTIONS MANAGEMENT INC.,
a
corporation organized and existing under the laws of the State of Nevada (the
“MSMI”),
OrthoSupply Management, Inc., a Delaware corporation (the “Guarantor”)
and
VICIS
CAPITAL MASTER FUND,
a
sub-trust of Vicis Capital Series Master Trust, a unit trust organized and
existing under the laws of the Cayman Islands (the “Fund”).
WITNESSETH:
WHEREAS,
pursuant to a Revolving Line of Credit Agreement dated as of March 16, 2007,
(the “Credit
Agreement”)
by and
between MSMI and Sovereign Bank (the “Bank”),
the
Bank will make loans to MSMI in the aggregate maximum principal amount of
$1,500,000 (One Million Five Hundred Thousand and 00/100 Dollars) (the
“Loan”);
and
WHEREAS,
to provide additional credit support to the Bank for the payment of MSMI’s
obligations under the Credit Agreement, MSMI has caused Custodial Trust Company
(“CTC”),
a
bank and trust company organized and existing under the laws of the State of
New
Jersey, to issue Irrevocable Standby Letter of Credit No. 0034 in the maximum
drawing amount of $1,530,000 in favor of the Bank (“L/C”)
and
has entered into the Letter of Credit Reimbursement, Guarantee, Security and
Pledge Agreement dated as of March 16, 2007, with CST and the Fund
(“L/C
Agreement”);
and
WHEREAS,
to provide additional security for the payment of MSMI’s obligations under the
L/C Agreement to CTC, CTC has required the Fund to deposit cash and/or
securities (the “Collateral”)
with
CTC and enter into the L/C Agreement; and
WHEREAS,
in consideration of the execution by the Fund of the L/C Agreement, MSMI will
issue to the Fund warrants, in the form attached hereto as Exhibit
A,
to
purchase an aggregate of 3,060,000 shares of Common Stock (the “Warrant
Shares”)
with
an exercise price of $1.00 per share, subject to adjustment therein, with a
term
of exercise of five (5) years (the “Warrants”);
and
WHEREAS,
the Fund is willing to deposit the Collateral and enter into the L/C Agreement,
subject to the following terms and conditions.
NOW,
THEREFORE, in consideration of the foregoing premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE
I
ISSUANCE
OF WARRANTS.
Section 1.1
Issuance
of Warrants. In
consideration of the execution by the Fund of the L/C Agreement, MSMI shall
issue the Warrants to the Fund, at the closing of the transactions contemplated
hereby (the “Closing”).
Section 1.2
Closing.
The
Closing shall be deemed to occur at the offices of Midtown Partners &
Co., LLC, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ at 5:00 p.m.
EDT
on March 16, 2007 or at such other place, date or time as mutually
agreeable to the parties (the “Closing
Date”).
Section 1.3
Closing
Matters.
On the
Closing Date, subject to the terms and conditions hereof, MSMI will deliver
to
the Fund a warrant certificate, in the form attached hereto as Exhibit
A,
registered in the Fund’s name exercisable for 3,060,000 Warrant Shares.
ARTICLE
II
REIMBURSEMENT
OBLIGATIONS; SECURITY; OBLIGATIONS ABSOLUTE
Section 2.1
Reimbursement
to the Fund.
(a)
Reimbursement
to the Fund.
To
provide additional security for the payment of MSMI’s obligations under the L/C
Agreement to CTC, the Fund has agreed to enter into the L/C Agreement and
deposit Collateral with CTC pursuant to the L/C Agreement. In the event the
Fund
pays any amounts in respect of its obligations under the L/C Agreement or any
of
the Collateral of the Fund is foreclosed, seized, reduced, debited, or otherwise
taken (referred to herein as a “Reimbursable
Event”),
MSMI
shall immediately, on the same business day as the Reimbursable Event, reimburse
for the amount paid or the Value of the Collateral (as defined in
Section 2.1(e) below) taken in cash by wire transfer of immediately
available funds (all obligations of MSMI under this Section 2.1(a) being
referred to herein as the “Reimbursement
Obligations”).
(b)
If
MSMI fails to pay, in full, the Reimbursement Obligations, on the date due
interest shall accrue on any and all such amounts at an interest rate of fifteen
percent (15%) per annum (the “Default
Rate”),
commencing the day after such amounts first became due until payment in full,
and MSMI hereby agrees to pay such accrued interest to the Fund upon demand.
(c)
In
addition, upon the occurrence of a Reimbursable Event for which MSMI does not
reimburse the Fund as required pursuant to Section 2.1(a) hereof, MSMI will
immediately issue to the Fund warrants with an exercise price of $1.00 per
share, subject to adjustment therein, with a term of exercise of five
(5) years and otherwise in the form attached hereto as Exhibit
A (the
“Additional
Warrants”),
and
entitling the holder to purchase that number of shares of Common Stock equal
to
the Value of the Collateral taken multiplied by two (2) (the “Additional
Warrant Shares”).
For
example, if the Value of the Collateral taken is $540,000, then the Additional
Warrants shall be exercisable for 1,080,0000 shares of Common Stock. The
“Additional
Warrants”
and
the
“Warrants”
are
referred to together herein as the “Securities.”
(d)
In no
event whatsoever shall the interest rate and other charges charged hereunder
exceed the highest rate permissible under any law which a court of competent
jurisdiction, in a final determination, deems applicable hereto. In the event
that a court of competent jurisdiction determines, in a final determination,
that the Fund has received interest and other charges hereunder in excess of
such highest rate, the Fund shall promptly refund such excess amount to MSMI,
and the provisions hereof shall be deemed amended to provide for such
permissible rate.
(e)
If
and for so long as any securities (including securities included in the
Collateral) are listed on a national securities exchange in the United States
of
America, “Value
of the Collateral”
shall
be determined for all purposes under this Agreement by the last sales price
for
such securities on any such exchange on the Business Day immediately preceding
the date of determination or, if there was no sale on that Business Day, by
the
last sales price for such securities on the immediately preceding Business
Day
on which there was a sale thereof on any such exchange, all as quoted on the
“consolidated tape” of the New York Stock Exchange or, if not quoted on such
“consolidated tape”, then as quoted by any such exchange. The “Value
of the Collateral”
of
any
other item of Collateral, and of securities if they are not listed on any such
exchange, shall be determined by the Fund for all purposes (i) based upon
the prices bid (on the Business Day immediately preceding the date of
determination) by banks and broker/dealers which regularly quote prices on
property of the same type as such item of Collateral, or (ii) if no such
quotations are available for such Business Day, based upon such factors as
the
Fund, in its sole and reasonable judgment, shall determine. The “Value
of the Collateral”,
in the
case of interest-bearing Collateral, shall include accrued interest to the
date
on which such Value is determined. Each determination of Market Value by the
Fund shall be conclusive and binding on MSMI in the absence of manifest error.
2
Section 2.2
Form
and Place of Payments; Computation of Interest.
All
payments by MSMI to the Fund hereunder shall be made in lawful currency of
the
United States and in immediately available funds on the date such payment is
due, at such address in the United States of America as the fund shall from
time
to time indicate to MSMI, in U.S. dollars and in immediately available funds.
Whenever any payment hereunder shall be due on a day which is not a business
day, the date for payment thereof shall be extended to the next succeeding
business day, and any interest payable thereof shall be payable for such
extended time at the specified rate. All interest shall be computed on the
basis
of the actual number of days elapsed over a 360-day year and shall include
the
first day but exclude the last day of the relevant period.
Section 2.3
Secured
Obligations; Pledge Agreement.
(a)
All
Reimbursement Obligations, all interest accrued thereon and all other amounts
from time to time payable by MSMI hereunder, and the performance by MSMI of
all
its obligations and covenants hereunder, are subject to, and secured pursuant
to, the Security Agreement dated June 28, 2006, by and between MSMI and the
Fund.
(b)
All
Reimbursement Obligations, all interest accrued thereon and all other amounts
from time to time payable by MSMI hereunder, and the performance by MSMI of
all
its obligations and covenants hereunder, are subject to, and secured pursuant
to, the Pledge Agreement dated June 28, 2006, by and between MSMI and the
Fund.
Section 2.4
Guaranty
and Guarantor’s Security Agreement.
(a)
Guarantor hereby agrees and acknowledges that payment in full of all
Reimbursement Obligations, all interest accrued thereon and all other amounts
from time to time payable by MSMI hereunder, and the performance by MSMI of
all
its obligations and covenants hereunder, are subject to, and guaranteed by
Guarantor pursuant to, the Guaranty dated June 28, 2006 by and between
Guarantor and the Fund.
(b)
Guarantor hereby agrees and acknowledges that Guarantor’s guaranty of payment of
all Reimbursement Obligations, all interest accrued thereon and all other
amounts from time to time payable by MSMI hereunder, and the performance by
MSMI
of all its obligations and covenants hereunder, are subject to, and secured
pursuant to, the Security Agreement dated June 28, 2006, by and between
Guarantor and the Fund.
Section 2.5
No
Modification; Notice to Fund.
(a)
Without prior written consent executed by the Fund, MSMI agrees not to:
(a) renew, extend, accelerate, or change the time for payment of, or
otherwise amend, modify or change the terms of, the Loan or the Credit Agreement
if such amendment, modification or change could reasonably be expected to have
a
material adverse effect on the Fund’s rights and obligations under the L/C
Agreement, (b) renew, compromise, extend, accelerate, change the time for
payment of, or otherwise amend, modify or change the terms of, the L/C or L/C
Agreement, (c) use the Loan for any purpose other than for working capital,
(d) use the L/C for any purpose other than to support repayment of the
Loan, and (e) permit the principal amount owed to the Bank under the Credit
Agreement and the Loan to exceed $1,530,000.
(b)
MSMI
shall immediately provide notice, after becoming aware thereof, to the Fund
if
an event of default (as defined in the Credit Agreement), occurs, or of any
demand for performance, notice of non-performance, protest, notice of protest,
or notice of dishonor by the Bank under Credit Agreement or related documents.
MSMI shall, within one (1) business day of receipt or delivery, as
applicable, provide copies of all correspondence or other form of communication
between the Bank and MSMI relating to the Credit Agreement and which is material
to the Fund. MSMI shall permit the Fund to participate in all meetings
(telephonic or otherwise) with the Bank (including meeting after an event of
default (as defined in the Credit Agreement) and shall provide the Fund with
as
much advance notice of such meetings as is possible.
(c)
Notwithstanding anything to the contrary herein, in the L/C Agreement, or any
other agreement, MSMI hereby agrees and acknowledges that it has no claim or
rights against the Fund under this Agreement or otherwise arising from or
related to the Fund’s revocation, withdraw or repudiation of its guaranty, the
Fund retaking the Collateral, the Fund’s refusal to deposit additional
Collateral under the L/C Agreement, or the Fund’s default under the terms of the
L/C Agreement.
3
Section 2.6
Obligations
Absolute, Unconditional and Irrevocable; No Setoff.
The
obligations of MSMI under this Agreement shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms hereof
and thereof, under all circumstances whatsoever, irrespective of any of the
following circumstances:
(a)
any
lack of validity or enforceability of this Agreement, the L/C Agreement, the
Credit Agreement or any related documents;
(b)
any
amendment or waiver of or any consent to or departure from this Agreement,
the
L/C Agreement, the Credit Agreement or any related documents;
(c)
the
existence of any claim, setoff, defense or other rights which MSMI or any other
person may have at any time against the Fund or any other person, whether in
connection with this Agreement, the L/C Agreement or any related documents
or
any unrelated transaction;
(d)
the
existence of any claim, set off, defense or other rights which MSMI or any
other
person may have at any time against the Bank or CTI, whether in connection
with
this Agreement, the Loan, the Credit Agreement, the Collateral, the L/C
Agreement or any unrelated transaction; and
(e)
any
other circumstance or happening whatsoever whether or not similar to any of
the
foregoing.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF MSMI
MSMI
and
Guarantor hereby, jointly and severally, represent and warrant to the Fund
as of
the date of this Agreement as follows:
3.1
Organization
and Qualification.
MSMI is
a corporation duly organized and validly existing and in good standing under
the
laws of the jurisdiction in which it is incorporated, and has all requisite
corporate power and authority to carry on its business as now conducted. MSMI
is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not
have
a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect”
means any material adverse effect on the business, properties, assets,
operations, results of operations, condition (financial or otherwise) or
prospects of MSMI and Guarantor or on the transactions contemplated hereby
or by
the agreements and instruments to be entered into in connection herewith, or
on
the authority or ability of MSMI or Guarantor to perform its obligations under
the Transaction Documents (as hereinafter defined).
3.2
Subsidiaries.
MSMI
has no subsidiaries other than Guarantor and its indirect wholly-owned
subsidiary, OrthoSupply Management, LLC, a Massachusetts limited liability
company (the “LLC”). The LLC currently has no assets and is not currently
conducting operations of any kind (business or otherwise), and since
December 30, 2005, has not conducted any such operations. MSMI owns,
directly or indirectly, all of the capital stock of Guarantor, consisting of
100
shares of common stock, free and clear of any and all Liens (as defined below),
and all the issued and outstanding shares of capital stock of Guarantor are
validly issued and are fully paid, non-assessable and free of preemptive and
similar rights. Guarantor is a corporation duly organized and validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated, and has all requisite corporate power and authority to carry
on
its business as now conducted. Guarantor is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which its ownership of property or the nature of the business conducted by
it
makes such qualification necessary, except to the extent that the failure to
be
so qualified or be in good standing would not have a Material Adverse Effect.
4
3.3
No
Violation.
Neither
MSMI nor any of its subsidiaries is in violation of: (a) any of the
provisions of its certificate or articles of incorporation, bylaws or other
organizational or charter documents; or (b) any judgment, decree or order
or any statute, ordinance, rule or regulation (including federal and state
securities laws) applicable to MSMI or Guarantor, except for possible violations
which would not, individually or in the aggregate, have a Material Adverse
Effect
3.4
Capitalization.
(a)
As of
the date hereof and without giving effect to the issuance of the Securities
at
closing as contemplated hereby, MSMI’s authorized capital stock consists of
(1)100,000,000 shares of Common Stock, par value $.0001 per share, of which
(A) 20,471,729 shares are outstanding and (B) 22,077,335 shares are
reserved for issuance upon the exercise of all of the outstanding warrants,
and
(C) 9,661,088 shares are reserved for the issuance upon the conversion of
all outstanding debentures and , and (2) 5,000,000 shares of preferred
stock par value $.001 per share, of which no shares are outstanding. All of
such
outstanding shares have been, or upon issuance will be, validly issued, are
fully paid and nonassessable.
(b)
Except as disclosed in MSMI’s reports, schedules, forms, statements and other
documents required to be filed by it with the Securities and Exchange Commission
(the “SEC”) pursuant to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), prior to the date hereof (the “SEC
Documents”):
except
pursuant to the Amended and Restated Investor Rights Agreement of MSMI dated
as
of June 28, 2006 (the “Investor Rights Agreement”), no holder of shares of
MSMI’s capital stock has any preemptive rights or any other similar rights or
has been granted or holds any liens or encumbrances suffered or permitted by
MSMI;
there
are
no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any shares of capital
stock of MSMI or Guarantor, or contracts, commitments, understandings or
arrangements by which MSMI or Guarantor is or may become bound to issue
additional shares of capital stock of MSMI or Guarantor or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any shares of capital stock of MSMI or Guarantor;
other
than as expressly permitted hereunder, there are no outstanding debt securities,
notes, credit agreements, credit facilities or other agreements, documents
or
instruments evidencing Indebtedness (as defined in Section 3.14 hereof) of
MSMI or Guarantor or by which MSMI or Guarantor is or may become bound;
except
for filings made by the Fund, there are no financing statements securing
obligations in any material amounts, either singly or in the aggregate, filed
in
connection with MSMI;
except
for the Investor Rights Agreement, there are no agreements or arrangements
under
which MSMI or Guarantor is obligated to register the sale of any of their
securities under the Securities Act of 1933, as amended, (the “Securities Act”);
there
are
no outstanding securities or instruments of MSMI or Guarantor that contain
any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which MSMI or Guarantor is or may become
bound
to redeem a security of MSMI or Guarantor;
there
are
no securities or instruments containing antidilution or similar provisions
that
will be triggered by the issuance of the Securities (except for such warrants
with respect to which waivers of anti-dilution rights are being obtained in
connection herewith); and MSMI does not have any stock appreciation rights
or
“phantom stock” plans or agreements or any similar plan or agreement.
5
3.5
Issuance
of Securities.
(a)
The
Warrants to be issued hereunder, and the Additional Warrants, if issued, are
duly authorized and, upon payment and issuance in accordance with the terms
hereof, shall be free from all taxes, Liens and charges with respect to the
issuance thereof. As of the Closing, MSMI has authorized and reserved 3,060,000
shares of Common Stock for the issuance upon exercise of the Warrants and
3,060,000 shares of Common Stock for the issuance upon exercise of the
Additional Warrants.
(b)
All
actions by the board of directors of MSMI (the “Board”), MSMI and its
stockholders necessary for the valid issuance of the Warrants, the Warrant
Shares upon exercise of the Warrants, the Additional Warrants, and the
Additional Warrant Shares upon exercise of the Additional Warrants (if issued),
has been taken.
(c)
The
Warrant Shares and the Additional Warrants Shares, when issued and paid for
upon
exercise of the Warrants or Additional Warrants, as applicable, will be validly
issued, fully paid and nonassessable and free from all taxes, Liens and charges
with respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of the Common Stock. Assuming the accuracy of each of
the
representations and warranties set forth in Article IV hereof, the issuance
by
MSMI to the Fund of the Warrants and the Additional Warrants, if issued, is
exempt from registration under the Securities Act.
3.6
Authorization;
Enforcement; Validity.
MSMI
has the requisite corporate power and authority to enter into and perform its
obligations under this Agreement, and the Warrants, and each of the other
agreements or instruments entered into by the parties hereto in connection
with
the transactions contemplated by this Agreement (collectively, the “Transaction
Documents”) and to issue the Securities in accordance with the terms hereof and
thereof. The execution and delivery of the Transaction Documents by the MSMI
and
the consummation by MSMI of the transactions contemplated hereby and thereby,
including, without limitation, and the issuance of the Securities, have been
duly authorized by the Board, and no further consent or authorization is
required by MSMI, the Board or its stockholders. This Agreement and the other
Transaction Documents of even date herewith have been duly executed and
delivered by MSMI, and constitute the legal, valid and binding obligations
of
MSMI enforceable against MSMI in accordance with their respective terms, except
(i) as such enforceability may be limited by general principles of equity
or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
or
similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies, and (ii) as any rights to indemnity or
contribution hereunder may be limited by federal and state securities laws
and
public policy consideration.
3.7
Dilutive
Effect.
MSMI
understands and acknowledges that its obligation to issue the Warrant Shares
upon exercise of the Warrants in accordance therewith is absolute and
unconditional regardless of the dilutive effect that such issuance may have
on
the ownership interests of other stockholders of MSMI.
3.8
No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by MSMI and
the
consummation by MSMI of the transactions contemplated hereby and thereby
(including, without limitation, the reservation for issuance of the Warrant
Shares and Additional Warrant Shares) will not (i) result in a violation of
any articles or certificate of incorporation, any certificate of designations,
preferences and rights of any outstanding series of preferred stock or bylaws
of
MSMI or Guarantor 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 material agreement, indenture or instrument to which MSMI
or Guarantor is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to MSMI or Guarantor or by which any property
or asset of MSMI or Guarantor is bound or affected, except in the case of
clauses (ii) and (iii), for such breaches or defaults as would not be
reasonably expected to have a Material Adverse Effect.
3.9
Governmental
Consents.
Except
for the filing of a Form D with the SEC, and any filings (if any) required
by
applicable state securities laws, the registration of the Warrant Shares under
the Securities Act for resale by the Fund, MSMI is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any
court, governmental agency or any regulatory or self-regulatory agency or any
other Person (as hereinafter defined) in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Transaction
Documents, in each case, in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which MSMI is
required to obtain at or prior to the Closing pursuant to the preceding sentence
have been obtained or effected. MSMI is unaware of any facts or circumstances
which might prevent MSMI from obtaining or effecting any of the foregoing.
6
3.10
No
General Solicitation.
Neither
MSMI, nor any of its affiliates, nor any Person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the Securities Act) in connection with the
offer or sale of the Securities.
3.11
No
Integrated Offering.
None of
MSMI, its subsidiaries, any of their affiliates, and any Person acting on their
behalf has, directly or indirectly, made any offers or sales of any security
or
solicited any offers to buy any security, under circumstances that would require
registration of any of the Securities under the Securities Act or cause this
offering of the Securities to be integrated with prior offerings by MSMI for
purposes of the Securities Act or any applicable stockholder approval
provisions.
3.12
Placement
Agent’s Fees.
No
brokerage or finder’s fee or commission are or will be payable to any Person
with respect to the transactions contemplated by this Agreement based upon
arrangements made by MSMI or any of its affiliates. MSMI agrees that it shall
be
responsible for the payment of any placement agent’s fees, financial advisory
fees, or brokers’ commissions (other than for persons engaged by Fund) relating
to or arising out of the transactions contemplated hereby. MSMI shall pay,
and
hold the Fund harmless against, any liability, loss or expense (including,
without limitation, attorney’s fees and out-of-pocket expenses) arising in
connection with any claim for any such fees or commissions.
3.13
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 MSMI, threatened against or affecting MSMI or Guarantor,
the transactions contemplated by the Transaction Documents, the Common Stock
or
any of its subsidiaries or any of their respective current or former officers
or
directors in their capacities as such. To the knowledge of MSMI, there has
not
been within the past two (2) years, and there is not pending, any
investigation by the SEC involving MSMI or any current or former director or
officer of MSMI (in his or her capacity as such). The SEC has not issued any
stop order or other order suspending the effectiveness of any registration
statement filed by MSMI under the Securities Act within the past two
(2) years.
3.14
Indebtedness
and Other Contracts.
Except
as disclosed in the financial statements filed in the SEC Documents or as
otherwise expressly permitted hereunder, neither MSMI nor Guarantor (a) has
any outstanding Indebtedness (as defined below), (b) is a party to any
contract, agreement or instrument, the violation of which, or default under,
by
any other party to such contract, agreement or instrument would result in a
Material Adverse Effect, (c) is in violation of any term of or in default
under any contract, agreement or instrument relating to any Indebtedness, except
where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (d) is a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of MSMI’s officers, has or is expected to have a Material
Adverse Effect. For purposes of this Agreement: (x) “Indebtedness” of any
Person means, without duplication (i) all indebtedness for borrowed money,
(ii) all obligations issued, undertaken or assumed as the deferred purchase
price of property or services (other than trade payables entered into in the
ordinary course of business), (iii) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and other similar
instruments, (iv) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses, (v) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect
to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in
the
event of default are limited to repossession or sale of such property),
(vi) all monetary obligations under any leasing or similar arrangement
which, in connection with generally accepted accounting principles, consistently
applied for the periods covered thereby, is classified as a capital lease,
(vii) all indebtedness referred to in clauses (i) through
(vi) above secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any mortgage, lien,
pledge, change, security interest or other encumbrance upon or in any property
or assets (including accounts and contract rights) owned by any Person, even
though the Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (viii) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (i) through (vii) above; (y) “Contingent
Obligation” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent
of the Person incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such liability will
be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or
in
part) against loss with respect thereto; and (z) “Person” means an
individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
7
3.15
Financial
Information; SEC Documents.
Since
December 31, 2005, MSMI 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. As of their respective dates, the
SEC Documents filed since December 31, 2005 complied in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC promulgated thereunder applicable to such SEC Documents, and none
of
such 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
the light of the circumstances under which they were made, not misleading.
As of
their respective dates, the financial statements of MSMI and the Guarantor
included in such 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 exclude footnotes or may
be
condensed or summary statements) and fairly present in all material respects
the
financial position of MSMI and Guarantor as of the dates thereof and the results
of its operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of MSMI or the Guarantor to the Fund that
is not included in the SEC Documents filed since December 31, 2005 contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
3.16
Absence
of Certain Changes.
Except
as disclosed in the SEC Documents, since December 31, 2005, there has been
no material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), results of
operations or prospects of MSMI or its subsidiaries. Since December 31,
2005, MSMI or Guarantor has not (i) declared or paid any dividends,
(ii) sold any assets, individually or in the aggregate, in excess of
$50,000 outside of the ordinary course of business or (iii) had capital
expenditures, individually or in the aggregate, in excess of $100,000. MSMI
has
not taken any steps to seek protection pursuant to any bankruptcy law nor does
MSMI have any knowledge or reason to believe that its creditors intend to
initiate involuntary bankruptcy proceedings or any actual knowledge of any
fact
which would reasonably lead a creditor to do so. After giving effect to the
transactions contemplated hereby to occur at the Closing, MSMI will not be
Insolvent (as hereinafter defined). For purposes of this Agreement, “Insolvent”
means (i) the present fair saleable value of MSMI’s assets is less than the
amount required to pay MSMI’s total indebtedness, contingent or otherwise,
(ii) MSMI is unable to pay its debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured, (iii) MSMI intends to incur or believes that it will incur debts
that would be beyond its ability to pay as such debts mature or (iv) MSMI
has unreasonably small capital with which to conduct the business in which
it is
engaged as such business is now conducted and is proposed to be conducted.
3.17
Foreign
Corrupt Practices.
(a)
Since
December 31, 2005, neither MSMI, nor any director, officer, agent, employee
or other Person acting on behalf of MSMI has, in the course of its actions
(a) used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity,
(b) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds, (c) violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as
amended or (d) made any unlawful bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
8
(b)
None
of the subsidiaries of MSMI, nor any of their respective directors, officers,
agents, employees or other Persons acting on behalf of such subsidiaries has,
in
the course of their respective actions (a) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity, (b) made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate funds,
(c) violated or is in violation of any provision of the U.S. Foreign
Corrupt Practices Act of 1977, as amended or (d) made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
3.18
Transactions
With Affiliates.
None of
the officers, directors or employees of MSMI is presently a party to any
transaction with MSMI or Guarantor (other than for ordinary course services
as
employees, officers or directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any such officer, director or employee or, to the knowledge of MSMI,
any corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.
3.19
Insurance.
MSMI
and Guarantor are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management of MSMI believes
to be prudent and customary in the businesses in which MSMI and Guarantor are
engaged. Neither MSMI nor Guarantor has been refused any insurance coverage
sought or applied for and neither MSMI nor Guarantor has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as
may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect.
3.20
Employee
Relations.
Neither
MSMI nor Guarantor is a party to any collective bargaining agreement or employs
any member of a union. No Executive Officer of MSMI (as defined in Rule 501(f)
of the Securities Act) has notified MSMI that such officer intends to leave
MSMI
or otherwise terminate such officer’s employment with MSMI. No Executive Officer
of MSMI, to the knowledge of MSMI, is, or is now, in violation of any material
term of any employment contract, confidentiality, disclosure or proprietary
information agreement, non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment of each
such
executive officer does not subject MSMI or Guarantor to any liability with
respect to any of the foregoing matters. MSMI and Guarantor are in compliance
with all federal, state, local and foreign laws and regulations respecting
employment and employment practices, terms and conditions of employment and
wages and hours, except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
3.21
Title.
MSMI
and Guarantor have good and marketable title to all personal property owned
by
them which is material to their respective business, in each case free and
clear
of all liens, encumbrances and defects except such as are described in the
SEC
Documents or such as do not materially affect the value of such property and
do
not interfere with the use made and proposed to be made of such property by
MSMI
and Guarantor. Any real property and facilities held under lease by MSMI and
Guarantor are held by them under valid, subsisting and enforceable leases with
such exceptions as are not material and do not interfere with the use made
and
proposed to be made of such property and buildings by MSMI and Guarantor.
3.22
Intellectual
Property Rights.
Neither MSMI nor the Guarantor has any
patents,
trademarks, trade names, service marks copyrights, or registrations and
applications therefor, trade secrets or any other intellectual property right.
3.23
Environmental
Laws.
MSMI
and each of its subsidiaries (a) are in compliance with any and all
Environmental Laws (as hereinafter defined), (b) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws
to conduct their respective businesses and (c) are in compliance with all
terms and conditions of any such permit, license or approval where, in each
of
the foregoing clauses (a), (b) and (c), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term “Environmental Laws” means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
9
3.24
Tax
Matters.
MSMI
and each of its subsidiaries (a) have made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (b) have paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (c) have set aside on its books
reasonably adequate provision for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply,
except where such failure would not have a Material Adverse Effect. There are
no
unpaid taxes in any material amount claimed to be due by the taxing authority
of
any jurisdiction, and the officers of MSMI know of no basis for any such claim.
3.25
▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act.
MSMI is
in compliance with any and all requirements of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002
that are effective as of the date hereof and applicable to it, and any and
all
rules and regulations promulgated by the SEC thereunder that are effective
and
applicable to it as of the date hereof, except where such noncompliance would
not have a Material Adverse Effect.
3.26
FDA
Compliance.
MSMI
and Guarantor, and the manufacture, marketing and sales of MSMI’s and
Guarantor’s products, complies with any and all applicable requirements of the
Federal Food, Drug and Cosmetic Act, any rules and regulations of the Food
and
Drug Administration promulgated thereunder, and any similar laws outside of
the
United States to which MSMI is subject, except where such noncompliance would
not have a Material Adverse Effect.
3.27
Investment
Company Status.
MSMI is
not, and immediately after receipt of payment for the Securities will not be,
an
“investment company,” an “affiliated person” of, “promoter” for or “principal
underwriter” for, or an entity “controlled” by an “investment company,” within
the meaning of the Investment Company Act.
3.28
Material
Contracts.
Each
contract of MSMI that involves expenditures or receipts in excess of $100,000
(each an “Applicable Contract”) is in full force and effect and is valid and
enforceable in accordance with its terms. MSMI is and has been in full
compliance with all applicable terms and requirements of each Applicable
Contract and no event has occurred or circumstance exists that (with or without
notice or lapse of time) may contravene, conflict with or result in a violation
or breach of, or give MSMI or any other entity the right to declare a default
or
exercise any remedy under, or to accelerate the maturity or performance of,
or
to cancel, terminate or modify any Applicable Contract. MSMI has not given
or
received from any other entity any notice or other communication (whether oral
or written) regarding any actual, alleged, possible or potential violation
or
breach of, or default under, any Applicable Contract.
3.29
Inventory.
All
inventory of MSMI consists of a quality and quantity usable and salable in
the
ordinary course of business, except for obsolete items and items of
below-standard quality, all of which have been or will be written off or written
down to net realizable value on the unaudited consolidated balance sheet of
MSMI
and its Subsidiaries as of September 30, 2006. The quantities of each type
of inventory (whether raw materials, work-in-process, or finished goods) are
not
excessive, but are reasonable and warranted in the present circumstances of
MSMI.
3.30
Disclosure.
MSMI
confirms that neither it nor any other Person acting on its behalf has provided
the Fund or its agents or counsel with any information that constitutes or
might
constitute material, nonpublic information that has not been disclosed in the
SEC Documents. MSMI understands and confirms that the Fund will rely on the
foregoing representations in effecting transactions in securities of MSMI.
All
disclosure provided to Fund regarding MSMI, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by
or
on behalf of MSMI are true and correct and do not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make
the statements made therein, in light of the circumstances under which they
were
made, not misleading.
10
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF THE FUND
The
Fund
hereby represents and warrants to MSMI as of the date of this Agreement as
follows:
4.1
Accredited
Investor.
The
Fund acknowledges and agrees that (i) the offering and sale of the
Securities are intended to be exempt from registration under the Securities
Act
by virtue of Section 4(2) of the Securities Act and/or Regulation D
promulgated thereunder, (ii) the Securities have not been registered under
the Securities Act and (iii) MSMI has represented to the Fund (assuming the
veracity of the representations of the Fund made herein) that the Securities
have been offered and sold by MSMI in reliance upon an exemption from
registration provided in Section 4(2) of the Securities Act and
Regulation D thereunder. In accordance therewith and in furtherance
thereof, the Fund represents and warrants to and agrees with MSMI that it is
an
accredited investor (as defined in Rule 501 promulgated under the Securities
Act).
4.2
No
Distribution.
The
Fund hereby represents and warrants that the Fund is acquiring the Securities
hereunder for its own account for investment and not with a view to
distribution, and with no present intention of distributing the Securities
or
selling the Securities for distribution. The Fund understands that the
Securities are being sold to the Fund in a transaction which is exempt from
the
registration requirements of the Securities Act. Accordingly, the Fund
acknowledges that it has been advised that the Securities have not been
registered under the Securities Act and are being sold by MSMI in reliance
upon
the veracity of the Fund’s representations contained herein and upon the
exemption from the registration requirements provided by the Securities Act
and
the securities laws of all applicable states. The Fund’s acquisition of the
Securities shall constitute a confirmation of the foregoing representation
and
warranty and understanding thereof.
4.3
Evaluation.
The
Fund has such knowledge and experience in financial and business matters as
is
required for evaluating the merits and risks of making this investment, and
the
Fund has received such information requested by the Fund concerning the
business, management and financial affairs of MSMI in order to evaluate the
merits and risks of making this investment. Further, the Fund acknowledges
that
the Fund has had the opportunity to ask questions of, and receive answers from,
the officers of MSMI concerning the terms and conditions of this investment
and
to obtain information relating to the organization, operation and business
of
MSMI and of MSMI’s contracts, agreements and obligations or needed to verify the
accuracy of any information contained herein or any other information about
MSMI. Except as set forth in this Agreement, no representation or warranty
is
made by MSMI to induce the Fund to make this investment, and any representation
or warranty not made herein or therein is specifically disclaimed and no
information furnished to the Fund or the Fund’s advisor(s) in connection with
the sale were in any way inconsistent with the information stated herein. The
Fund further understands and acknowledges that no Person has been authorized
by
MSMI to make any representations or warranties concerning MSMI, including as
to
the accuracy or completeness of the information contained in this Agreement.
4.4
Investment
Risks.
The
purchase of the Securities involves risks which the Fund has evaluated, and
the
Fund is able to bear the economic risk of the purchase of such Securities and
the loss of its entire investment. The Fund is able to bear the substantial
economic risk of the investment for an indefinite period of time, has no need
for liquidity in such investment and can afford a complete loss of such
investment. The Fund’s overall commitment to investments that are not readily
marketable is not, and its acquisition of the Securities will not cause such
overall commitment to become, disproportionate to its net worth and the Fund
has
adequate means of providing for its current needs and contingencies.
4.5
Accuracy
of Representations.
The
Fund is making the foregoing representations and warranties with the intent
that
they may be relied upon by MSMI in determining the suitability of the sale
of
the Securities to the Fund for purposes of federal and state securities laws.
Accordingly, the Fund represents and warrants that the information stated herein
is true, accurate and complete.
4.6
Authorization;
Enforceability.
The
individual signing below on behalf of the Fund hereby warrants and represents
that he/she is authorized to execute this Agreement on behalf of the Fund.
The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all requisite
action, if any, in respect thereof on the part of the Fund and no other
proceedings on the part of the Fund are necessary to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Fund and constitutes a valid and binding obligation of the
Fund, enforceable against the Fund in accordance with its terms (subject to
applicable bankruptcy, insolvency and similar laws affecting creditors’ rights
generally and subject, as to enforceability, to general principles of equity
(whether applied in a proceeding in equity or at law)).
11
4.7
Resale;
Certificate Legend.
In
entering into this Agreement and in purchasing the Securities, the Fund further
acknowledges that:
(a)
Neither the Securities nor any interest therein may be resold by the Fund in
the
absence of a registration under the Securities Act or an exemption from
registration. In particular, the Fund is aware that all of the foregoing
described Securities will be “restricted securities”, as such term is defined in
Rule 144 promulgated under the Securities Act (“Rule 144”), and they may not be
sold pursuant to Rule 144, unless the conditions thereof are met. Other than
as
set forth in this Agreement and the Registration Rights Agreement, MSMI has
no
obligation to register any Securities purchased or issuable hereunder.
(b)
The
following legends (or similar language) shall be placed on the certificate(s)
or
other instruments evidencing the Securities:
THE
SECURITIES REPRESENTED BY THIS [CERTIFICATE] HAVE NOT BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933 (THE “ACT”), OR ANY STATE SECURITIES LAWS AND NEITHER
SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED
OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR
(2) MSMI RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES,
WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO MSMI, THAT SUCH
SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS.
(c)
MSMI
may at any time place a stop transfer order on its transfer books against the
Securities. Such stop order will be removed, and further transfer of the
Securities will be permitted, upon an effective registration of the respective
Securities, or the receipt by MSMI of an opinion of counsel satisfactory to
MSMI
that such further transfer may be effected pursuant to an applicable exemption
from registration.
ARTICLE
V
CONDITIONS
TO CLOSING OF THE FUND
The
obligation of the Fund to enter into the Agreement and acquire the Warrants
at
the Closing is subject to the fulfillment to the Fund’s satisfaction on or prior
to the Closing Date of each of the following conditions, any of which may be
waived by the Fund:
5.1
Representations
and Warranties Correct.
The
representations and warranties in Article III hereof shall be true and correct
when made, and shall be true and correct on the Closing Date with the same
force
and effect as if they had been made on and as of the Closing Date.
5.2
Performance.
All
covenants, agreements and conditions contained in this Agreement to be performed
or complied with by MSMI on or prior to the Closing Date shall have been
performed or complied with by MSMI in all material respects.
5.3
No
Impediments.
Neither
MSMI nor any Fund shall be subject to any order, decree or injunction of a
court
or administrative agency of competent jurisdiction that prohibits the
transactions contemplated hereby or would impose any material limitation on
the
ability of such Fund to exercise full rights of ownership of the Warrants.
At
the time of the Closing, the acquisition of the Warrants shall be legally
permitted by all laws and regulations to which the Fund and MSMI are subject.
12
5.4
Other
Agreements and Documents.
MSMI or
Guarantor, as applicable, shall have executed and delivered the following
agreements and documents:
(a)
The
Warrants in the form of Exhibit
A attached
hereto;
(c) An
amendment to the Financing Statements on Form UCC-1 with respect to all personal
property and assets of MSMI;
(d) A
Certificate of Good Standing from the state of incorporation of MSMI and
Guarantor;
(e) A
certificate of MSMI’s CEO, dated the Closing Date, certifying (i) the
fulfillment of the conditions specified in Sections 5.1 and 5.2 of this
Agreement, (ii) the Board resolutions approving this Agreement and the
transactions contemplated hereby, and (iii) other matters as the Fund shall
reasonably request;
(f) A
written waiver, in form and substance satisfactory to the Fund, from each person
other than the Fund who has any of the following rights:
(i) any
currently effective right of first refusal to acquire the Securities; or
(ii) any
right to an anti-dilution adjustment of securities issued by MSMI that are
held
by such person that will be triggered as a result of the issuance of the
Securities;
(g) All
necessary consents or waivers, if any, from all parties to any other material
agreements to which MSMI is a party or by which it is bound immediately prior
to
the Closing in order that the transactions contemplated hereby may be
consummated and the business of MSMI may be conducted by MSMI after the Closing
without adversely affecting MSMI;
(i) Reimbursement
of expenses as set forth in Section 12.9 hereof.
5.5 Due
Diligence Investigation. No
fact shall have been discovered, whether or not reflected in the Schedules
hereto, which in the Fund’s determination would make the consummation of the
transactions contemplated by this Agreement not in the Fund’s best interests.
ARTICLE
VII
AFFIRMATIVE
COVENANTS
MSMI
hereby covenants and agrees, so long as the Fund has Collateral securing the
L/C, or a Reimbursable Obligation remains outstanding, as follows:
7.1 Maintenance
of Corporate Existence. MSMI
shall and shall cause its subsidiaries to, maintain in full force and effect
its
corporate existence, rights and franchises and all material terms of licenses
and other rights to use licenses, trademarks, trade names, service marks,
copyrights, patents or processes owned or possessed by it and necessary to
the
conduct of its business.
7.2 Maintenance
of Properties. MSMI
shall and shall cause its subsidiaries to, keep each of its properties necessary
to the conduct of its business in good repair, working order and condition,
reasonable wear and tear excepted, and from time to time make all needful and
proper repairs, renewals, replacements, additions and improvements thereto;
and
MSMI shall and shall its subsidiaries to at all times comply with each material
provision of all leases to which it is a party or under which it occupies
property.
13
7.3 Payment
of Taxes. MSMI
shall and shall cause its subsidiaries to, promptly pay and discharge, or cause
to be paid and discharged when due and payable, all lawful taxes, assessments
and governmental charges or levies imposed upon the income, profits, assets,
property or business of MSMI and its subsidiaries; provided, however, that
any
such tax, assessment, charge or levy need not be paid if the validity thereof
shall be contested timely and in good faith by appropriate proceedings, if
MSMI
or its subsidiaries shall have set aside on its books adequate reserves with
respect thereto, and the failure to pay shall not be prejudicial in any material
respect to the holders of the Securities, and provided, further, that MSMI
or
its subsidiaries will pay or cause to be paid any such tax, assessment, charge
or levy forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
7.4 Payment
of Indebtedness. MSMI
shall and shall cause its subsidiaries to pay or cause to be paid all
Indebtedness incident to the operations of MSMI or its subsidiaries (including,
without limitation, claims or demands of workmen, materialmen, vendors,
suppliers, mechanics, carriers, warehousemen and landlords) which, if unpaid
might become a lien (except for Permitted Liens) upon the assets or property
of
MSMI or its subsidiaries.
7.5 Maintenance
of Insurance. MSMI
shall and shall cause its subsidiaries to, keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by theft, fire, explosion and other risks customarily insured
against by companies in the line of business of MSMI or its subsidiaries, in
amounts sufficient to prevent MSMI and its subsidiaries from becoming a
co-insurer of the property insured; and MSMI shall and shall cause its
subsidiaries to maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner customary for companies in similar businesses
similarly situated or as may be required by law, including, without limitation,
general liability, fire and business interruption insurance, and product
liability insurance as may be required pursuant to any license agreement to
which MSMI or its subsidiaries is a party or by which it is bound.
7.6 Notice
of Adverse Change. Subject
to Section 2.5 above, MSMI shall promptly give notice to all holders of any
Securities (but in any event within seven (7) days) after becoming
aware of the existence of any condition or event which constitutes, or the
occurrence of, any of the following:
(a) any
Event of Default (as hereinafter defined);
(b) any
other event of noncompliance by MSMI or its subsidiaries under this Agreement;
(c) the
institution or threatening of institution of an action, suit or proceeding
against MSMI or any subsidiary before any court, administrative agency or
arbitrator, including, without limitation, any action of a foreign government
or
instrumentality, which, if adversely decided, could materially adversely affect
the business, prospects, properties, financial condition or results of
operations of MSMI and its subsidiaries, taken as a whole whether or not arising
in the ordinary course of business; or
(d) any
information relating to MSMI or any subsidiary which could reasonably be
expected to materially and adversely affect the assets, property, business
or
condition (financial or otherwise) of MSMI or its ability to perform the terms
of this Agreement. Any notice given under this Section 7.6 shall specify
the nature and period of existence of the condition, event, information,
development or circumstance, the anticipated effect thereof and what actions
MSMI has taken and/or proposes to take with respect thereto.
7.7 Compliance
With Agreements. MSMI
shall and shall cause its subsidiaries to comply in all material respects,
with
the terms and conditions of all material agreements, commitments or instruments
to which MSMI or any of its subsidiaries is a party or by which it or they
may
be bound.
7.8 Compliance
With Laws. MSMI
shall and shall cause each of its subsidiaries to duly comply in all material
respects with any material laws, ordinances, rules and regulations of any
foreign, Federal, state or local government or any agency thereof, or any writ,
order or decree, and conform to all valid requirements of governmental
authorities relating to the conduct of their respective businesses, properties
or assets, including, but not limited to, the requirements of the FDA Act,
the
Prescription Drug Marketing Act, the Control Substance Act, the Employee
Retirement Income Security Act of 1978, the Environmental Protection Act, the
Occupational Safety and Health Act, the Foreign Corrupt Practices Act and the
rules and regulations of each of the agencies administering such acts.
14
7.9 Protection
of Licenses, etc. MSMI
shall and shall cause its subsidiaries to, maintain, defend and protect to
the
best of their ability licenses and sublicenses (and to the extent MSMI or a
subsidiary is a licensee or sublicensee under any license or sublicense, as
permitted by the license or sublicense agreement), trademarks, trade names,
service marks, patents and applications therefor and other proprietary
information owned or used by it or them and shall keep duplicate copies of
any
licenses, trademarks, service marks or patents owned or used by it, if any,
at a
secure place selected by MSMI.
7.10 Accounts
and Records; Inspections.
(a) MSMI
shall keep true records and books of account in which full, true and correct
entries will be made of all dealings or transactions in relation to the business
and affairs of MSMI and its subsidiaries in accordance with generally accepted
accounting principles applied on a consistent basis.
(b) MSMI
shall permit each holder of any Securities or any of such holder’s officers,
employees or representatives during regular business hours of MSMI, upon
reasonable notice and as often as such holder may reasonably request, to visit
and inspect the offices and properties of MSMI and its subsidiaries and to
make
extracts or copies of the books, accounts and records of MSMI or its
subsidiaries at such holder’s expense.
(c)
Nothing contained in this Section 7.10 shall be construed to limit any
rights which a holder of any Securities may otherwise have with respect to
the
books and records of MSMI and its subsidiaries, to inspect its properties or
to
discuss its affairs, finances and accounts.
7.11
Maintenance
of Office.
MSMI
will maintain its principal office at the address of MSMI set forth in
Section 12.6 of this Agreement where notices, presentments and demands in
respect of this Agreement and any of the Securities may be made upon MSMI,
until
such time as MSMI shall notify the holders of the Securities in writing, at
least thirty (30) days prior thereto, of any change of location of such
office.
7.12
Use
of
Proceeds.
MSMI
shall use all the proceeds received from the Loan solely for the purpose of
working capital.
7.13
Payment
of the Loan.
MSMI
shall pay the principal of and interest on the Loan in the time, the manner
and
the form provided therein.
7.14
SEC
Reporting Requirements.
MSMI
shall comply with its reporting and filing obligations pursuant to
Section 13 or 15(d) of the Exchange Act.
7.15
Further
Assurances.
From
time to time MSMI shall execute and deliver to the Fund and the Fund shall
execute and deliver to MSMI such other instruments, certificates, agreements
and
documents and take such other action and do all other things as may be
reasonably requested by the other party in order to implement or effectuate
the
terms and provisions of this Agreement and any of the Securities.
ARTICLE
VIII
NEGATIVE
COVENANTS
MSMI
hereby covenants and agrees, so long as the Fund has Collateral securing the
L/C, or a Reimbursement Obligation remains outstanding, it will not (and not
allow any of its subsidiaries to), directly or indirectly, without the prior
written consent of the Fund, as follows:
15
8.1
Payment
of Dividends; Stock Purchase.
Declare
or pay any cash dividends on, or make any distribution to the holders of, any
shares of capital stock of MSMI, other than dividends or distributions payable
in such capital stock, or purchase, redeem or otherwise acquire or retire for
value any shares of capital stock of MSMI or warrants or rights to acquire
such
capital stock, other than in connection with repurchases upon the termination
of
employment of employee equityholders.
8.2
Stay,
Extension and Usury Laws.
At any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay, extension or usury law wherever enacted, now or
at
any time hereinafter in force, which may affect the covenants or the performance
under this Agreement, MSMI hereby expressly waiving all benefit or advantage
of
any such law, or by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Fund but will suffer and permit
the
execution of every such power as though no such law had been enacted.
8.3
Reclassification.
Effect
any reclassification, combination or reverse stock split of the Common Stock.
8.4
Liens.
Except
as otherwise provided in this Agreement, create, incur, assume or permit to
exist any mortgage, lien, pledge, charge, security interest or other
encumbrance, or any interest or title of any vendor, lessor, lender or other
secured party to or of MSMI or any subsidiary under any conditional sale or
other title retention agreement or any capital lease, upon or with respect
to
any property or asset of MSMI or any subsidiary (each a “Lien” and collectively,
“Liens”), except that the foregoing restrictions shall not apply to:
(a)
liens
for taxes, assessments and other governmental charges, if payment thereof shall
not at the time be required to be made, and provided such reserve as shall
be
required by generally accepted accounting principles consistently applied shall
have been made therefor;
(b)
liens
of workmen, materialmen, vendors, suppliers, mechanics, carriers, warehouseman
and landlords or other like liens, incurred in the ordinary course of business
for sums not then due or being contested in good faith, if an adverse decision
in which contest would not materially affect the business of MSMI;
(c)
liens
securing indebtedness of MSMI or any subsidiaries which is in an aggregate
principal amount not exceeding $250,000 and which liens are subordinate to
liens
on the same assets held by the Fund;
(d)
statutory liens of landlords, statutory liens of banks and rights of set-off,
and other liens imposed by law, in each case incurred in the ordinary course
of
business (i) for amounts not yet overdue or (ii) for amounts that are
overdue and that are being contested in good faith by appropriate proceedings,
so long as such reserves or other appropriate provisions, if any, as shall
be
required by generally accepted accounting principles shall have been made for
any such contested amounts;
(e)
liens
incurred or deposits made in the ordinary course of business in connection
with
workers’ compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);
(f)
any
attachment or judgment lien not constituting an Event of Default;
(g)
easements, rights-of-way, restrictions, encroachments, and other minor defects
or irregularities in title, in each case which do not and will not interfere
in
any material respect with the ordinary conduct of the business of MSMI or any
of
its subsidiaries;
(h)
any
(i) interest or title of a lessor or sublessor under any lease,
(ii) restriction or encumbrance that the interest or title of such lessor
or sublessor may be subject to, or (iii) subordination of the interest of
the lessee or sublessee under such lease to any restriction or encumbrance
referred to in the preceding clause (ii), so long as the holder of such
restriction or encumbrance agrees to recognize the rights of such lessee or
sublessee under such lease;
16
(i)
liens
in favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods;
(j)
any
zoning or similar law or right reserved to or vested in any governmental office
or agency to control or regulate the use of any real property;
(k) liens
in existence as of the date hereof securing Indebtedness permitted hereby;
(l)
liens
consisting of rights of setoff granted to the the Bank in the ordinary course
of
business under the Credit Agreement;
(m)
liens
securing obligations (other than obligations representing debt for borrowed
money) under operating, reciprocal easement or similar agreements entered into
in the ordinary course of business of MSMI and its subsidiaries; and
(n)
the
replacement, extension or renewal of any lien permitted by this Section 8.4
upon or in the same property theretofore subject or the replacement, extension
or renewal (without increase in the amount or change in any direct or contingent
obligor) of the indebtedness secured thereby.
All
of
the Foregoing Liens described in subsections (a) - (n) above shall be
referred to as “Permitted Liens”.
8.5
Indebtedness.
Create,
incur, assume, suffer, permit to exist, or guarantee, directly or indirectly,
any Indebtedness, excluding, however, from the operation of this covenant:
(a)
any
indebtedness or the incurring, creating or assumption of any indebtedness
secured by liens permitted by the provisions of Section 8.4(c) above;
(b)
the
endorsement of instruments for the purpose of deposit or collection in the
ordinary course of business;
(c)
indebtedness which may, from time to time be incurred or guaranteed by MSMI
which in the aggregate principal amount does not exceed $250,000 and is
subordinate to the indebtedness under this Agreement;
(d)
indebtedness (i) to the Bank under the Credit Agreement and the other
documents executed in connection therewith; (ii) to CTC under the L/C
Agreement; (iii) existing on the date hereof; and (iv) under this
Agreement:
(e)
indebtedness relating to contingent obligations of MSMI and its subsidiaries
under guaranties in the ordinary course of business of the obligations of
suppliers, customers, and licensees of MSMI and its subsidiaries;
(f)
indebtedness relating to loans from MSMI to its subsidiaries;
(g)
indebtedness relating to capital leases in an amount not to exceed $500,000;
(h)
accounts or notes payable arising out of the purchase of merchandise or services
in the ordinary course of business; or
(i)
indebtedness (if any) expressly permitted by, and in accordance with, the terms
and conditions of this Agreement.
8.6
Liquidation
or Sale.
Sell,
transfer, lease or otherwise dispose of 10% or more of its consolidated assets
(as shown on the most recent financial statements of MSMI or the subsidiary,
as
the case may be) in any single transaction or series of related transactions
(other than the sale of inventory in the ordinary course of business), or
liquidate, dissolve, recapitalize or reorganize in any form of transaction,
or
acquire all or substantially all of the capital stock or assets of another
business or entity.
17
8.7
Change
of Control Transaction.
Enter
into a Change in Control Transaction. For purposes of this Agreement, “Change in
Control Transaction” means, except with respect to acquisitions by MSMI in the
normal course of business or in connection with the contemplated expansion
of
the Board to five persons, the occurrence of (a) an acquisition by an
individual or legal entity or “group” (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act) of effective control (whether through legal
or beneficial ownership of capital stock of MSMI, by contract or otherwise)
of
in excess of fifty percent (50%) of the voting securities of MSMI (except
that the acquisition of voting securities by the Fund shall not constitute
a
Change of Control Transaction for purposes hereof), (b) a replacement at
one time or over time of more than one-half of the members of the Board of
MSMI
which is not approved by a majority of those individuals who are members of
the
Board on the date hereof (or by those individuals who are serving as members
of
the Board on any date whose nomination to the Board was approved by a majority
of the members of the Board who are members on the date hereof), (c) the
merger or consolidation of MSMI or any subsidiary of MSMI in one or a series
of
related transactions with or into another entity (except in connection with
a
reincorporation merger involving MSMI or with respect to which MSMI is the
survivor), or (d) the execution by MSMI of an agreement to which MSMI is a
party or by which it is bound, providing for any of the events set forth above
in (a), (b) or (c).
8.8
Amendment
of Charter Documents.
Make
any amendment to the articles of incorporation or by-laws of MSMI or any of
its
subsidiaries.
8.9
Loans
and Advances.
Except
for loans and advances outstanding as of the Closing Date, directly or
indirectly, make any advance or loan to, or guarantee any obligation of, any
person, firm or entity, except for intercompany loans or advances and those
provided for in this Agreement.
8.10
Transactions
with Affiliates.
(a)
Make
any intercompany transfers of monies or other assets in any single transaction
or series of transactions, except as otherwise permitted in this Agreement.
(b)
Engage in any transaction with any of the officers, directors, employees or
affiliates of MSMI or of its subsidiaries, except on terms no less favorable
to
MSMI or the subsidiary as could be obtained in an arm’s length transaction.
(c)
Divert (or permit anyone to divert) any business or opportunity of MSMI or
subsidiary to any other corporate or business entity.
8.11
Other
Business.
Enter
into or engage, directly or indirectly, in any business other than the business
currently conducted or proposed to be conducted as of the date of this Agreement
by MSMI or any subsidiary.
8.12
Investments.
Make
any investments in, or purchase any stock, option, warrant, or other security
or
evidence of indebtedness of, any person or entity (exclusive of any subsidiary),
other than obligations of the United States Government or certificates of
deposit or other instruments maturing within one year from the date of purchase
from financial institutions with capital in excess of $50 million.
ARTICLE
IX
EVENTS
OF DEFAULT
9.1
Events of Default.
The
occurrence and continuance of any of the following events shall constitute
an
event of default under this Agreement (each an “Event of Default” and,
collectively, “Events of Default”):
(a)
if
MSMI shall default in the payment of (i) any part of any Reimbursement
Obligation, when the same shall become due and payable, whether at maturity
or
at a date fixed for prepayment or by acceleration or otherwise; or (ii) the
interest on any Reimbursement Obligation; when the same shall become due and
payable; and in each case such default shall have continued without cure for
ten
(10) days after written notice (a “Default Notice”) is given to MSMI of
such default;
18
(b)
if
MSMI shall default in the performance of any of the covenants contained in
Articles VIII or IX hereof and such default shall have continued without cure
for fifteen (15) days after a Default Notice is given to MSMI;
(c)
if
MSMI shall default in the performance of any other material agreement or
covenant contained in this Agreement and such default shall not have been
remedied to the satisfaction of the Fund within thirty-five (35) days after
a Default Notice shall have been given to MSMI;
(d)
if
any representation or warranty made in this Agreement or in or any certificate
delivered pursuant hereto shall prove to have been incorrect in any material
respect when made;
(e)
if
any default shall occur under any indenture, mortgage, agreement, instrument
or
commitment evidencing or under which there is at the time outstanding any
indebtedness of MSMI or a subsidiary, in excess of $100,000, or which results
in
such indebtedness, in an aggregate amount (with other defaulted indebtedness)
in
excess of $250,000 becoming due and payable prior to its due date and if such
indenture or instrument so requires, the holder or holders thereof (or a trustee
on their behalf) shall have declared such indebtedness due and payable;
(f)
if
any of MSMI or its subsidiaries shall default in the observance or performance
of any term or provision of an agreement to which it is a party or by which
it
is bound, which default will have a Material Adverse Effect and such default
is
not waived or cured within the applicable grace period provided for in such
agreement;
(g)
if a
final judgment which, either alone or together with other outstanding final
judgments against MSMI and its subsidiaries, exceeds an aggregate of $250,000
shall be rendered against MSMI or any subsidiary and such judgment shall have
continued undischarged or unstayed for thirty-five (35) days after entry
thereof;
(h)
if
MSMI or any subsidiary shall make an assignment for the benefit of creditors,
or
shall admit in writing its inability to pay its debts; or if MSMI or any
subsidiary shall suffer a receiver or trustee for it or substantially all of
its
assets to be appointed, and, if appointed without its consent, not to be
discharged or stayed within ninety (90) days; or if MSMI or any subsidiary
shall suffer proceedings under any law relating to bankruptcy, insolvency or
the
reorganization or relief of debtors to be instituted by or against it, and,
if
contested by it, not to be dismissed or stayed within ninety (90) days; or
if MSMI or any subsidiary shall suffer any writ of attachment or execution
or
any similar process to be issued or levied against it or any significant part
of
its property which is not released, stayed, bonded or vacated within ninety
(90) days after its issue or levy; or if MSMI or any subsidiary takes
corporate action in furtherance of any of the aforesaid purposes or conditions;
or
9.2
Remedies.
(a)
Upon
the occurrence and continuance of an Event of Default, the Fund may at any
time
(unless all defaults shall theretofore have been remedied) at its option, by
written notice or notices to MSMI (i) declare the Reimbursement Obligations
to be due and payable, whereupon the same shall forthwith mature and become
due
and payable, together with interest accrued thereon, without presentment,
demand, protest or notice, all of which are hereby waived; and (ii) declare
any other amounts payable to the Fund under this Agreement or as contemplated
hereby due and payable.
(b)
Notwithstanding anything contained in Section 9.2(a), in the event that at
any time after a Reimbursement Obligation shall so become due and payable and
all of MSMI’s reimbursement obligation and interest thereon (with interest at
the rate specified in this Agreement and, to the extent legally enforceable,
on
any interest overdue) shall be paid by or for the account of MSMI, then the
Fund, by written notice or notices to MSMI, may (but shall not be obligated
to)
waive such Event of Default and its consequences and rescind or annul such
declaration, but no such waiver shall extend to or affect any subsequent Event
of Default or impair any right resulting therefrom, or affect the issuance
of
the Additional Warrants.
19
9.3
Other
Remedies; Enforcement.
In case
any one or more Events of Default shall occur and be continuing, the Fund may
proceed to protect and enforce its rights by an action at law, suit in equity
or
other appropriate proceeding, whether for the specific performance of any
agreement contained herein or for an injunction against a violation of any
of
the terms hereof, or in aid of the exercise of any power granted hereby or
thereby or by law. In case of a default in the payment of any obligation to
the
Fund, MSMI will pay to the Fund such further amount as shall be sufficient
to
cover the cost and the expenses of collection, including, without limitation,
reasonable attorney’s fees, expenses and disbursements. No course of dealing and
no delay on the part of the Fund in exercising any rights shall operate as
a
waiver thereof or otherwise prejudice the Fund’s rights. No right conferred
hereby upon the Fund shall be exclusive of any other right referred to herein
or
therein or now available at law in equity, by statute or otherwise.
ARTICLE
XI
INDEMNIFICATION
11.1
Indemnification
by MSMI.
MSMI
agrees to defend, indemnify and hold harmless the Fund and shall reimburse
the
Fund for, from and against each claim, loss, liability, cost and expense
(including without limitation, interest, penalties, costs of preparation and
investigation, and the reasonable fees, disbursements and expenses of attorneys,
accountants and other professional advisors) (collectively, “Losses”) directly
or indirectly relating to, resulting from or arising out of any untrue
representation, misrepresentation, breach of warranty or non-fulfillment of
any
covenant, agreement or other obligation by or of MSMI contained herein or in
any
certificate, document, or instrument delivered to the Fund pursuant hereto.
11.2
Indemnification
by the Fund.
The
Fund agrees to defend, indemnify and hold harmless MSMI and shall reimburse
MSMI
for, from and against all Losses directly or indirectly relating to, resulting
from or arising out of any untrue representation, misrepresentation, breach
of
warranty or non-fulfillment of any covenant, agreement or other obligation
of
the Fund contained herein or in any certificate, document or instrument
delivered to MSMI pursuant hereto. Notwithstanding the foregoing, MSMI hereby
agrees and acknowledges that it has no claim against the Fund under this
Section 11.2 arising from or related to the Fund’s revocation, withdraw or
repudiation of its guaranty, the Fund’s withdraw of Collateral, the Fund’s
refusal to deposit additional Collateral under the L/C Agreement, or the Fund’s
default under the terms of the L/C Agreement.
11.3
Procedure.
The
indemnified party shall promptly notify the indemnifying party of any claim,
demand, action or proceeding for which indemnification will be sought under
Sections 11.1 or 11.2 of this Agreement, and, if such claim, demand, action
or
proceeding is a third party claim, demand, action or proceeding, the
indemnifying party will have the right at its expense to assume the defense
thereof using counsel reasonably acceptable to the indemnified party. The
indemnified party shall have the right to participate, at its own expense,
with
respect to any such third party claim, demand, action or proceeding. In
connection with any such third party claim, demand, action or proceeding, the
Fund and MSMI shall cooperate with each other and provide each other with access
to relevant books and records in their possession. No such third party claim,
demand, action or proceeding shall be settled without the prior written consent
of the indemnified party, which shall not be unreasonably withheld. If a firm
written offer is made to settle any such third party claim, demand, action
or
proceeding and the indemnifying party proposes to accept such settlement and
the
indemnified party refuses to consent to such settlement, then: (i) the
indemnifying party shall be excused from, and the indemnified party shall be
solely responsible for, all further defense of such third party claim, demand,
action or proceeding; and (ii) the maximum liability of the indemnifying
party relating to such third party claim, demand, action or proceeding shall
be
the amount of the proposed settlement if the amount thereafter recovered from
the indemnified party on such third party claim, demand, action or proceeding
is
greater than the amount of the proposed settlement.
ARTICLE
XII
MISCELLANEOUS
12.1
Governing
Law.
This
Agreement and the rights of the parties hereunder shall be governed in all
respects by the laws of the State of New York wherein the terms of this
Agreement were negotiated.
20
12.2
Survival.
Except
as specifically provided herein, the representations, warranties, covenants
and
agreements made herein shall survive the Closing.
12.3
Amendment.
This
Agreement may not be amended, discharged or terminated (or any provision hereof
waived) without the written consent of MSMI and the Fund.
12.4
Successors
and Assigns.
Except
as otherwise expressly provided herein, the provisions hereof shall inure to
the
benefit of, and be binding upon and enforceable by and against, the successors,
assigns, heirs, executors and administrators of the parties hereto. The Fund
may
assign its rights hereunder (provided, that the Fund may not so assign any
of
such rights to any competitor of MSMI), and MSMI may not assign its rights
or
obligations hereunder without the consent of the Fund or any of its successors,
assigns, heirs, executors and administrators.
12.5
Entire
Agreement.
This
Agreement, the Transaction Documents and the other documents delivered pursuant
hereto and simultaneously herewith constitute the full and entire understanding
and agreement between the parties with regard to the subject matter hereof
and
thereof.
12.6
Notices,
etc.
All
notices, demands or other communications given hereunder shall be in writing
and
shall be sufficiently given if delivered either personally or by a nationally
recognized courier service marked for next business day delivery or sent in
a
sealed envelope by first class mail, postage prepaid and either registered
or
certified, addressed as follows:
|
|
(a)
|
if
to MSMI:
|
Medical
Solutions Management Inc.
▇▇▇
▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇
Attn:
Chief Executive Officer
with
a
copy to:
▇▇▇▇▇▇
▇.
▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ LLP
▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
|
|
(b)
|
if
to Fund:
|
Vicis
Capital Master Fund
Tower
56,
Suite 700
▇▇▇
▇.
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇ ▇▇▇▇▇▇▇▇
21
with
a
copy to:
▇▇▇▇▇
▇.
▇▇▇▇▇, Esq.
▇▇▇▇
▇▇▇▇, P.A.
▇▇▇
▇.
▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇
12.7
Delays
or Omissions.
No
delay or omission to exercise any right, power or remedy accruing to any holder
of any Securities upon any breach or default of MSMI under this Agreement shall
impair any such right, power or remedy of such holder nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence, therein,
or of
or in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any holder of any breach or
default under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this Agreement must be, made in writing and shall
be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
12.8
Severability.
The
invalidity of any provision or portion of a provision of this Agreement shall
not affect the validity of any other provision of this Agreement or the
remaining portion of the applicable provision. It is the desire and intent
of
the parties hereto that the provisions of this Agreement shall be enforced
to
the fullest extent permissible under the laws and public policies applied in
each jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
12.9
Expenses.
MSMI
shall bear its own expenses and legal fees incurred on its behalf with respect
to the negotiation, execution and consummation of the transactions contemplated
by this Agreement, and without requiring any documentation therefor, MSMI will
reimburse the Fund for all fees and expenses incurred by the Fund with respect
to the negotiation, execution and consummation of the transactions contemplated
by this Agreement and the transactions contemplated hereby and due diligence
conducted in connection therewith, including the fees and disbursements of
counsel and auditors for the Fund. Such reimbursement shall be paid on the
Closing Date.
12.10
Consent
to Jurisdiction; Waiver of Jury Trial.
EACH OF
THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS
TO
THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED THE STATE
AND
COUNTY OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT AND THE TRANSACTION DOCUMENTS. EACH OF THE PARTIES
TO
THIS AGREEMENT IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY
OBJECTION WHICH SUCH PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE
OF ANY SUCH PROCEEDING BROUGHT IN ANY SUCH COURTS AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN ANY SUCH COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY RIGHT TO TRIAL BY JURY IN ANY SUCH LEGAL PROCEEDING. EACH OF THE
PARTIES TO THIS AGREEMENT HEREBY CONSENTS TO SERVICE OF PROCESS BY NOTICE IN
THE
MANNER SPECIFIED IN SECTION 12.6 AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION SUCH PARTY MAY NOW OR HEREAFTER HAVE
TO
SERVICE OF PROCESS IN SUCH MANNER.
22
12.11
Titles
and Subtitles.
The
titles of the articles, sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
12.12
Counterparts.
This
Agreement may be executed in any number of counterparts, each of which shall
be
an original, but all of which together shall constitute one instrument.
IN
WITNESS WHEREOF, the parties hereto have duly executed this Securities Purchase
Agreement, as of the day and year first above written.
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COMPANY:
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MEDICAL
SOLUTIONS MANAGEMENT INC.
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/s/
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇
Chief
Executive Officer
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FUND:
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VICIS
CAPITAL MASTER FUND, a sub-trust of Vicis Capital Series Master
Trust
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/s/
▇▇▇▇ ▇▇▇▇▇▇▇▇
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▇▇▇▇
▇▇▇▇▇▇▇▇
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By: Caledonian
Bank & Trust Limited, Trustee of Vicis Capital Series Master
Trust
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By:
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/s/
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title:
Chief Financial Officer, Vicis Capital,
LLC
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23
FORM
OF
FIRST
AMENDMENT TO GUARANTEE FEE,
REIMBURSEMENT
AND
INDEMNIFICATION AGREEMENT
This
FIRST
AMENDMENT
dated as
of April 17th, 2007 (this “First
Amendment”)
to the
Guarantee
Fee, Reimbursement
Agreement and Indemnification Agreement
dated as
of March
16,
2007
(the “Guarantee
Fee Agreement”),
by
and between MEDICAL
SOLUTIONS MANAGEMENT INC.,
a
corporation organized and existing under the laws of the State
of
Nevada ("MSMI"),
ORTHOSUPPLY
MANAGEMENT, INC.,
a
Delaware
corporation (the
“Guarantor”)
and
VICIS
CAPITAL MASTER FUND,
a
sub-trust of Vicis Capital Series Master Trust, a unit trust organized and
existing under the laws of the Cayman Islands (the
"Fund").
BACKGROUND
INFORMATION
MSMI,
Guarantor and the Fund entered into the Guarantee Fee Agreement. MSMI, Guarantor
and the Fund now wish to amend the Guarantee Fee Agreement to permit MSMI the
issuance to the Fund and Apogee Financial Investments, Inc. (“Apogee”)
of
MSMI’s 6% Convertible Senior Subordinated Secured Debentures Due April 17, 2009
in the original aggregate principal amount of $1,266,000. In addition, Guarantor
hereby agrees and acknowledges that it is a party to the Guaranty Fee Agreement.
Accordingly, in consideration of the mutual promises and covenants hereinafter
set forth, the parties hereto agree as set forth below.
OPERATIVE
PROVISIONS
1. Section
8.4(k); Liens.
Section
8.4(k) of the Guarantee Fee Agreement is hereby deleted in its entirety and
replaced with the following:
(k)
liens
in existence as of the date hereof securing debt owed to the Fund, and liens
securing the debt arising under and in connection with those certain 6%
Convertible Senior Subordinated Secured Debentures Due April 17, 2009 issued
to
the Fund and Apogee in the original aggregate principal amount of
$1,266,000.
2.
Section
8.5(d); Indebtedness.
Section
8.5(d) of the Guarantee Fee Agreement is hereby deleted in its entirety and
replaced with the following:
(d)
indebtedness (i) to the Bank under the Credit Agreement and the other documents
executed in connection therewith; (ii) to CTC under the L/C Agreement; (iii)
owed to the Fund; (iv) under this Agreement; and (v) arising under those certain
6% Convertible Senior Subordinated Secured Debentures Due April 17, 2009 issued
to the Fund and Apogee in the original aggregate principal amount of $1,266,000,
without duplication of the indebtedness owed to the Fund under clause (iii)
above.
3. Ratification
of Agreement.
The
terms and conditions of the Guarantee Fee Agreement that have not been modified
by this First Amendment shall remain in full force and effect against MSMI,
Guarantor, and the Fund.
4. Counterparts.
This
First
Amendment may
be
executed in any number of counterparts, each of which shall be an original,
but
all of which together shall constitute one instrument.
24
IN
WITNESS WHEREOF, this First Amendment has been executed by the parties hereto
the day and year first above written.
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MSMI:
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MEDICAL
SOLUTIONS MANAGEMENT INC., a Nevada Corporation
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By:
_____________________________________
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▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, Chief Executive Officer
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GUARANTOR:
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ORTHOSUPPLY
MANAGEMENT, INC., a Delaware corporation
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By:
_____________________________________
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▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, Chief Executive Officer
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FUND:
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VICIS
CAPITAL MASTER FUND, a sub-trust of Vicis Capital Series Master
Trust
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By:
Caledonian Bank & Trust Limited,
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Trustee
of Vicis Capital Series Master Trust
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By:_______________________________________
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Name:
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Title:
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25
FORM
OF
SECOND
AMENDMENT TO GUARANTEE FEE,
REIMBURSEMENT
AND
INDEMNIFICATION AGREEMENT
This
SECOND
AMENDMENT
dated as
of May 18, 2007 (this “Second
Amendment”)
to the
Guarantee
Fee, Reimbursement
Agreement and Indemnification Agreement
dated as
of March
16,
2007,
as amended on April 17, 2007 (as amended, the “Guarantee
Fee Agreement”),
by
and between MEDICAL
SOLUTIONS MANAGEMENT INC.,
a
corporation organized and existing under the laws of the State
of
Nevada (the
"Company"),
ORTHOSUPPLY
MANAGEMENT, INC.,
a
Delaware
corporation (the
“Guarantor”)
and
VICIS
CAPITAL MASTER FUND,
a
sub-trust of Vicis Capital Series Master Trust, a unit trust organized and
existing under the laws of the Cayman Islands (the
"Fund").
All
capitalized terms used herein and not otherwise defined shall have the meaning
ascribed to them in the Guarantee Fee Agreement.
WITNESSETH:
WHEREAS,
the Company proposes to (i) enter into the amendment, in the form of
Exhibit
A
attached
hereto, to the Revolving Line of Credit Agreement dated as of March 16, 2007
by
and between the Company and Sovereign Bank ("Sovereign") (as amended and in
effect from time to time, including pursuant to the Revolving Line of Credit
Amendment (as hereinafter defined) the "Revolving
Credit Agreement")
with
Sovereign (the "Revolving
Line of Credit Amendment")
pursuant to and in connection with which it shall, among other things, (A)
have
the ability to borrow up to an additional principal amount of $1,500,000, for
an
original principal total of $3,000,000, from Sovereign, (B) issue to Sovereign
an amended and restated promissory note in the original principal amount of
$3,000,000, and (ii) enter into an amendment, in the form of Exhibit
B
attached
hereto, to the Irrevocable Standby Letter of Credit No. 00034 in favor of the
Bank (as amended and in effect from time to time, the “Letter of Credit”) to
increase the maximum drawing amount from $1,530,000 to $3,060,000 (the
“Letter
of Credit Amendment”).
WHEREAS,
pursuant to the terms of the Guarantee
Fee
Agreement, the Company may not amend the Revolving Credit Agreement and the
Letter of Credit without the prior written consent of the Fund; and
WHEREAS,
as
consideration for the Fund’s consent to the Revolving Line of Credit Amendment
and Letter of Credit Amendment, the
Company has agreed to
issue to
the Fund
warrants,
in the form attached hereto as Exhibit
B (the
“May
2007 Warrants”)
to
purchase an aggregate of 3,060,000 shares of Common Stock (the “May
2007 Warrant
Shares”).
Accordingly,
in consideration of the mutual promises and covenants hereinafter set forth,
the
parties hereto agree as set forth below.
OPERATIVE
PROVISIONS
1. Issuance
of Warrants.
Immediately
upon execution of this Second Amendment, the Company shall
issue the May 2007 Warrants
to the Fund.
2. Representations
and Warranties.
The
Company and
Guarantor
hereby,
jointly and severally, represent and warrant to the Fund
as
of the
date of this Second Amendment as
follows:
(a)
Issuance
of Securities.
The
Company has authorized the issuance of the
May
2007 Warrants,
and the
May 2007 Warrants have been validly issued, fully paid and nonassessable and
are
free from all taxes, Liens
and
charges with respect to the issue thereof.
The
Company has
authorized and reserved 3,060,000 shares of Common
Stock for
the
issuance upon exercise of the May 2007 Warrants.
The
May
2007 Warrant
Shares,
when
issued and paid for upon exercise of the May 2007 Warrants,
will be
validly issued, fully paid and nonassessable and free from all taxes,
Liens
and
charges with respect to the issue thereof, with the holders being entitled
to
all rights accorded to a holder of the Common
Stock.
All
actions by the board
of
directors of the Company,
the
Company, and
its
stockholders necessary for the valid issuance of the May 2007 Warrants
and the
May 2007 Warrant
Shares
have
been taken.
26
(b) Authorization;
Enforcement; Validity.
The
Company has
the
requisite corporate power and authority to enter into and perform its
obligations under this Second
Amendment,
the May
2007 Warrants,
and
each of the other agreements or instruments entered into by the parties hereto
in connection with the transactions contemplated by this Second Amendment
(collectively, the Transaction Documents”). The Transaction
Documents have
been
duly executed and delivered by the Company, and constitute the legal, valid
and
binding obligations of the
Company enforceable
against the
Company in
accordance with their respective terms, except (i) as
such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies, and (ii) as
any
rights to indemnity or contribution hereunder may be limited by federal and
state securities laws and public policy consideration.
(c) No
Conflicts.
The
execution, delivery and performance of the Transaction
Documents by
the
Company and
the
consummation by the
Company of
the
transactions contemplated hereby and thereby (including, without limitation,
the
reservation for issuance of the May 2007 Warrant
Shares)
will
not (i) result
in
a violation of any articles or certificate of incorporation, any certificate
of
designations, preferences and rights of any outstanding series of preferred
stock or bylaws of the
Company or
Guarantor
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 material agreement, indenture
or
instrument to which the
Company or
Guarantor
is
a
party, or (iii) 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
Guarantor
or
by
which any property or asset of the
Company or
Guarantor
is
bound
or affected, except in the case of clauses (ii) and
(iii),
for
such breaches or defaults as would not be reasonably expected to have a
Material
Adverse Effect.
(d) Placement
Agent’s Fees.
Except
for payments to Midtown Partners & Co., LLC, no brokerage or finder’s fee or
commission are or will be payable to any Person
with
respect to the transactions contemplated by this Second
Amendment based
upon arrangements made by the
Company or
any of
its affiliates. The
Company agrees
that it shall be responsible for the payment of any placement agent’s fees,
financial advisory fees, or brokers’ commissions (other than for persons engaged
by Fund)
relating to or arising out of the transactions contemplated hereby. The
Company shall
pay, and hold the Fund
harmless
against, any liability, loss or expense (including, without limitation,
attorney’s fees and out-of-pocket expenses) arising in connection with any claim
for any such fees or commissions.
(e) Confirmation
of Representation, Warranties, Covenants.
Except
as disclosed in the reports, schedules, forms, statements and other documents
filed by the Company since March 16, 2007 with the Securities and Exchange
Commission (the "SEC") pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (the "SEC Documents"),
(i)
each
representation and warranty made by the Company or Guarantor in the Guaranty
Fee
Agreement is true and correct as if made as of the date hereof, and (ii) the
Company and the Guarantor have fully complied with each covenant in the Guaranty
Fee Agreement.
3. The
Company and Guarantor hereby agree that the increased drawing amount of the
Letter of Credit is subject to the Company’s Reimbursement Obligations (as
defined in Section 2.1(a) of the Guaranty Fee Agreement), the Guarantor’s
guaranty referenced in Section 2.4 of the Guaranty Fee Agreement, and each
of
the other provisions set forth in the Guaranty Fee Agreement, including, but
not
limited to, Section 2.1(c), related to the issuance of Additional Warrants
and
Additional Warrant Shares, Section 2.3 and Section 2.4, subjecting the increased
drawing amounts to the security interest granted by the Company and the
Guarantor.
4. Section
9.2(a); Remedies.
Section
9.2(a) of the Guarantee Fee Agreement is hereby deleted in its entirety and
replaced with the following:
(a) Upon
the
occurrence and continuance of an Event
of
Default,
the
Fund
may
at
any time (unless all defaults shall theretofore have been remedied) at its
option, by written notice or notices to the
Company (i) declare
the Reimbursement
Obligations to
be due
and payable, whereupon the same shall forthwith mature and become due and
payable, together with interest accrued thereon, without presentment, demand,
protest or notice, all of which are hereby waived; and (ii) declare
any other amounts payable to the Fund
under
this Agreement
or
as
contemplated hereby to be due and payable, whereupon the same shall forthwith
mature and become due and payable, together with interest accrued thereon,
without presentment, demand, protest or notice, all of which are hereby waived,
(iii) declare any other amounts payable to the Fund
under
any
other agreement between the Fund and the Company, or between the Fund and the
Guarantor, to be due and payable, whereupon the same shall forthwith mature
and
become due and payable, together with interest accrued thereon, without
presentment, demand, protest or notice, all of which are hereby
waived.
27
5. Ratification
of Agreement.
The
terms and conditions of the Guarantee Fee Agreement that have not been modified
by this First Amendment shall remain in full force and effect against the
Company, Guarantor, and the Fund.
6. Counterparts.
This
Second
Amendment may
be
executed in any number of counterparts, each of which shall be an original,
but
all of which together shall constitute one instrument.
IN
WITNESS WHEREOF, this Second Amendment has been executed by the parties hereto
the day and year first above written.
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THE
COMPANY:
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MEDICAL
SOLUTIONS MANAGEMENT INC., a Nevada Corporation
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By:
_____________________________________
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▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, Chief Executive Officer
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GUARANTOR:
|
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ORTHOSUPPLY
MANAGEMENT, INC., a Delaware corporation
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By:
_____________________________________
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▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, Chief Executive Officer
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FUND:
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VICIS
CAPITAL MASTER FUND, a sub-trust of Vicis Capital Series Master
Trust
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By:
Caledonian Bank & Trust Limited,
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Trustee
of Vicis Capital Series Master Trust
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By:_______________________________________
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Name:
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Title:
|
28
THIRD
AMENDMENT TO GUARANTEE FEE, REIMBURSEMENT
AND
INDEMNIFICATION AGREEMENT
This
THIRD
AMENDMENT
dated as
of July 10, 2007 (this “Third
Amendment”)
to the
Guarantee Fee, Reimbursement Agreement and Indemnification Agreement dated
as of
March 16, 2007, as amended on April 17, 2007 and on May 18, 2007
(as amended, the “Guarantee
Fee Agreement”),
by
and among MEDICAL
SOLUTIONS MANAGEMENT INC.,
a
corporation organized and existing under the laws of the State of Nevada (the
“MSMI”),
ORTHOSUPPLY
MANAGEMENT, INC.,
a
Delaware corporation and VICIS
CAPITAL MASTER FUND,
a
sub-trust of Vicis Capital Series Master Trust, a unit trust organized and
existing under the laws of the Cayman Islands (the “Fund”).
All
capitalized terms used herein and not otherwise defined shall have the meaning
ascribed to them in the Guarantee Fee Agreement.
WITNESSETH:
WHEREAS,
MSMI proposes to enter into a Warrant and Debenture Amendment Agreement by
and
among MSMI, the Fund and Nite Capital, L.P., Apogee Financial Investments,
Inc.,
Midtown Partners & Co., LLC, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ on the
date hereof, pursuant to which the warrant price and conversion price for
certain warrants and debentures previously issued to the Fund will be decreased.
WHEREAS,
pursuant to the Guarantee Fee Agreement, if MSMI fails to pay the Reimbursement
Obligations, MSMI is required to issue to the Fund Additional Warrants entitling
the Fund to purchase that number of shares of Common Stock equal to the Value
of
Collateral taken multiplied by two.
WHEREAS,
Section 12.3 of the Guarantee Fee Agreement requires the written consent of
MSMI and the Fund to amend, discharge or terminate the Guarantee Fee Agreement
or any provision thereof.
NOW,
THEREFORE, in consideration of the foregoing recitals and for good and other
valuable consideration hereinafter set forth, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows.
OPERATIVE
PROVISIONS
1.
Section 2.1(e);
Reimbursement to the Fund.
Section 2.1(e) of the Guarantee Fee Agreement shall be amended by adding
the following sentence as a new last sentence thereof:
(a)
“Notwithstanding the foregoing, in no event shall the Value of Collateral exceed
$2,000,000.”
2.
Ratification
of Agreement.
The
terms and conditions of the Guarantee Fee Agreement that have not been modified
by this Third Amendment shall remain in full force and effect against MSMI,
Guarantor, and the Fund.
3.
Counterparts.
This
Third Amendment may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one instrument.
[Signature
page to follow on next page]
29
IN
WITNESS WHEREOF, this Third Amendment has been executed by the parties hereto
the day and year first above written.
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MSMI:
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MEDICAL
SOLUTIONS MANAGEMENT INC.,
a
Nevada Corporation
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By:
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/s/
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
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Name:
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▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇
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Title:
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Chief
Executive Officer
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FUND:
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VICIS
CAPITAL MASTER FUND
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By:
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By:
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/s/
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name:
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▇▇▇▇▇
▇. ▇▇▇▇▇▇
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Title:
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Chief
Financial Officer
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30