LOAN AND SECURITIES PURCHASE AGREEMENT By and Between MDWERKS, INC., XENI FINANCIAL SERVICES, CORP. and DEBT OPPORTUNITY FUND, LLLP DATED NOVEMBER 14, 2008
By
and Between
XENI
FINANCIAL SERVICES, CORP.
and
DEBT
OPPORTUNITY FUND, LLLP
DATED
NOVEMBER 14, 2008
This
LOAN
AND SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated this 14th day of
November, 2008, is made by and between MDWERKS, INC., a Delaware corporation
(“MDwerks” or the “Company”), XENI FINANCIAL SERVICES, CORP., a Florida
corporation (“XFSC” and along with MDwerks, each a “Borrower” and collectively
the “Borrowers”), and DEBT OPPORTUNITY FUND, LLLP, a limited liability
limited partnership organized under the laws of the State of Florida (the
“Lender”).
RECITALS
WHEREAS,
pursuant to the terms and conditions of this Agreement, the Borrowers wish
to
borrow $10,300,000 from the Lender (the “Loan”) to be evidenced by the issuance
of a Senior Secured Promissory Note in the form attached hereto as Exhibit
A
(the
“Note”);
WHEREAS,
the Borrowers will use the proceeds from the Loan to purchase medicinal
preparations prescription worker’s compensation claims (“Prescription Claims”)
from Prospective Client (“XXX”) under the terms and conditions of that certain
Prescription Claims Assignment Agreement (the “Claims Purchase Agreement”)
between XFSC and XXX to be entered into pursuant to Section 5.8
hereof;
WHEREAS,
as part of the agreement to make the Loan, the Lender has requested that MDwerks
sell and issue to the Lender a Series J Warrant to purchase an aggregate of
9,339,816 shares of common stock, par value $.001 per share (the “Common
Stock”), of MDwerks initially at an exercise price of $1.00 per share in the
form attached hereto as Exhibit
B
(the
“Series J Warrant” or the “Warrant”); and
WHEREAS,
the Lender desires to provide the Loan to the Borrowers and purchase the Warrant
from MDwerks according to the terms hereinafter set forth.
NOW,
THEREFORE, the
Borrowers and the Lender hereby agree as follows:
ARTICLE
I
THE
LOAN AND PURCHASE AND SALE OF THE WARRANT
1.1 The
Loan and Purchase and Sale of the Warrant.
Subject
to the terms and conditions hereof and in reliance on the representations and
warranties contained herein, or made pursuant hereto, (a) the Borrowers will
borrow, and the Lender will lend the Borrowers at the closing of the
transactions contemplated hereby (the “Closing”), the aggregate amount of up to
$10,300,000 under the Note, subject to a deduction for an original issue
discount of 2%, less the fee owed to the Lender pursuant to Section 12.9
hereof in the amount of $80,000 (the “Cash Payment”) and (b) MDwerks will issue
and sell to the Lender, and the Lender will purchase from MDwerks at the
Closing, the Warrant for making the Loan to the Borrowers. The Note will be
issued with an original issue discount of two percent (2%). The Borrowers shall
receive from the Lender $0.98 for each $1.00 of principal amount of the Note
as
indicated in Section 1.3 hereof.
1.2 Closing.
The
Closing shall be deemed to occur at the offices of ▇▇▇▇ ▇▇▇▇, P.A., ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, at 5:00 p.m. EST on November 14, 2008,
or
at such other place, date or time as mutually agreeable to the parties (the
“Closing Date”).
1.3 Closing
Matters.
Subject
to the terms and conditions hereof, the following actions shall be
taken:
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(a) On
the
Closing Date, (i) the Borrowers will deliver to the Lender the documents set
forth in Section 5.4 hereof, (ii) the Lender shall advance $1,500,000 under
the
Note by, after applying the 2% original issue discount of $30,000, delivering
the sum of $1,470,000, less the Cash Payment of $80,000, by wire transfer of
immediately available funds in the form of (A) $1,090,000 to the Escrow Account
(as defined in Section 1.4) to be held by the Escrow Agent and (B) $300,000
in
accordance with instructions of the Borrowers.
(b) After
the
Closing Date, the Lender shall advance an additional $8,800,000 under the Note
by, after applying the 2% original issue discount, delivering $8,624,000 to
the
Escrow Agent by wire transfers to the Escrow Account consisting of no more
than
six (6) separate financings with at least two (2) such financings occurring
during each calendar week beginning with the first full calendar week following
the Closing Date (each such subsequent payment referred to herein as a
“Subsequent Funding” with all such payments into the Escrow Account referred to
herein as the “Funded Amount”).
1.4 Escrow.
The
Lender has agreed that the Funded Amount pursuant to clauses (a) and (b) of
Section 1.3 above will be deposited in an escrow account (the “Escrow Account”)
to be held and released by the Escrow Agent (as defined in the Escrow Agreement)
pursuant to the terms of an Escrow Agreement, substantially in the form attached
hereto as Exhibit
C
(the
“Escrow Agreement”). Subject to the terms of the Escrow Agreement, the Funded
Amount shall be released to Borrowers by wire transfer to the Claims Purchase
Account (as defined in Section 5.9) upon satisfaction (or waiver) of the
conditions set forth in Article V below, or returned to the Lender, if each
of
the conditions set forth in Article V below is not satisfied (or waived) by
December 8, 2008 (the “Funding Date”). In the event that the Funded Amount is
returned to the Lender hereunder, the Lender shall promptly return the Note
and
the Warrant to the Borrowers for cancellation; provided,
however,
the
Borrowers shall reissue the Note to the Lender in the amount of such sums
actually received by the Borrowers, inclusive of the Cash Payment, pursuant
to
this Agreement.
1.5 Claim
Purchases.
(a) Segregation
of Funds.
Except
as otherwise provided in this Agreement, the proceeds from the Loan and any
and
all amounts received from the collection and processing of Prescription Claims
purchased under the Claims Purchase Agreement (the “Restricted Funds”) shall be
deposited in the Claims Purchase Account and segregated at all times from the
operating funds of the Borrowers and any other accounts held by the
Borrowers.
(b) Removal
of Restricted Funds.
The
Borrowers shall not remove Restricted Funds from the Claims Purchase Account
except upon receipt, and then only to the extent, of the Lender’s prior written
consent, which may be withheld in the Lender’s sole discretion; provided,
however,
that
the Borrowers may use Restricted Funds to (i) purchase additional Prescription
Claims as provided in this Section 1.5 and (ii) make payments to XXX in
accordance with the Claims Purchase Agreement provided that the Borrowers
deliver written notice of any payment to be made to XXX to Lender at least
ten
(10) days prior to making such payment. Every thirty (30) days, the Lender
and
Borrowers shall conduct a meeting in person or via teleconference at a mutually
agreeable time, date and location to review the status of, and adequacy of
amounts in, the Claims Purchase Account and to discuss the potential release
of
funds from the Claims Purchase Account to an operating account of XFSC (any
such
released funds shall be referred to as “Permitted Withdrawals”); provided,
however,
such
release shall be the sole discretion of the Lender.
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(c) Notice
of Proposed Purchase.
At
least three (3) Trading Days prior to the purchase of any Prescription Claims
under the Claims Purchase Agreement (a “Proposed Purchase”), Borrowers shall
submit a written request to the Lender identifying the specific Prescription
Claims included in the Proposed Purchase and the total amount and date of the
Proposed Purchase. Provided that the conditions in Section 1.5(d) are met,
Borrowers shall be entitled to use the Restricted Funds for the Proposed
Purchase to the extent that the sum of the Restricted Funds and Acceptable
Receivables exceeds the aggregate principal amount of all Advances (the
“Borrowing Base”). As used in this Agreement, “Acceptable Receivables” means the
purchased Prescription Claims for which XFSC has not received payment, but
excluding the following Prescription Claims: (i) any Prescription Claim or
portion thereof that remains unpaid 180 days or more after the Prescription
Claim was submitted for payment; (ii) any Prescription Claim or portion thereof
with respect to which any Borrower has received notice of a claim or dispute
over payment; (iii) any Prescription Claim submitted for payment to an entity
that is insolvent, the subject of bankruptcy proceedings or out of business;
(iv) any Prescription Claim not subject to a duly perfected, first-priority
security interest in the Lender’s favor or which is subject to any Lien (as
defined in Section 8.3) in favor of any Person (as defined in Section 3.13)
other than the Lender; (v) Prescription Claims owed by an obligor, regardless
of
whether otherwise eligible, if 25% or more of the total amount of Prescription
Claims due from such obligor is ineligible under sub-clauses (i) or (ii) above;
(vi) Prescription Claims, or portions thereof, otherwise deemed ineligible
by
the Lender in its sole discretion.
(d) Conditions
Precedent to Purchases.
The
Borrowers’ ability to use Restricted Funds for a Proposed Purchase shall be
subject to the further conditions precedent that:
(i) An
Event
of Default has not occurred and is not continuing or an Event of Default would
not result from the Proposed Purchase;
(ii) No
default has occurred and is continuing by either XXX or XFSC with respect to
the
Claims Purchase Agreement;
(iii) The
representations and warranties contained in this Agreement or contained in
the
other Transaction Documents are true and correct as of the date of the Proposed
Purchase, except to the extent any such representation or warranty is stated
to
relate solely to an earlier date, in which case such representation or warranty
shall be true and correct on and as of such earlier date;
(iv) The
Prescription Claims set forth in the Proposed Purchase are to be purchased
under
the terms of and in accordance with the Claims Purchase Agreement;
(v) The
Borrowers shall have provided to the Lender a certificate, in form and detail
reasonably satisfactory to the Lender, setting forth the calculation of the
available Borrowing Base, executed on behalf of the Borrowers by officers of
the
Borrowers (the “Borrowing Base Certificate”), and the Lender shall be satisfied
that the Proposed Purchase does not exceed the available Borrowing Base;
and
(vi) Since
the
date of the most recently filed financial statements of the Borrowers, there
has
been no change in either of the Borrowers’ business, properties or condition
(financial or otherwise) that has had or would have a Material Adverse Effect
(as defined in Section 3.1).
Each
request for a Proposed Purchase by the Borrowers shall constitute a
representation and warranty by each Borrower that the conditions contained
in
this Section 1.5(d) have been satisfied.
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ARTICLE
II
SECURITY
DOCUMENTS
2.1 Security
Documents.
(a) Security
Agreement and Collateral Assignment.
All of
the obligations of the Borrowers under the Note shall be secured by a lien
on
all the personal property and assets of the Borrowers now existing or
hereinafter acquired granted pursuant to (i) a security agreement from each
Borrower dated of even date herewith between each of the Borrowers and the
Lender in the form attached hereto as Exhibit
D
(“Security Agreements), and (ii) such other documents as the Lender may
reasonably require from Borrowers to secure its interests under this
Agreement.
(b) Guaranty.
All of
the obligations of the Borrowers under the Note shall be guaranteed pursuant
to
a guaranty agreement in the form attached hereto as Exhibit
E
(“Guaranty Agreement”) by each of the following subsidiaries of the Company
(each a “Subsidiary” and collectively, the “Subsidiaries”): MDwerks Global
Holdings, Inc., a corporation, organized under the laws of the State of Florida
(“MGHI”), Xeni Medical Systems, Inc., a corporation organized under the laws of
the State of Delaware (“XMSI”), Xeni Medical Billing, Corp., a corporation
organized under the laws of the State of Delaware (“XMBC”), and Patient Payment
Solutions, Inc., a corporation organized under the laws of the State of Florida
(“PPS”).
(c) Guarantor
Security Documents.
All of
the obligations of each Subsidiary under its Guaranty Agreement shall be secured
by a lien on all the personal property and assets of such Subsidiary now
existing or hereinafter acquired granted pursuant to a guarantor security
agreement dated of even date herewith between such Subsidiary and the Purchaser
in the form attached hereto as Exhibit
F
(“Guarantor Security Agreement”).
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE BORROWERS
Each
of
the Borrowers hereby represents and warrants to the Lender as of the date of
this Agreement as follows:
3.1 Organization
and Qualification.
Each
Borrower 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. Each Borrower 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, or condition
(financial or otherwise) of the Borrowers and the Subsidiaries, taken as a
whole, 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 a Borrower to perform its obligations in all material respects under
the Transaction Documents.
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3.2 Subsidiaries.
MDwerks
has no other subsidiaries other than the Subsidiaries, and XFSC has no
subsidiaries. The Company owns, directly or indirectly, all of the capital
stock
of each Subsidiary and XFSC, free and clear of any and all Liens, except
Permitted Liens (as defined in Section 8.3), and all the issued and outstanding
shares of capital stock of each Subsidiary and XFSC are validly issued and
are
fully paid, non-assessable and free of preemptive and similar rights. Each
Subsidiary 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. Each Subsidiary 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.
3.3 Compliance.
(a) Neither
any Borrower nor any Subsidiary (i) is in default under or in violation of
(and no event has occurred that has not been waived that, with notice or lapse
of time or both, would result in a default by any Borrower or any Subsidiary
under), nor has any Borrower or any Subsidiary received notice of a claim that
it is in default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party
or
by which it or any of its properties is bound, except such that, individually
or
in the aggregate, such default(s) and violations(s) would not have a Material
Adverse Effect, (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is in violation of any of the provisions of
its certificate or articles of incorporation, bylaws or other organizational
or
charter documents.
(b) The
business of each Borrower and each Subsidiary is presently being conducted
in
accordance with all applicable foreign, federal, state and local governmental
laws, rules, regulations and ordinances (including, without limitation, rules
and regulations of each governmental and regulatory agency, self regulatory
organization and Trading Market applicable to any Borrower or any Subsidiary),
except such that, individually or in the aggregate, the noncompliance therewith
would not have a Material Adverse Effect. Each Borrower has all franchises,
permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of its business as now being conducted
by it unless the failure to possess such franchises, permits, licenses, consents
and other governmental or regulatory authorizations and approvals, individually
or in the aggregate, would not have a Material Adverse Effect, and each Borrower
has not received any written notice of proceedings relating to the revocation
or
modification of any of the foregoing. For purposes of this Agreement, “Trading
Market” means the following markets or exchanges on which the Common Stock is
listed or quoted for trading on the date in question: the NYSE Arca, OTC
Bulletin Board, the American Stock Exchange, the New York Stock Exchange, the
Nasdaq National Market or the Nasdaq Capital Market.
3.4 Capitalization.
(a) As
of the
date hereof and without giving effect to the sale of the Warrant at Closing
as
contemplated hereby, the Company’s authorized capital stock consists of (1)
200,000,000 shares of Common Stock, par value $.001 per share, of which
14,370,208 shares are outstanding and (2) 10,000,000 shares of preferred stock,
par value $.001 per share, of which (x) 1,000 shares have been designated as
Series A Convertible Preferred Stock, par value $0.001 per share, of which
2
shares are outstanding, and (y) 1,500 shares have been designated as Series
B
Preferred Stock, par value $0.001, of which 1,000 shares are outstanding. All
of
such outstanding shares have been, or upon issuance will be, validly issued,
are
fully paid and nonassessable. 110,702,017 shares of Common Stock are reserved
for issuance upon the exercise or conversion of all outstanding warrants,
convertible notes, options, or other securities exchangeable, convertible or
exercisable into shares of Common Stock.
(b) Except
for the Warrant, or as disclosed in the SEC Documents (as defined in Section
3.14):
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(i) no
holder
of shares of the Company’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 the Company;
(ii) 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 any Borrower or any Subsidiary, or contracts, commitments,
understandings or arrangements by which any Borrower or any Subsidiary is or
may
become bound to issue additional shares of capital stock of any Borrower or
any
Subsidiary 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 any Borrower or any Subsidiary;
(iii) there
are
no outstanding debt securities, notes, credit agreements, credit facilities
or
other agreements, documents or instruments evidencing Indebtedness (as defined
in Section 3.13 hereof) of any Borrower or any Subsidiary in excess of $100,000
or by which a Borrower or a Subsidiary is or may become bound and involves
Indebtedness in excess of $100,000;
(iv) there
are
no financing statements securing obligations in any material amounts, either
singly or in the aggregate, filed in connection with any Borrower or any
Subsidiary;
(v) there
are
no agreements or arrangements under which any Borrower or any Subsidiary is
obligated to register the sale of any of their securities under the Securities
Act of 1933, as amended (the “Securities Act”);
(vi) there
are
no outstanding securities or instruments of any Borrower or any Subsidiary
that
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which any Borrower or any
Subsidiary is or may become bound to redeem a security of a Borrower or a
Subsidiary;
(vii) there
are
no securities or instruments containing antidilution or similar provisions
that
will be triggered by the issuance of the Warrant; and
(viii) neither
of the Borrowers has any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement.
3.5 Issuance
of the Warrant.
(a) The
Warrant to be issued hereunder is duly authorized and, upon 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 Date, the
Company has authorized and has reserved free of preemptive rights and other
similar contractual rights of stockholders, a number of its authorized but
unissued shares of Common Stock equal to one hundred percent (100%) of the
aggregate number of shares of Common Stock to effect the exercise of the Warrant
(the “Warrant Shares”).
(b) The
Warrant Shares, when issued and paid for upon exercise of the Warrant 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.
(c) Assuming
the accuracy of each of the representations and warranties made by the Lender
and set forth in Article IV hereof (and assuming no change in applicable law
and
no unlawful distribution of the Warrant by the Lender or other Persons), the
issuance by the Company to the Lender of the Warrant is exempt from registration
under the Securities Act.
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3.6 Authorization;
Enforcement; Validity.
Each
Borrower has the respective requisite corporate power and authority to enter
into and perform, as applicable, its obligations under this Agreement, the
Registration Rights Agreement to be entered into between the Company and the
Lender on even date herewith in the form attached hereto as Exhibit
G
(the
“Registration Rights Agreement”), the Security Agreement, the Note, the Warrant,
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 Note and the
Warrant (including without limitation, the Warrant Shares) in accordance with
the terms hereof and thereof. The execution and delivery of the Transaction
Documents by each Borrower and the consummation by each Borrower of the
transactions contemplated hereby and thereby, including, without limitation,
the
issuance of the Note and the Warrant, have been duly authorized by its Board,
and no further consent or authorization is required by either of the Borrowers,
their respective Boards or stockholders. This Agreement, the Note and the other
Transaction Documents have been duly executed and delivered by each Borrower,
as
applicable, and constitute the legal, valid and binding obligations of each
Borrower enforceable against the Borrowers in accordance with their respective
terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other laws of general application affecting enforcement of creditors’ rights and
remedies generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited by
applicable law or by principles of public policy thereunder.
3.7 Dilutive
Effect.
Each
Borrower understands and acknowledges that the Company’s obligation to issue the
Warrant Shares upon exercise of the Warrant is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.
3.8 No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by each
Borrower and the consummation by each Borrower of the transactions contemplated
hereby and thereby (including, without limitation, the reservation for issuance
of the 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 any
Borrower or any Subsidiary 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 any
Borrower or any Subsidiary is a party (except where such defaults, conflicts,
rights of termination, amendment, acceleration or cancellation have been waived
or postponed until the fulfillment of the Borrowers’ obligations under the
Transaction Documents), or (iii) result in a violation of any federal,
state, local or foreign statute, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and rules and
regulations of any governmental or any regulatory agency, self-regulatory
organization, or Trading Market applicable to the Company) or by which any
property or asset of the Borrowers are bound or affected, except in the case
of
clauses (ii) and (iii), for such breaches, violations or defaults as would
not
be reasonably expected to have a Material Adverse Effect.
-8-
3.9 Governmental
Consents.
Except
for (i) filings required under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) to disclose the existence of the transactions
contemplated by this Agreement, (ii) application(s) to each Trading Market
for the listing of the Warrant Shares for trading thereon in the time and manner
required thereby, and (iii) the filing of Form D with the Commission and
such filings as are required to be made under applicable state securities laws,
neither Borrower is required to obtain any consent, authorization or order
of,
or make any filing or registration with, any court, governmental or any
regulatory agency, self-regulatory organization or any other Person 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. Each Borrower is unaware of any facts or circumstances relating
to
any Borrower or any Subsidiary that might prevent any Borrower from obtaining
or
effecting any of the foregoing.
3.10 Registration
and Approval of Sale of Securities.
Based
in material part upon the representations and warranties herein (and in the
other Transaction Documents) of the Lender, the Company has complied and will
comply with all applicable federal and state securities laws in connection
with
the offer, issuance and sale of the Warrant hereunder (except in the case of
state securities laws, for any failures to comply that, individually or in
the
aggregate, will not have a Material Adverse Effect). Assuming the accuracy
of
the representations and warranties in Article IV hereof (and assuming no change
in applicable law and no unlawful distribution of the Warrant by the Lender
or
other Persons), no registration under the Securities Act is required for the
offer and sale of the Warrant by the Company to the Lender as is contemplated
hereby. Neither the Company nor any Person acting on its behalf, directly or
indirectly, has or will sell, offer to sell or solicit offers to buy the Warrant
or similar securities to, or solicit offers with respect thereto from, or enter
into any negotiations relating thereto with, any Person, or has taken or will
take any action so as to either (a) bring the issuance and sale of the
Warrant under the registration provisions of the Securities Act or applicable
state securities laws, or (b) trigger shareholder approval provisions under
the rules or regulations of any Trading Market. Neither the Company nor any
of
its affiliates that it controls, nor any Person acting on its or their behalf,
has: (x) 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 any of the Warrant; or (y) directly or indirectly made
any
offers or sales of any security or solicited any offers to buy any security
under circumstances that would cause the offering of the Warrant pursuant to
this Agreement to be integrated with prior offerings by the Company for purposes
of the Securities Act in a manner that would prevent the Company from selling
the Warrant pursuant to Regulation D and Rule 506 thereof under the Securities
Act, nor will the Company or any of its affiliates that it controls or Persons
acting on its or their behalf engage in any form of general solicitation or
take
any action or steps that would cause the offering of the Warrant to be
integrated with other offerings.
3.11 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 any Borrower or any Subsidiary. The Borrowers agree that
they shall be responsible for the payment of any placement agent’s fees,
financial advisory fees, or brokers’ commissions (other than for Persons engaged
by the Lender or any of its affiliates) relating to or arising out of the
transactions contemplated hereby. The Borrowers shall pay, and hold the Lender
harmless against, any liability, loss or expense (including, without limitation,
reasonable attorney’s fees and out-of-pocket expenses) arising in connection
with any claim for any such fees or commissions.
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3.12 Litigation.
Except
as disclosed in Schedule 3.12 or as disclosed in the SEC Documents, there is
no
action, suit, written notice of violation, or written notice of any proceeding
pending or, to the knowledge of the Borrowers, threatened against or affecting
the Common Stock or any Borrower, any Subsidiary or any of their respective
executive officers, directors or properties before or by any court, arbitrator,
governmental or administrative agency, regulatory authority (federal, state,
county, local or foreign), self regulatory authority or Trading Market
(collectively, an “Action”) which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or
the
Warrant or (ii) would, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. To the Borrowers’
knowledge, neither the Borrowers nor any Subsidiary, nor any director or
executive officer thereof (in his/her capacity as such), is or, within the
last
five years, has been the subject of any Action involving a claim of violation
of
or liability under federal or state securities laws or a claim of breach of
fiduciary duty. To the knowledge of the Company, there has not been, and there
is not pending or threatened in writing, any investigation by the United States
Securities and Commission (the “Commission” or “SEC”) involving the Company or
any current director or executive officer of the Company. The Commission has
not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company under the Exchange Act or the
Securities Act. There is no action, suit, claim, investigation, arbitration,
alternate dispute resolution proceeding or other proceeding pending or, to
the
knowledge of the Borrowers, threatened in writing against or involving either
of
the Borrowers or any of their respective properties or assets, which
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against either of the Borrowers or any executive officers or
directors of the Borrowers in their capacities as such, which individually
or in
the aggregate, would reasonably be expected to have a Material Adverse
Effect.
3.13 Indebtedness
and Other Contracts.
Except
as disclosed in the SEC Documents, neither any Borrower nor any Subsidiary
(a) has any outstanding Indebtedness (as defined below in this Section
3.13), (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
the
Borrowers’ 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.
-10-
3.14 Financial
Information; SEC Documents.
The
Company has filed all reports required to be filed by it under the Exchange
Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required
by
law to file such material) (the foregoing materials, including the exhibits
thereto, being collectively referred to herein as the “SEC Documents”) on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Documents prior to the expiration of any such extension.
As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the Borrowers make
no
representation as to the information included in any SEC Documents prepared
by
third parties and included therein, and the Borrowers make no representation
as
to the accuracy of information contained in third party studies and reports
cited in the SEC Documents. Each registration statement and any amendment
thereto filed by the Company during the two years preceding the date hereof
pursuant to the Securities Act and the rules and regulations thereunder, as
of
the date such statement or amendment became effective, complied as to form
in
all material respects with the Securities Act and did not contain any untrue
statement of a material fact or omit to state any material fact required to
be
stated therein or necessary in order to make the statements made therein not
misleading; provided, however, that the Borrowers make no representation as
to
the information included in any SEC Documents prepared by third parties and
included therein, and the Borrowers make no representation as to the accuracy
of
information contained in third party studies and reports cited in the SEC
Documents; and each prospectus filed pursuant to Rule 424(b) under the
Securities Act, as of its issue date and as of the closing of any sale of
securities pursuant thereto did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Borrowers make no representation as to the information included in
any
SEC Documents prepared by third parties and included therein and the Borrowers
make no representation as to the accuracy of information contained in third
party studies and reports cited in the SEC Documents. The financial statements
of the Company included in the SEC Documents comply in all material respects
with applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved (“GAAP”), except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP and remain subject
to
year end adjustments, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods
then
ended, subject, in the case of unaudited statements, to normal year-end audit
adjustments.
3.15 Absence
of Certain Changes or Developments.
Except
as disclosed in Schedule 3.15 attached hereto or as disclosed in the SEC
Documents or as contemplated herein and in the Transaction Documents, since
December 31, 2007:
(a) there
has
been no Material Adverse Effect, and no event or circumstance has occurred
or
exists with respect to the Company or its businesses, properties, operations
or
financial condition, which, under Exchange Act, Securities Act, or rules or
regulations of any Trading Market, requires public disclosure or announcement
by
the Company but which has not been so publicly announced or
disclosed;
(b) each
Borrower has not:
-11-
(i) issued
any stock, bonds or other corporate securities or any right, options or warrants
with respect thereto, except pursuant to the exercise or conversion of
securities outstanding as of such date;
(ii) borrowed
any amount in excess of $250,000 or incurred or become subject to any other
liabilities in excess of $250,000 (absolute or contingent) except current
liabilities incurred in the ordinary course of business which are comparable
in
nature and amount to the current liabilities incurred in the ordinary course
of
business during the comparable portion of its prior fiscal year, as adjusted
to
reflect the current nature and volume of the business of the
Borrower;
(iii) discharged
or satisfied any Lien or encumbrance in excess of $250,000 or paid any
obligation or liability (absolute or contingent) in excess of $250,000, other
than current liabilities paid in the ordinary course of business and payments
of
principal and interest to Gottbetter Capital Master, Ltd. (“Gottbetter”) and
Vicis Capital Master Fund (“Vicis”);
(iv) declared
or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any agreements
so
to purchase or redeem, any shares of its capital stock, in each case in excess
of $50,000 individually or $100,000 in the aggregate;
(v) sold,
assigned or transferred any other tangible assets, or canceled any debts or
claims, in each case in excess of $250,000, except in the ordinary course of
business;
(vi) sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights in
excess of $250,000, or disclosed any proprietary confidential information to
any
person except to customers in the ordinary course of business;
(vii) suffered
any material losses or waived any rights of material value, whether or not
in
the ordinary course of business, or suffered the loss of any material amount
of
prospective business;
(viii) made
any
changes in employee compensation except in the ordinary course of business
and
consistent with past practices;
(ix) made
capital expenditures or commitments therefor that aggregate in excess of
$250,000;
(x) entered
into any material transaction, whether or not in the ordinary course of business
that has not been disclosed in the SEC Documents;
(xi) made
charitable contributions or pledges in excess of $10,000;
(xii) suffered
any material damage, destruction or casualty loss, whether or not covered by
insurance;
(xiii) experienced
any material problems with labor or management in connection with the terms
and
conditions of their employment;
(xiv) altered
its method of accounting, except to the extent required by
GAAP;
-12-
(xv) issued
any equity securities to any officer, director or affiliate (as such term is
defined in Rule 144 of the Securities Act), except pursuant to existing stock
option, equity incentive or similar incentive plans; or
(xvi) entered
into an agreement, written or otherwise, to take any of the foregoing
actions.
3.16 Solvency.
No
Borrower has taken, nor does it have any intention to take, any steps to seek
protection pursuant to any bankruptcy or similar law. No Borrower has any actual
knowledge nor has it received any written notice that its creditors intend
to
initiate involuntary bankruptcy proceedings or any actual knowledge of any
fact
that, as of the date hereof, would reasonably lead a creditor to do so. After
giving effect to the transactions contemplated hereby to occur at the Closing,
no Borrower will be Insolvent (as hereinafter defined). For purposes of this
Agreement, “Insolvent” means (i) a Borrower is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (ii) a Borrower intends to incur
or believes that it will incur debts that would be beyond its ability to pay
as
such debts mature or (iii) a Borrower 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 Off-Balance
Sheet Arrangements.
There
is no transaction, arrangement, or other relationship between a Borrower and
an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed
or
that if made or not made would be reasonably likely to have a Material Adverse
Effect.
3.18 Foreign
Corrupt Practices.
Neither
any Borrower, nor any Subsidiary, 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 for or on behalf
of
a Borrower or any of its subsidiaries (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.
3.19 Transactions
With Affiliates.
Except
as set forth in the SEC Documents, none of the officers, directors or employees
of either Borrower is presently a party to any transaction with any Borrower
or
any Subsidiary (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 the Borrowers, 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.
3.20 Insurance.
Each
Borrower and each Subsidiary are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of a Borrower believes to be prudent and customary in the businesses in which
each Borrower and each Subsidiary are engaged. Neither any Borrower nor any
Subsidiary has been refused any insurance coverage sought or applied for and
neither any Borrower nor any Subsidiary 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.
-13-
3.21 Employee
Relations.
Neither
any Borrower nor any Subsidiary is a party to any collective bargaining
agreement or employs any member of a union. No Executive Officer of a Borrower
(as defined in Rule 501(f) of the Securities Act) has notified such Borrower
that such officer intends to leave the Borrower or otherwise terminate such
officer’s employment with the Borrower. No Executive Officer of a Borrower, to
the knowledge of the Borrowers, 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, to the actual knowledge of the
Borrowers, the continued employment of each such executive officer does not
subject any Borrower or any Subsidiary to any liability with respect to any
of
the foregoing matters. Each Borrower and each Subsidiary 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.
3.22 Title.
Except
as set forth in the SEC Documents, each Borrower and each Subsidiary 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 (except
for
Permitted Liens). Any real property and facilities held under lease by any
Borrower or any Subsidiary 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
any
Borrower or any Subsidiary.
3.23 Intellectual
Property Rights.
The
Borrowers and the Subsidiaries own or possess the rights to use all patents,
trademarks, domain names (whether or not registered) and any patentable
improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations which are necessary for the conduct
of
its business as now conducted (collectively, the “Intellectual Property Rights”)
without any conflict with the rights of others, except any failures as,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect. Neither any Borrower nor any Subsidiary has received a written
notice that the Intellectual Property Rights used by any Borrower or any
Subsidiary violates or infringes upon the rights of any Person. To the knowledge
of the Borrowers, all such Intellectual Property Rights are enforceable and
there is no existing infringement by another Person of any of the Intellectual
Property Rights. The Borrowers and the Subsidiaries have taken reasonable
measures to protect the value of the Intellectual Property Rights.
3.24 Environmental
Laws.
Each
Borrower and each of the 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.
-14-
3.25 Tax
Matters.
Each
Borrower and each of the 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 each Borrower know of no basis for any
such claim.
3.26 ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act;
Internal Accounting and Disclosure Controls.
The
Company is in compliance in all material respects with the 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. The
Company maintains a system of internal accounting controls sufficient, in the
judgment of the Company’s board of directors, to provide reasonable assurance
that (i) transactions are executed in accordance with management’s general
or specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate actions are taken with respect to any
differences. The Company has established disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries and XFSC, is
made known to the certifying officers by others within those entities,
particularly during the period in which the Company’s most recently filed
periodic report under the Exchange Act, as the case may be, is being prepared.
The Company’s certifying officers have evaluated the effectiveness of the
Company’s controls and procedures as of the date prior to the filing date of the
most recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no significant changes in the Company’s internal controls (as such term is
defined in Item 307(c) of Regulation S-B under the Exchange Act) or, to the
Company’s knowledge, in other factors that could significantly affect the
Company’s internal controls. The Company maintains and will continue to maintain
a standard system of accounting established and administered in accordance
with
United States GAAP and the applicable requirements of the Exchange
Act.
3.27 Investment
Company Status.
The
Company is not, and immediately after receipt of payment for the Warrant 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 a Borrower that involves expenditures or receipts in excess of
$250,000 (each, a “Material Contract”) is in full force and effect and is valid
and enforceable in accordance with its terms. Each Borrower is and has been
in
full compliance with all applicable terms and requirements of each its Material
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 a Borrower 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 Material Contract. Each
Borrower has not given or received from any other Person any notice or other
communication (whether oral or written) regarding any actual, alleged, possible
or potential violation or breach of, or default under, any Material
Contract.
-15-
3.29 [Intentionally
Omitted].
3.30 No
Disagreements with Accountants.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Borrowers to arise, between the Borrowers and the accountants formerly
or
presently employed by the Borrowers.
3.31 Senior
Debt.
Except
as disclosed in the SEC Documents, there is no Indebtedness of a Borrower that
is senior to or ranks
pari
passu
with the
Note in right of payment, whether with respect of payment of redemptions,
interest, damages or upon liquidation or dissolution.
3.32 Manipulation
of Price.
Each
Borrower has not, and to its knowledge no one acting on its behalf has, taken,
directly or indirectly, any action designed to cause or to result or that could
reasonably be expected to cause or result, in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale
of
the Warrant.
3.33 Listing
and Maintenance Requirements.
The
Company has not, in the 12 months preceding the date hereof, received notice
from any Trading Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the listing
or
maintenance requirements of such Trading Market. The Company is in compliance
with all such maintenance requirements.
3.34 Application
of Takeover Protections.
Each
Borrower and its Board of Directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the respective Certificates
of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Lender as a result
of
the Lender and the Borrowers fulfilling their obligations or exercising their
rights under the Transaction Documents, including without limitation the
Company’s issuance of the Warrant and the Lender’s ownership of the
Warrant.
3.35 Disclosure.
All
written disclosure provided to the Lender regarding each Borrower, its business
and the transactions contemplated hereby, including the Schedules to this
Agreement, furnished by or on behalf of the Borrowers 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; provided
however, the Borrowers make no representation as to studies and reports prepared
by third parties not engaged by the Borrowers and included in the materials
delivered to Lender.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF THE PURCHASER
The
Lender hereby represents and warrants to the Borrowers as of the date of this
Agreement as follows:
4.1 Organization;
Authority.
The
Lender is an entity duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization with full right, corporate
or
partnership power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by the Lender
of
the transactions contemplated by this Agreement have been duly authorized by
all
necessary partnership or similar action on the part of the Lender. Each
Transaction Document to which it is a party has been duly executed by the
Lender, and when delivered by the Lender in accordance with the terms hereof,
will constitute the valid and legally binding obligation of the Lender,
enforceable against it in accordance with its terms, except (i) as limited
by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may
be
limited by applicable law.
-16-
4.2 Own
Account.
The
Lender understands that the Warrant is a “restricted security” and has not been
registered under the Securities Act or any applicable state securities law
and
is acquiring the Warrant as principal for its own account and not with a view
to
or for distributing or reselling such Warrant or Warrant Shares or any part
thereof except in compliance with the Securities Act, has no present intention
of distributing the Warrant or Warrant Shares and has no arrangement or
understanding with any other persons regarding the distribution of the Warrant
or Warrant Shares (this representation and warranty not limiting the Lender’s
right to sell the Warrant or Warrant Shares pursuant to a Registration Statement
(defined below) or otherwise in compliance with applicable federal and state
securities laws), except in compliance with the Securities Act. The Lender
is
acquiring the Warrant hereunder in the ordinary course of its business. The
Lender does not have any agreement or understanding, directly or indirectly,
with any Person to distribute the Warrant or Warrant Shares.
4.3 Lender
Status.
At the
time the Lender was offered the Warrant, it was, and at the date hereof it
is,
and on each date on which it exercises any warrant issued by the Company, it
will be either: (i) an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities
Act.
4.4 Experience
of Such Lender.
The
Lender, either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in
the
Warrant and the shares issuable thereunder, and has so evaluated the merits
and
risks of such investment. The Lender is able to bear the economic risk of an
investment in the Warrant and the shares issuable thereunder and, at the present
time, is able to afford a complete loss of such investment.
4.5 General
Solicitation.
The
Lender is not purchasing the Warrant as a result of any advertisement, article,
notice or other communication regarding the Warrant published in any newspaper,
magazine or similar media or broadcast over television or radio or presented
at
any seminar or any other general solicitation or general
advertisement.
4.6 No
Short Position.
Neither
the Lender nor any of its affiliates has an open short position in the Common
Stock of the Company. From and after Closing, the Lender will not use any share
of Common Stock acquired pursuant to this Agreement to cover any short position
until such time as the Registration Statement covering such share of Common
Stock has been declared effective by the Commission. For purposes of this
Agreement a “short sale” or “short position” includes, without limitation, all
“short sales” as defined in Rule 200 promulgated under Regulation SHO under the
1934 Act and all types of direct and indirect stock pledges, forward sale
contracts, options, puts, calls, swaps and similar arrangements (including
on a
total return basis), and sales and other transactions through non-US broker
dealers or foreign regulated brokers.
-17-
ARTICLE
V
CONDITIONS
TO CLOSING OF THE PURCHASER
The
obligation of the Lender to make the Loan and purchase the Warrant at the
Closing is subject to the fulfillment to the Lender’s satisfaction on or prior
to the Closing Date of each of the conditions set forth in Sections 5.1 through
5.7 below, any of which may be waived by such Lender. The obligation of the
Lender to make an advance in connection with a Subsequent Funding is subject
to
the fulfillment to the Lender’s satisfaction on or prior to the date of each
such Subsequent Funding of each of Sections 5.2 though 5.7 below, any of which
may be waived by such Lender. The release of funds from the Escrow Account
is
subject to the fulfillment to the Lender’s satisfaction on or prior to the date
of such release of each of Sections 5.2 through 5.10 below, any of which may
be
waived by such Lender.
5.1 Other
Agreements and Documents.
The
Borrowers shall have delivered the following agreements and
documents:
(a) The
Note
in the form of Exhibit
A
attached
hereto, executed by the Borrowers;
(b) The
Series J Warrant in the form of Exhibit
B
attached
hereto;
(c) The
Escrow Agreement in the form of Exhibit
C
attached
hereto;
(d) The
Security Agreement in the form of Exhibit
D
attached
hereto, executed by each Borrower;
(e) The
Guaranty Agreement in the form of Exhibit
E
attached
hereto, executed by each Subsidiary;
(f) The
Guarantor Security Agreement in the form of Exhibit
F
attached
hereto, executed by each Subsidiary;
(g) The
Registration Rights Agreement in the form of Exhibit
G
attached
hereto, executed by the Company;
(h) An
opinion of counsel to the Borrowers, dated the date of the Closing,
substantially in the form of
Exhibit H
hereto,
with such exceptions and limitations as shall be reasonably acceptable to
counsel to the Lender;
(i) The
Irrevocable Transfer Agent Instructions, substantially in the form
of Exhibit
I
attached
hereto, shall have been delivered to the Company’s transfer agent;
(j) Financing
Statements on Form UCC-1 with respect to the personal property and assets of
each Borrower and each Subsidiary as to which the Lender will hold a security
interest;
(k) A
Certificate of Good Standing from the state of incorporation of each Borrower
and each Subsidiary;
(l) A
certificate of the Secretary of each Borrower, dated as of the Closing Date,
certifying the Board resolutions approving this Agreement and the transactions
contemplated hereby and in a form acceptable to Lender;
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(m) A
certificate of each Borrower’s CEO, dated as of the Closing Date, certifying the
fulfillment of the conditions specified in Sections 5.2 and 5.3 of this
Agreement and such other matters as the Lender shall reasonably request;
and
(n) A
completed and duly executed Florida documentary stamp tax return on Form
DR-228.
5.2 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, the date of any
Subsequent Funding, and the Escrow Release Date, as applicable, with the same
force and effect as if they had been made on and as of the Closing Date, the
Subsequent Funding Date, and the Escrow Release Date, as applicable, except
to
the extent any such representation or warranty is stated to relate solely to
an
earlier date, in which case such representation or warranty shall be true and
correct on and as of such earlier date.
5.3 Performance.
All
covenants, agreements and conditions contained in this Agreement to be performed
or complied with by the Borrowers on or prior to the Closing Date, the
Subsequent Funding Date, and the Escrow Release Date, as applicable, shall
have
been performed or complied with by the Borrowers in all material
respects.
5.4 No
Impediments.
Neither
the Borrowers nor the Lender 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 Lender to exercise its full rights under the Note or full rights
of ownership of the Warrant. At the time of the Closing and the Subsequent
Funding, the Loan and purchase of the Warrant by the Lender hereunder shall
be
legally permitted by all laws and regulations to which the Lender and the
Borrowers are subject.
5.5 Trading
Markets.
The
listing or trading of the Warrant Shares on each Trading Market shall have
been
approved by such Trading Market authority.
5.6 Material
Adverse Changes; Investigation.
There
shall have been no change which would have a Material Adverse Effect on Borrower
or any Guarantor since the date of the most recent financial statements of
such
person delivered to Lender from time to time. No fact shall have been discovered
with regard to (a) a Borrower, Subsidiary or XXX or any affiliates thereof
or
(b) this transaction, which in the Lender’s determination would make the
consummation of the transactions contemplated by this Agreement not in the
Lender’s best interests.
5.7 Further
Assurances.
Borrower shall have delivered such further documentation or assurances as Lender
may reasonably require.
5.8 Claims
Purchase Agreement.
The
Borrowers shall have delivered the Claims Purchase Agreement in form and
substance reasonably satisfactory to the Lender, executed by XFSC and XXX.
The
Borrowers shall have delivered to the Lender irrevocable instructions, signed
by
Total Bank and XFSC, to deposit all claims receipts into the Claims Purchase
Account, and otherwise in form and substance reasonably satisfactory to the
Lender.
5.9 Control
Agreement.
XFSC
shall have established a segregated bank account at TotalBank in the name of
XFSC (the “Claims Purchase Account”), which shall be (a) the account owned by
XFSC identified in the Claims Purchase Agreement, (b) pledged to the Lender
as
part of the security for the Loan, and (c) governed by an account control
agreement in form and substance reasonably satisfactory to the Lender, as the
same may be amended, supplemented or otherwise modified from time to time with
the prior unanimous written consent of the parties thereto.
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5.10 Consent.
The
Borrowers shall have obtained the consent of Vicis and, if necessary, of
Gottbetter to the transactions contemplated hereby and shall have entered in
to
an agreement with Gottbetter that subordinates any security interest held by
Gottbetter to the security interests obtained by the Lender under the
Transaction Documents.
ARTICLE
VI
CONDITIONS
TO CLOSING OF THE BORROWERS
The
Borrowers’ obligations to issue the Note and the Company’s obligation to sell
the Warrant at the Closing are subject to the fulfillment to its satisfaction
on
or prior to the Closing Date of each of the following conditions:
6.1 Representations.
The
representations made by the Lender pursuant to Article IV hereof shall be
true and correct when made and shall be true and correct on the Closing
Date.
6.2 No
Impediments.
Neither
the Borrowers nor the Lender 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 the Lender to exercise full rights of ownership of the Warrant.
At
the time of the Closing, the making of the Loan and purchase of the Warrant
by
the Lender hereunder shall be legally permitted by all laws and regulations
to
which the Lender and the Borrowers are subject.
ARTICLE
VII
AFFIRMATIVE
COVENANTS
Each
of
the Borrowers hereby covenants and agrees, so long as any amounts remain
outstanding under the Note, as follows:
7.1 Maintenance
of Corporate Existence.
Each
Borrower 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, except where the failure to maintain such
corporate existence, rights, franchises, licenses and rights to use licenses,
trademarks, trade names, service marks, copyrights, patents or processes would
not (a) result in a Material Adverse Effect or (b) materially adversely affect
the rights of Lender under any Transaction Document.
7.2 Maintenance
of Properties.
Each
Borrower 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 each Borrower shall and shall its subsidiaries to at all times
comply with each material provision of all material leases to which it is a
party or under which it occupies property.
7.3 Payment
of Taxes.
Each
Borrower 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 the Borrower 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 the Borrower 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 Warrant, and
provided, further, that the Borrower 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.
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7.4 Payment
of Indebtedness.
Each
Borrower shall, and shall cause its subsidiaries to, pay or cause to be paid
when due all Indebtedness incident to the operations of the Borrower 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 the Borrower or its subsidiaries, except where
the Borrower (or its subsidiary, as the case may be) disputes the payment of
such Indebtedness in good faith by appropriate proceedings.
7.5 Reservation
of Common Stock.
The
Company shall continue to reserve, free of preemptive rights and other similar
contractual rights of stockholders, a number of its authorized but unissued
shares of Common Stock not less than one hundred percent (100%) of the aggregate
number of shares of Common Stock to effect the exercise of the
Warrant.
7.6 Maintenance
of Insurance.
Each
Borrower 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 the Borrower or its
subsidiaries, in amounts sufficient to prevent the Borrower and its subsidiaries
from becoming a co-insurer of the property insured; and the Borrower 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 the Borrower or its subsidiaries is a party or by which it is
bound.
7.7 Notice
of Adverse Change.
The
Borrowers shall promptly give notice to all holders of the Note or Warrant
(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 any Borrower or its subsidiaries under this Agreement
in any material respect;
(c) the
institution of an action, suit or proceeding against any Borrower 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, would result in a Material Adverse Effect whether
or not arising in the ordinary course of business; or
(d) any
information relating to a Borrower or any subsidiary which would reasonably
be
expected to result in a material adverse effect on its inability to perform
its
obligations of under any Transaction Document.
Any
notice given under this Section 7.7 shall specify the nature and period of
existence of the condition, event, information, development or circumstance,
the
anticipated effect thereof and what actions the Borrowers have taken and/or
proposes to take with respect thereto.
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7.8 Compliance
With Agreements.
Each
Borrower 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 the Borrower or any of its subsidiaries is a party
or by
which it or they may be bound.
7.9 Other
Agreements.
Each
Borrower shall not enter into any agreement in which the terms of such agreement
would restrict or impair the right or ability to perform of the Borrower under
any Transaction Document.
7.10 Compliance
With Laws.
Each
Borrower 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.
7.11 Protection
of Licenses, etc.
Each
Borrower shall and shall cause its subsidiaries to, maintain, defend and protect
to the best of their ability licenses and sublicenses (and to the extent the
Borrower 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, (except where the failure
to defend and protect such licenses and sublicenses would not (a) result in
a
Material Adverse Effect or (b) materially adversely affect the rights of Lender
under any Transaction Document) 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 the Borrower.
7.12 Accounts
and Records; Inspections.
(a) Each
Borrower 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 the Borrower and its subsidiaries in accordance with
GAAP applied on a consistent basis.
(b) Each
Borrower shall permit the holder(s) of the Note and the Warrant or any of such
holder’s officers, employees or representatives during regular business hours of
the Borrower, upon reasonable notice and as often as such holder may reasonably
request, to visit and inspect the offices and properties of the Borrower and
its
subsidiaries and to make extracts or copies of the books, accounts and records
of the Borrower or its subsidiaries at such holder’s expense.
(c) Nothing
contained in this Section 7.12 shall be construed to limit any rights which
a
holder of the Note or the Warrant may otherwise have with respect to the books
and records of any Borrower or its subsidiaries, to inspect its properties
or to
discuss its affairs, finances and accounts.
7.13 Maintenance
of Office.
Each
Borrower will maintain its principal office at the address of the Borrower
set
forth in Section 12.6 of this Agreement where notices, presentments and demands
in respect of this Agreement, the Note or the Warrant may be made upon the
Borrower, until such time as the Borrower shall notify the holders of the Note
and the Warrant in writing, at least thirty (30) days prior thereto, of any
change of location of such office.
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7.14 Use
of
Proceeds.
The
Borrowers shall use the proceeds received from the Loan and any amounts received
from the collection of Prescription Claims purchased under the Claims Purchase
Agreement solely for the purchase of Prescription Claims from XXX pursuant
to
the Claims Purchase Agreement under the terms and conditions set forth in
Section 1.5 of this Agreement, except that the Borrowers may (i) use the
$300,000 referred to in Section 1.3(a)(ii)(B) for any business purpose of the
Borrowers, (ii) make payments to XXX as permitted in Section 1.4 of this
Agreement, and (iii) use Permitted Withdrawals for any business purpose of
the
Borrowers.
7.15 Payments
on the Note.
The
Borrowers shall make all payments required by the Note in the time, the manner
and the form as provided in the Note.
7.16 SEC
Reporting Requirements.
For so
long as the Lender beneficially owns the Warrant, and until such time as all
Warrant Shares are saleable by the Lender without restriction as to volume
or
manner of sale under Rule 144 under the Securities Act, the Company shall timely
file all reports required to be filed with the Commission pursuant to the
Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or
the
rules and regulations thereunder would permit such termination. As long as
the
Lender owns the Warrant or Warrant Shares, the Company will prepare and furnish
to the Lender and make publicly available in accordance with Rule 144 or any
successor rule such information as is required for the Lender to sell the
Warrant or Warrant Shares under Rule 144 without regard to the volume and manner
of sale limitations. The Company further covenants that it will take such
further action as any holder of the Warrant or Warrant Shares may reasonably
request, all to the extent required from time to time to enable such Person
to
sell such Warrant or Warrant Shares without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144.
7.17 Listing
Maintenance.
The
Company hereby agrees to use best efforts to maintain the listing or trading
of
the Common Stock on a Trading Market. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Trading Market, it will
include in such application all of the Warrant Shares, and will take such other
action as is necessary to cause all of the Warrant Shares to be listed on such
other Trading Market as promptly as possible. The Company will take all action
reasonably necessary to continue the listing and trading of its Common Stock
on,
and will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of, each such Trading Market on which
the
Company’s Common Stock is listed or trades.
7.18 Disclosure
of Transaction.
The
Company shall issue a press release describing the material terms of the
transactions contemplated hereby (the “Press Release”) and shall also file with
the Commission a Current Report on Form 8-K (the “Form 8-K”) describing the
material terms of the transactions contemplated hereby (and attaching as
exhibits thereto this Agreement, the Registration Rights Agreement, the Security
Agreement, the Collateral Assignment, the Guaranty Agreements, the Guarantor
Security Agreements, the form of Warrant and the Press Release) as soon as
practicable following the Closing Date but in no event more than four (4)
Trading Days (defined below) following the Closing Date, which Press Release
and
Form 8-K shall be subject to prior review and reasonable comment by the Lender.
For purposes of this Agreement, “Trading Day” means any day during which the
principal Trading Market on which the Common Stock is listed or traded shall
be
open for trading.
7.19 Claims
Reporting.
Within
five (5) Trading Days of the end of each calendar month, or more frequently
if
the Lender reasonably so requires, the Borrowers will deliver, or cause to
be
delivered, to the Lender each of the following, each of which shall be in form
and detail acceptable to the Lender:
(a) A
calculation of the unpaid Prescription Claims, Acceptable Receivables, and
Restricted Funds set forth on a completed Borrowing Base Certificate, together
with collection reports, in each case determined as of the end of the
immediately preceding week or a more recent date and certified as true and
correct by the Chief Executive Officer of each Borrower. The Borrowers shall
also provide the information required by the immediately preceding sentence
to
the Lender, together with agings of unpaid Prescription Claims submitted for
payment, on a monthly basis within 10 days after the end of each month,
calculated as of the last day of the month most recently ended. In addition,
the
Borrowers shall provide a completed Borrowing Base Certificate to the Lender
concurrently with any Proposed Purchase.
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(b) All
reports that XFSC is entitled to access, or has received from XXX, under the
Claims Purchase Agreement dated as of the end of the immediately preceding
week
or a more recent date, including, as such reports are referenced in the Claims
Purchase Agreement, a (i) Claim Detail Report, (ii) Accounts Receivable Aging
Report,
(iii) Weekly and Monthly Payment Report, and (iv) EzMonitor Report.
7.20 Claims
Purchase Account.
XFSC
shall cause TotalBank to permit the holder(s) of the Note and the Warrant or
any
of such holder’s officers, employees or representatives to have complete, real
time, viewing access to the Claims Purchase Account at all times.
7.21 Further
Assurances.
From
time to time, each Borrower shall execute and deliver to the Lender and the
Lender shall execute and deliver to the Borrowers 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 Transaction Documents.
For
purposes of Articles VII-IX, the term “subsidiary” shall be deemed to include
each Subsidiary and any subsidiary of the Borrower acquired or formed after
the
date hereof.
ARTICLE
VIII
NEGATIVE
COVENANTS
Each
Borrower hereby covenants and agrees, so long as any amounts under the Note
remain outstanding, it will not (and not allow any subsidiary to), without
the
prior written consent of the holder(s) of the Note, directly or
indirectly:
8.1 Distributions
and Redemptions.
(i) Except with respect to the Series B Preferred Stock of the Company,
declare or pay any dividends or make any distributions to any holder(s) of
any
shares of capital stock of the Company or (ii) purchase, redeem or
otherwise acquire for value, directly or indirectly, any shares of Common Stock
of the Company or warrants or rights to acquire such Common Stock, except as
may
be required by the terms of the Series B Preferred Stock of the Company; or
(iii) purchase, redeem or otherwise acquire for value, directly or indirectly,
any shares of preferred stock of the Company or warrants or rights to acquire
such stock, except as may be required by the terms of such preferred
stock.
8.2 Reclassification.
Effect
any reclassification, combination or reverse stock split of the Common
Stock.
8.3 Liens.
Except
as 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
a Borrower 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
either Borrower or any subsidiary (each, a “Lien” and collectively, “Liens”),
except that the foregoing restrictions shall not apply to:
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(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 a
Borrower;
(c) liens
existing on the date hereof securing Indebtedness of a Borrower or any
subsidiary that are senior to liens on the same assets held by the Lender and
that are filed prior to the date hereof and disclosed in the SEC
Documents;
(d) liens
securing Indebtedness of a Borrower or any subsidiary 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 Lender;
(e) 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;
(f) 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);
(g) any
attachment or judgment lien not constituting an Event of Default;
(h) 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 a Borrower or
any
of its subsidiaries;
(i) 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;
(j) 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;
(k) 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;
(l) 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 a Borrower and its
subsidiaries;
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(m) the
security interest of XXX in the Claims Purchase Account; and
(n) the
replacement, extension or renewal of any lien permitted by this Section 8.3
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”.
8.4 Indebtedness.
Create,
incur, assume, suffer, permit to exist, or guarantee, directly or indirectly,
any Indebtedness, excluding, however, from the operation of this
covenant:
(a) Indebtedness
to the extent disclosed in the SEC Documents filed prior to the date hereof
and
otherwise existing on the date hereof;
(b) Indebtedness
which may, from time to time be incurred or guaranteed by a Borrower, which
in
the aggregate principal amount does not exceed $250,000 and is subordinate
to
the Indebtedness under this Agreement;
(c) the
endorsement of instruments for the purpose of deposit or collection in the
ordinary course of business;
(d) Indebtedness
relating to contingent obligations of a Borrower and its subsidiaries under
guaranties in the ordinary course of business of the obligations of suppliers,
customers, and licensees of a Borrower and its subsidiaries;
(e) Indebtedness
relating to loans from a Borrower to its subsidiaries;
(f) Indebtedness
relating to capital leases in an amount not to exceed $250,000;
(g) accounts
or notes payable arising out of the purchase of merchandise, supplies,
equipment, software, computer programs or services in the ordinary course of
business.
8.5 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 either Borrower or a
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.
8.6 Change
of Control Transaction.
Enter
into a Change in Control Transaction. For purposes of this Agreement, “Change in
Control Transaction” means 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 a Borrower, by contract or
otherwise) of in excess of fifty percent (50%) of the voting securities of
a
Borrower (except that the acquisition of the Warrant by the Lender shall not
constitute a Change in Control for purposes of this Section), (b) a
replacement at one time or over time of more than one-half of the members of
the
Board of a Borrower that 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 a Borrower or any subsidiary of
a Borrower in one or a series of related transactions with or into another
entity (except in connection with a merger involving a Borrower solely for
the
purpose, and with the sole effect, of reorganizing that Borrower under the
laws
of another jurisdiction; provided that the certificate of incorporation and
bylaws (or similar charter or organizational documents) of the surviving entity
are substantively identical to those of the Borrower and do not otherwise
adversely impair the rights of the Lender), or (d) the execution by a
Borrower of an agreement to which the Borrower is a party or by which it is
bound, providing for any of the events set forth above in (a), (b) or
(c).
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8.7 Amendment
of Charter Documents.
Amend
or waive any provision of the Certificate of Incorporation or Bylaws of a
Borrower in any way that materially adversely affects the rights of the Lender
without the prior written consent of the Lender.
8.8 Loans
and Advances.
Except
for loans and advances outstanding as of the Closing Date and loans and advances
to clients through XFSC, directly or indirectly, make any advance or loan to,
or
guarantee any obligation of, any Person, except for intercompany loans or
advances and those provided for in this Agreement.
8.9 Transactions
with Affiliates.
(a) Make
any
intercompany transfers from XFSC 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
a Borrower or of its subsidiaries, except on terms no less favorable to the
Borrower 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 a Borrower or
subsidiary to any other corporate or business entity.
8.10 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 a Borrower or any subsidiary, except where the entry into such new lines
of
business in the aggregate does not involve expenditures by a Borrower or its
subsidiaries in excess of $250,000 in a calendar year or the issuance of
securities in the aggregate with a value in excess of $250,000 in a calendar
year.
8.11 Investments.
Make
any investments in excess of $250,000 in a calendar year in the aggregate in,
or
purchase any stock, option, warrant, or other security or evidence of
Indebtedness of, any Person (exclusive of any subsidiary), other than (i)
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; (ii) loans made to, and
purchases of accounts receivable of, healthcare providers in the ordinary course
of business of XFSC; and (iii) loans in the aggregate amount of $999,298.98
from
the Company to PAS.
8.12 Registration
Statements.
Without
the consent of the Lender, file any registration statement with the Commission
until the earlier of: (i) 60 Trading Days following the date that a registration
statement or registration statements registering all the Warrant Shares is
declared effective by the Commission; and (ii) the date the Warrant Shares
are
saleable by Lender under Rule 144 under the Securities Act without limitation
as
to volume or manner of sale; provided that this Section shall not prohibit
the
Company from filing a registration statement on Form S-4 or other applicable
form for securities to be issued in connection with acquisitions of businesses
by a Borrower or its subsidiaries, or post effective amendments to registration
statements that were declared effective prior to the date hereof or to a
registration statement filed with the Commission on Forms S-4 or
S-8.
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8.13 Expand
the Board of Directors.
Except
as required by this Agreement, expand the size of the Board of Directors of
a
Borrower.
8.14 Restricted
Funds.
Except
as otherwise permitted by this Agreement, use, transfer or pledge the Restricted
Funds for any reason.
8.15 No
Modification of Claims Purchase Agreement.
Without
prior written consent of the Lender, which consent will not be unreasonably
withheld, conditioned or delayed, XFSC shall not materially amend or modify
the
Claims Purchase Agreement, or consent to any material amendment or modification
of the Claims Purchase Agreement.
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
a
Borrower shall default in the payment of any sums due under the Note or other
Transaction Document when the same shall become due and payable; and in each
case such default shall have continued without cure for five (5) days after
written notice (a “Default Notice”) is given to the Borrowers of such
default;
(b) if
(i) a
Borrower shall default in the performance of any of the covenants contained
in
Articles VII or VIII hereof and (x) such default shall have continued without
cure for ten (10) Trading Days after a Default Notice is given to the Borrowers
or (y) such default shall have materially adversely affected the Lender
regardless of any action taken by the Borrowers to cure such default; (ii)
a
Borrower shall default in the performance of any other agreement or covenant
contained in this Agreement or the Transaction Documents and such default shall
not have been remedied to the satisfaction of the Lender within thirty (30)
days
after a Default Notice shall have been given to the Borrowers; or (iii) a
Borrower or any Guarantor shall default in the performance of any other
obligation now or hereafter owed by Borrower or any Guarantor to Lender and
such
default is not cured within the grace period, if any, provided
therein.
(c) the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed or quoted on at least one of the
following: the OTC Bulletin Board, the American Stock Exchange, the Nasdaq
Global Market, the Nasdaq Capital Market or The New York Stock Exchange, Inc.
for a period of ten (10) consecutive Trading Days and such suspension from
listing (or listing on an alternate exchange or quotation system) is not cured
within ten (10) days after the tenth (10th) consecutive day of such suspension
from listing;
(d) the
Company’s notice to the Lender, including by way of public announcement, at any
time, of its inability to comply for any reason or its intention not to comply
with proper requests for issuance of Warrant Shares upon exercise of the
Warrant;
(e) the
Company shall fail to (i) timely deliver the shares of Common Stock upon
exercise of a Warrant by the fifth (5th) Trading Day after the date of delivery
required therefor or otherwise in accordance with the provisions of the
Transaction Documents, (ii) file a Registration Statement in accordance with
the
terms of the Registration Rights Agreement, or (iii) make the payment of any
fees and/or liquidated damages under this Agreement or any Transaction Document,
which failure in the case of items (i) and (iii) of this Section is not remedied
within five (5) Trading Days after the incurrence thereof and, solely with
respect to item (iii) above, five (5) Trading Days after the Lender delivers
a
Default Notice to the Company of the incurrence thereof;
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(f) if
any
material representation or warranty made in this Agreement, any Transaction
Document or in or any certificate delivered by a Borrower or its subsidiaries
pursuant hereto or thereto shall prove to have been incorrect in any material
respect when made;
(g) a
Borrower shall (A) default in any payment of any amount or amounts of principal
of or interest on any Indebtedness (other than the Indebtedness hereunder)
the
aggregate principal amount of which Indebtedness is in excess of $250,000 or
(B)
default in the observance or performance of any other agreement or condition
relating to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is
to
cause, or to permit the holder or holders or beneficiary or beneficiaries of
such Indebtedness to cause with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity;
(h) if
a Borrower 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;
(i) if
a
final judgment which, either alone or together with other outstanding final
judgments against a Borrower and its subsidiaries, exceeds an aggregate of
$250,000 shall be rendered against a Borrower or any subsidiary and such
judgment shall have continued undischarged or unstayed for thirty-five (35)
days
after entry thereof;
(j) a
Borrower or any subsidiary shall (i) apply for or consent to the appointment
of,
or the taking of possession by, a receiver, custodian, trustee or liquidator
of
itself or of all or a substantial part of its property or assets, (ii) make
a
general assignment for the benefit of its creditors, (iii) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect)
or
under the comparable laws of any jurisdiction (foreign or domestic), (iv) file
a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors’
rights generally, (v) acquiesce in writing to any petition filed against it
in
an involuntary case under United States Bankruptcy Code (as now or hereafter
in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
or admit in writing its inability to pay its debts (vi) issue a notice of
bankruptcy or winding down of its operations or issue a press release regarding
same, or (vii) take any action under the laws of any jurisdiction (foreign
or
domestic) analogous to any of the foregoing; or
(k) a
proceeding or case shall be commenced in respect of a Borrower or any
subsidiary, without its application or consent, in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, moratorium,
dissolution, winding up, or composition or readjustment of its debts, (ii)
the
appointment of a trustee, receiver, custodian, liquidator or the like of it
or
of all or any substantial part of its assets in connection with the liquidation
or dissolution of the Company or any of its subsidiaries or (iii) similar relief
in respect of it under any law providing for the relief of debtors, and such
proceeding or case described in clause (i), (ii) or (iii) shall continue
undismissed, or unstayed and in effect, for a period of sixty (60) days or
any
order for relief shall be entered in an involuntary case under United States
Bankruptcy Code (as now or hereafter in effect) or under the comparable laws
of
any jurisdiction (foreign or domestic) against a Borrower or any subsidiary
or
action under the laws of any jurisdiction (foreign or domestic) analogous to
any
of the foregoing shall be taken with respect to a Borrower or any subsidiary
and
shall continue undismissed, or unstayed and in effect for a period of thirty
(30) days.
-29-
9.2 Remedies.
(a) Upon
the
occurrence and continuance of an Event of Default, the Lender may at any time
(unless all defaults shall theretofore have been remedied) at its option, by
written notice or notices to the Borrowers, each effective upon dispatch,
declare the entire unpaid principal amounts then outstanding under the Note
and
other Transaction Documents, all interest accrued and unpaid under the Note
and
other Transaction Documents and all other obligations of the Borrowers to the
Lender under this Agreement or any of the other Transaction Documents to be
forthwith due and payable. Thereupon, the then outstanding principal amounts
under the Note and other Transaction Documents, all such accrued interest and
all such other obligations shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of
which
are hereby expressly waived by each Borrower, and the Lender may immediately
enforce payment of all such amounts and exercise any or all of the rights and
remedies of the Lender under this Agreement and other Transaction Documents,
including without limitation the right to resort to any or all collateral
securing any obligations under the Transaction Documents and exercise any or
all
of the rights of a secured party pursuant to the Uniform Commercial Code of
Florida and other applicable similar statutes in other jurisdictions. The remedy
conferred by this Section 9.2(a) shall not be exclusive of any other remedy
provided by any Transaction Document or now or hereafter available at law,
in
equity, by statute or otherwise.
(b) The
Lender, by written notice or notices to the Borrowers, may in its own discretion
waive an Event of Default and its consequences and rescind or annul such
declaration; provided that, no such waiver shall extend to or affect any
subsequent Event of Default or impair any right resulting
therefrom.
(c) In
case
any one or more Events of Default shall occur and be continuing, the Lender
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 in any Transaction Document or for an injunction
against a violation of any of the terms hereof or thereof, 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 amount due under the Note or other Transaction Document,
the Borrowers will pay to the Lender such further amount as shall be sufficient
to cover the cost and the expenses of collection, including, without limitation,
actual attorney’s fees, expenses and disbursements. No course of dealing and no
delay on the part of a Lender in exercising any rights shall operate as a waiver
thereof or otherwise prejudice such Lender’s rights. No right conferred hereby
or by any Transaction Document upon the Lender shall be exclusive of any other
right referred to herein or therein or now available at law in equity, by
statute or otherwise.
ARTICLE
X
CERTIFICATE
LEGENDS
10.1 Legend.
The
Warrant and the certificates representing Warrant Shares shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or “blue sky”
laws):
NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR
RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
-30-
The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates, registered in the name of
each
Lender or its respective nominee(s), for the Warrant Shares in such amounts
as
specified from time to time by the Lender to the Company upon exercise of the
Warrant in the form of Exhibit
I
attached
hereto (the “Irrevocable
Transfer Agent Instructions”).
Prior
to registration of the Warrant Shares under the Securities Act, all such
certificates shall bear the restrictive legend specified in this
Section 10.1. Certificates evidencing the Warrant Shares shall not contain
any legend (including the legend set forth in Section 10.1 hereof),
(i) while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities Act,
or
(ii) following any sale of such Warrant Shares pursuant to Rule 144, or
(iii) if such Warrant Shares are eligible for sale under Rule 144 by the
Lender without limitation as to volume or manner of sale, or (iv) if such
legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the Staff
of
the Commission). The Company shall cause its counsel to issue a legal opinion
to
the Company’s transfer agent promptly after the effective date of a registration
statement covering such Warrant Shares, if required by the Company’s transfer
agent, to effect the removal of the legend hereunder. If all or any portion
of
the Warrant is exercised at a time when there is an effective registration
statement to cover the resale of the Warrant Shares, such Warrant Shares, as
the
case may be, shall be issued free of all legends. The Company agrees that
following the effective date of the registration statement covering Warrant
Shares or at such time as such legend is no longer required under this
Section 10.1, it will, no later than five (5) Trading Days following the
delivery by the Lender to the Company or the Company’s transfer agent of a
certificate representing Warrant Shares, as the case may be, issued with a
restrictive legend (such date, the “Delivery Date”), deliver or cause to be
delivered to the Lender a certificate representing such securities that is
free
from all restrictive and other legends. The Company may not make any notation
on
its records or give instructions to any transfer agent of the Company that
enlarge the restrictions on transfer set forth in this Section. Whenever a
certificate representing the Warrant Shares is required to be issued to the
Lender without a legend, in lieu of delivering physical certificates
representing the Warrant Shares, provided the Company’s transfer agent is
participating in the Depository Trust Company (“DTC”) Fast Automated Securities
Transfer program, the Company shall use its reasonable best efforts to cause
its
transfer agent to electronically transmit the Warrant Shares to the Lender
by
crediting the account of such Lender’s Prime Broker with DTC through its Deposit
Withdrawal Agent Commission (“DWAC”) system (to the extent not inconsistent with
any provisions of this Agreement).
10.2 Liquidated
Damages.
The
Borrowers understand that a delay in the delivery of unlegended certificates
for
the Warrant Shares as set forth in Section 10.1 hereof beyond the Delivery
Date could result in economic loss to the Lender. If the Company fails to
deliver to a Lender such shares via DWAC or a certificate or certificates
pursuant to this Section hereunder by the Delivery Date, the Borrowers
shall pay to the Lender, in cash, as partial liquidated damages and not as
a
penalty, for each $500 of Warrant Shares (based on the closing price of the
Common Stock reported by the principal Trading Market on the date such
securities are submitted to the Company’s transfer agent) subject to Section
10.1, $10 per Trading Day (increasing to $15 per Trading Day five (5) Trading
Days after such damages have begun to accrue and increasing to $20 per Trading
Day ten (10) Trading Days after such damages have begun to accrue) for each
Trading Day after the Legend Removal Date until such certificate is delivered.
Nothing herein shall limit the Lender’s right to pursue actual damages for the
Company’s failure to deliver certificates representing any securities as
required by the Transaction Documents, and the Lender shall have the right
to
pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive
relief.
-31-
10.3 Sales
by the Lender.
The
Lender agrees that the removal of the restrictive legend from certificates
representing the Warrant or Warrant Shares as set forth in Section 10.1 is
predicated upon the Company’s reliance that the Lender will sell any such
securities pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an exemption
therefrom.
ARTICLE
XI
INDEMNIFICATION
11.1 Indemnification
by the Borrowers.
Each
Borrower, jointly and severally, agrees to defend, indemnify and hold harmless
the Lender and shall reimburse the Lender for, from and against each claim,
loss, liability, cost and expense (including without limitation, interest,
penalties, costs of preparation and investigation, and the actual fees,
disbursements and expenses of attorneys, accountants and other professional
advisors) (collectively, “Losses”) directly or indirectly relating to, resulting
from or arising out of (a) any untrue representation, misrepresentation, breach
of warranty or non-fulfillment of any covenant, agreement or other obligation
by
or of any Borrower contained in any Transaction Document or in any certificate,
document, or instrument delivered by a Borrower to the Lender pursuant to
Section 5.4 hereof; or (b) any action instituted against the Lender or its
affiliates, by any stockholder of the Company who is not an affiliate of the
Lender, with respect to any of the transactions contemplated by the Transaction
Documents (unless such action is based upon a breach of the Lender’s
representations, warranties or covenants under the Transaction Documents or
any
agreements or understandings the Lender may have with any such stockholder
or
any violations by the Lender of state or federal securities laws or any conduct
by the Lender which constitutes fraud, gross negligence, willful misconduct
or
malfeasance).
11.2 Indemnification
by the Lender.
Lender
shall defend, indemnify and hold harmless the Borrowers and the Subsidiaries
and
shall reimburse the Borrowers and the Subsidiaries for, from and against each
Loss 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 the Lender contained
in
any Transaction Document delivered to the Borrowers or any of its subsidiaries
pursuant thereto.
11.3 Procedure.
(a) The
indemnified party shall promptly notify the indemnifying party of any claim,
demand, action or proceeding for which indemnification will be sought under
this
Agreement; provided, that the failure of any party entitled to indemnification
hereunder to give notice as provided herein shall not relieve the indemnifying
party of its obligations under this Article XI except to the extent that the
indemnifying party is actually prejudiced by such failure to give
notice.
(b) In
case
any such action, proceeding or claim is brought against an indemnified party
in
respect of which indemnification is sought hereunder, the indemnifying party
shall be entitled to participate in and, unless in the reasonable, good-faith
judgment of the indemnified party a conflict of interest between it and the
indemnifying party exists with respect to such action, proceeding or claim
(in
which case the indemnifying party shall be responsible for the reasonable fees
and expenses of one separate counsel for the indemnified party), to assume
the
defense thereof with counsel reasonably satisfactory to the indemnified party.
If the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense (but not
control) with counsel of its choice at its sole cost and expense (except that
the indemnifying party shall remain responsible for the reasonable fees and
expenses of one separate counsel for the indemnified party in the event in
the
reasonable, good-faith judgment of the indemnified party a conflict of interest
between it and the indemnifying party exists).
-32-
(c) In
the
event that the indemnifying party advises an indemnified party that it will
contest such a claim for indemnification hereunder, or fails, within thirty
(30)
days of receipt of any indemnification notice to notify, in writing, such person
of its election to defend, settle or compromise, at its sole cost and expense,
any action, proceeding or claim (or discontinues its defense at any time after
it commences such defense), then the indemnified party may, at its option,
defend, settle or otherwise compromise or pay such action or claim. In any
event, unless and until the indemnifying party elects in writing to assume
and
does so assume the defense of any such claim, proceeding or action, the
indemnified party’s costs and expenses arising out of the defense, settlement or
compromise of any such action, claim or proceeding shall be Losses subject
to
indemnification hereunder.
(d) The
parties shall cooperate fully with each other in connection with any negotiation
or defense of any such action or claim and shall furnish to the other party
all
information reasonably available to such party which relates to such action
or
claim. Each party shall keep the other party fully apprised at all times as
to
the status of the defense or any settlement negotiations with respect
thereto.
(e) Notwithstanding
anything in this Article XI to the contrary, the indemnifying party shall not,
without the indemnified party’s prior written consent, settle or compromise any
claim or consent to entry of any judgment in respect thereof which imposes
any
future obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to
the
indemnified party of a release from all liability in respect of such claim.
The
indemnification obligations to defend the indemnified party required by this
Article XI shall be made by periodic payments of the amount thereof during
the
course of investigation or defense, as and when the Loss is incurred, so long
as
the indemnified party shall refund such moneys if it is ultimately determined
by
a court of competent jurisdiction that such party was not entitled to
indemnification. The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
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.
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 each Borrower and the
Lender.
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 Lender
may transfer or assign its some or all of its rights hereunder, including,
without limitation, sell a participation interest in the Loan, and the Borrowers
may not assign their rights or obligations hereunder without the consent of
the
Lender.
-33-
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, by facsimile, 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 with return receipt, addressed as follows:
if
to
either of the Borrowers:
▇▇▇▇
▇▇
▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
Attention:
▇▇▇▇▇▇ ▇. ▇▇▇▇, CEO
with
a
copy (which shall not constitute notice hereunder) to:
▇▇▇▇▇▇▇
▇. ▇▇▇▇, Esq.
Peckar
& ▇▇▇▇▇▇▇▇, P.C.
▇▇
▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
if
to the
Lender:
Debt
Opportunity Fund, LLLP
▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇
▇'▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Phone:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
with
a
copy to:
▇▇▇▇▇
▇.
▇▇▇▇▇, Esq.
▇▇▇▇
▇▇▇▇, P.A.
▇▇▇▇
▇.
▇▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇,
▇▇
▇▇▇▇▇
Phone:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax:
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Such
communications shall be effective immediately if delivered in person or by
confirmed facsimile, upon the date acknowledged to have been received in return
receipt, or upon the next business day if sent by overnight courier
service.
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12.7 Delays
or Omissions.
No
delay or omission to exercise any right, power or remedy accruing to the
holder(s) of the Note or Warrant upon any breach or default of a Borrower 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.
The
Borrowers shall bear their own expenses and legal fees incurred on their behalf
with respect to the negotiation, execution and consummation of the transactions
contemplated by this Agreement and shall pay all documentary stamp or similar
taxes imposed by any authority upon the transactions contemplated by this
Agreement or any Transaction Document. Without requiring any documentation
therefor, the Borrowers will reimburse the Lender $80,000 for all fees and
expenses incurred by it 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
Lender. Such reimbursement shall be paid on the Closing Date by the Lender
deducting such $80,000 from the Purchase Price as provided in Section 1.1 of
this Agreement. The Borrowers shall pay all reasonable, documented third-party
fees and expenses incurred by the Lender in connection with the enforcement
of
this Agreement or any of the other Transaction Documents, including, without
limitation, all actual reasonable attorneys’ fees and expenses.
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 IN 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.
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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 Execution.
This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of
the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original
thereof.
[Signature
Page Follows]
-36-
IN
WITNESS WHEREOF, the parties hereto have duly executed this Loan and Securities
Purchase Agreement, as of the day and year first above written.
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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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XENI
FINANCIAL SERVICES, CORP.
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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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DEBT
OPPORTUNITY FUND, LLLP,
a
Florida limited liability limited partnership
By:
Total Capital Management, LLC,
a
Florida limited liability company,
as
its General Partner
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By:
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/s/
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Name:
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Title:
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Manager
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