SECURITIES PURCHASE AGREEMENT By and Between MDWERKS, INC. and VICIS CAPITAL MASTER FUND DATED MARCH 31, 2008
Exhibit
4.1
By
and Between
and
VICIS
CAPITAL MASTER FUND
DATED
MARCH 31, 2008
This
SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated this 31st day of March,
2008, is made by and between MDWERKS, INC., a Delaware corporation (the
“Company”), and VICIS CAPITAL MASTER FUND (the “Purchaser”), a series of the
Vicis Capital Master Trust, a trust formed under the laws of the Cayman
Islands.
RECITALS
WHEREAS,
pursuant to the terms and conditions of this Agreement, the Company wishes
to
issue and sell to the Purchaser the following securities (collectively, the
“Securities”): (a) 750 shares (the “Preferred Shares”) of the Company’s
Series B Convertible Preferred Stock, par value $.001 per share (the “Series B
Preferred Stock”), with such terms, rights and preferences as are set forth in
the Amended and Restated Certificate of Designation for the Series B Preferred
Stock set forth on Exhibit
A
attached
hereto; and (b) a Series H Warrant to purchase an aggregate of 53,333,334
shares of common stock, par value $.001 per share (the “Common Stock”), of the
Company initially at an exercise price of $0.75 per share in the form attached
hereto as Exhibit
B
(the
“Series H Warrant” or the “Warrant”).
WHEREAS,
the Purchaser desires to purchase such Securities from the Company according
to
the terms hereinafter set forth.
WHEREAS,
pursuant to those certain Securities Purchase Agreements, dated
September 28, 2007, and January 18, 2008, by and among the Company, Vicis
and the purchasers named therein (“Prior Purchase Agreements”), Vicis is the
holder of: (1) 250 shares of Series B Preferred Stock; (2) Series F Warrants
(“Series F Warrants”) to purchase an aggregate of 1,875,000 shares of the
Company’s Common Stock and (3) Series G Warrants to purchase an aggregate of
1,250,000 shares of the Company’s Common Stock, (“Series G Warrants”, together
with the Series F Warrants, the “Existing Vicis Warrants”).
WHEREAS,
as inducement for Vicis ’s acquisition of securities hereunder, the Company has
agreed to amend the terms of the Certificate of Designation for the Company’s
Series B Preferred Stock, as hereinafter set forth.
WHEREAS,
Purchaser is the holder of that certain Convertible Note (the “Bridge Note”)
issued by the Company on December 3, 2007 in the principal amount of
$575,000.
WHEREAS,
by its terms, the Bridge Note and all accrued and unpaid interest thereon
(“Bridge Note Interest”) automatically converts into the Securities acquired by
Purchaser hereunder.
NOW,
THEREFORE,
the
Company and the Purchaser hereby agree as follows:
ARTICLE
I
PURCHASE
AND SALE OF THE SECURITIES
1.1 Purchase
and Sale of the Securities.
Subject
to the terms and conditions hereof and in reliance on the representations and
warranties contained herein, or made pursuant hereto, the Company will issue
and
sell to the Purchaser, and the Purchaser will purchase from the Company at
the
closing of the transactions contemplated hereby (the “Closing”), the Securities
for $7,500,000 (the “Purchase Price”) consisting of the following: (a)
$6,925,000 in cash, less the sum of (i) Bridge Note Interest in the amount
of $15,205.56, and (ii) the fee owed to Vicis pursuant to Section 12.9
hereof in the amount of $100,000 (the “Cash Payment”); and (b) the
surrender of the Bridge Note and Existing Vicis Warrants to the Company for
cancellation.
1.2 Closing.
The
Closing shall be deemed to occur at the offices of ▇▇▇▇▇▇▇ & ▇▇▇▇▇, LLP, ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, at 5:00 p.m. CDT on March 31,
2008,
or at such other place, date or time as mutually agreeable to the parties (the
“Closing Date”).
1.3 Closing
Matters.
On the
Closing Date, subject to the terms and conditions hereof, the following actions
shall be taken:
(a) The
Company, against delivery of payment of the Purchase Price in accordance with
Section 1.3(b), will deliver to the Purchaser the documents set forth in Section
5.4 hereof.
(b) The
Purchaser shall deliver to the Company the Cash Payment by wire transfer of
immediately available funds in accordance with the instructions of the
Company.
1.4 Subsequent
Financings.
(a) Other
than in connection with a Permitted Financing (defined below), for the 12-month
period following the Closing Date, the Purchaser shall have the right to
participate
pro
rata, pari passu
with
Gottbetter Capital Master, Ltd. (“Gottbetter”) based upon Gottbetter’s and
Purchaser’s respective aggregate investment amounts (including initial and
subsequent investments) in the Company’s securities set forth in Schedule 1.4(a)
hereto, collectively, up to 100% of each such subsequent financing that involves
the sale of securities of the Company and results in gross proceeds to the
Company in excess of $250,000 (each such financing, a “Subsequent
Financing”). In the event Gottbetter elects not to participate in a
Subsequent Financing, the Purchaser also shall have the right to participate
in
such Subsequent Financing to the extent and in the amount that Gottbetter does
not participate. At least 15 days prior to the making or accepting an offer
for
a Subsequent Financing, the Company shall deliver to the Purchaser a written
notice of its intention to effect a Subsequent Financing and the details of
such
Subsequent Financing (a “Subsequent Financing Notice”). The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of
such
Subsequent Financing, the amount of proceeds intended to be raised thereunder
and the Person with whom such Subsequent Financing is proposed to be effected,
and shall include, as an attachment thereto, a term sheet or similar document
relating thereto. If the Purchaser elects to participate in
the Subsequent Financing, the closing of such Subsequent Financing shall be
as
mutually agreed between the parties participating in such Subsequent Financing.
If by 6:30 p.m. (Eastern Time) on the fifteenth day after the Purchaser has
received the Subsequent Financing Notice, the Purchaser fails to notify the
Company of its election to participate or elects to participate in an amount
that is less than the total amount of the Subsequent Financing, then the Company
may effect the remaining portion of such Subsequent Financing on the terms
and
with the Persons set forth in the Subsequent Financing Notice. The Company
must provide the Purchaser with a second Subsequent Financing Notice, and the
Purchaser will again have the right of participation set forth above in this
Section 1.4(a), if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 60 days after the date of the initial
Subsequent Financing Notice.
2
(b) In
the
event that the Purchaser elects to participate in a Subsequent Financing, the
Purchaser may, at its option, on one occasion only, exchange any or all shares
of Series B Preferred Stock held by the Purchaser for securities issued in
the
Subsequent Financing at a rate of 1 Preferred Share for each $11,500 of
securities issued in the Subsequent Financing.
(c) Notwithstanding
the foregoing, Section 1.4(a) shall not apply in respect to the issuance of
the
following (each, a “Permitted Financing”): (i) shares of Common Stock or Common
Stock options, warrants or other rights to purchase Common Stock issued to
employees, officers, directors or consultants of the Company pursuant to any
stock, option, equity incentive or similar plan duly adopted by the Board of
Directors of the Company or shares of Common Stock issued upon exercise of
any
option or warrant or conversion of any convertible security issued pursuant
to
any stock, option, equity incentive or similar plan duly adopted by the Board
of
Directors of the Company, (ii) securities issued upon the exercise of or
conversion of any securities issued pursuant to this Agreement, (iii) Common
Stock issued upon the exercise or conversion of options, warrants, preferred
stock or convertible debt instruments issued and outstanding on the date of
this
Agreement; provided that, (A) such securities have not been amended since the
date of this Agreement to increase the number of such securities or underlying
Common Stock or (B) to decrease the exercise or conversion price of any such
security (except in the case of (A) and (B) pursuant to any anti-dilution or
price reset provisions or otherwise that are in effect as of the date hereof),
(iv) securities issued pursuant to acquisitions or strategic transactions,
provided any such issuance shall only be to a Person which is, itself or through
its subsidiaries, an operating company in a business synergistic with the
business of the Company and in which the Company receives benefits in addition
to the investment of funds, but shall not include an issuance or transaction
in
which the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities,
and
(v) securities issued in connection with loans made to the Company or Xeni
Financial Services, Corp. for the purpose of financing loans from the Company
or
its subsidiaries to healthcare providers as part of the business of Xeni
Financial Services, Corp.
1.5 Amendments
to Existing Vicis Securities.
(a) For
no
consideration in addition to the Purchase Price paid by Purchaser, the Company
shall: (i) amend and restate its Certificate
of Designation for the Series B Preferred Stock
in the
form set
forth
on Exhibit
A
attached
hereto.
3
ARTICLE
II
SECURITY
DOCUMENTS
2.1 Company
Security Documents.
(a) Security
Agreement.
All of
the obligations of the Company under the Preferred Shares shall be secured
by a
lien on all the personal property and assets of the Company now existing or
hereinafter acquired granted pursuant to that certain Security Agreement dated
September 28, 2007 between the Company and the Purchaser (the “Security
Agreement”). The parties acknowledge and agree that the term “Obligations”
as
defined in the Security Agreement, includes all obligations of the Company
to
the Purchaser, including without limitation, those obligations of the Company
under the Series B Preferred Stock and Transaction Documents (as defined herein
in Section 3.6). Such lien is and shall remain expressly subordinated and junior
to the liens of Gottbetter as is set forth in the Security Agreement.
(b) Guaranty.
All of
the obligations of the Company under the Preferred Shares shall be guaranteed
pursuant to those certain guaranty agreements (each, a “Guaranty Agreement” and
collectively, the “Guaranty Agreements”), each dated September 28, 2007 between
Purchaser and 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 Financial Services Corp., a
corporation organized under the laws of the State of Florida (“XFSC”), 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”).
Each
Subsidiary acknowledges and agrees that the term “Obligations”
as
defined in the applicable Guaranty Agreement, includes all obligations of the
Company to the Purchaser, including without limitation, those obligations of
the
Company under the Series B Preferred Stock and Transaction Documents.
(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 those certain guarantor
security agreements (each, a “Guarantor Security Agreement” and collectively,
the “Guarantor Security Agreements”), each dated September 28, 2007 between
Purchaser and each Subsidiary. Each Subsidiary acknowledges and agrees that
the
term “Obligations”
as
defined in the applicable Guarantor Security Agreement, includes all obligations
of the Company to the Purchaser, including without limitation, those obligations
of the Company under the Series B Preferred Stock and Transaction Documents.
The
parties further acknowledge and agree that the lien on the personal property
of
XFSC does not include the accounts receivable of XFSC as is set forth in XFSC’s
security agreement with Purchaser and that liens granted pursuant to the
Guarantor Security Agreements are and shall remain expressly subordinated and
junior to the liens of Gottbetter as further set forth in the Guarantor Security
Agreements.
4
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company hereby represents and warrants to the Purchaser as of the date of this
Agreement as follows:
3.1 Organization
and Qualification.
The
Company 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. The Company 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 Company and its 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
the
Company to perform its obligations in all material respects under the
Transaction Documents.
3.2 Subsidiaries.
The
Company has no subsidiaries other than the Subsidiaries. The Company owns,
directly or indirectly, all of the capital stock of each Subsidiary, free and
clear of any and all Liens (as defined in Section 8.3), except Permitted Liens
(as defined in Section 8.3), and all the issued and outstanding shares of
capital stock of each Subsidiary 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
the Company 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 the Company or any Subsidiary
under), nor has the Company 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.
5
(b) The
business of the Company 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 the Company or any Subsidiary),
except such that, individually or in the aggregate, the noncompliance therewith
would not have a Material Adverse Effect. The Company 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 the Company
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 Securities at Closing
as
contemplated hereby, the Company’s authorized capital stock consists of (1)
100,000,000 shares of Common Stock, par value $.001 per share, of which
12,940,065 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) 1,000 shares have been designated as Series
B
Convertible Preferred Stock, par value $0.001, of which 250 shares are
outstanding. All of such outstanding shares have been, or upon issuance will
be,
validly issued, are fully paid and nonassessable. 29,192,604 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 Securities, or as disclosed in Schedule 3.4(b) attached
hereto:
(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 the Company or any Subsidiary, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or
may
become bound to issue additional shares of capital stock of the Company 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 the Company or any Subsidiary;
6
(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 the Company or any Subsidiary in excess of $100,000
or by which the Company 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 the Company or its
Subsidiaries;
(v) there
are
no agreements or arrangements under which the Company 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 the Company or any Subsidiary that
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to redeem a security of the Company or a
Subsidiary;
(vii) there
are
no securities or instruments containing antidilution or similar provisions
that
will be triggered by the issuance of the Securities; and
(viii) the
Company does not have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement.
3.5 Issuance
of Securities.
(a) The
Securities to be issued hereunder are duly authorized and, upon payment and
issuance in accordance with the terms hereof, shall be free from all taxes,
Liens and charges with respect to the issuance thereof. As of the Closing 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 conversion of the
Preferred Shares (the “Conversion Shares”) and 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
Conversion Shares and Warrant Shares, when issued and paid for upon conversion
of the Preferred Shares and exercise of the Warrant, as the case may be, 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 Purchaser
and set forth in Article IV hereof (and assuming no change in applicable law
and
no unlawful distribution of the Securities by the Purchaser or other Persons),
the issuance by the Company to the Purchaser of the Securities is exempt from
registration under the Securities Act.
7
3.6 Authorization;
Enforcement; Validity.
The
Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement, that certain Amended and
Restated Registration Rights Agreement to be entered into between the
Company and the Purchaser on even date herewith in the form attached hereto
as
Exhibit
C
(the
“Registration Rights Agreement”), which amends and restates that certain
Registration Rights Agreement dated as of September 28, 2007 (the “Prior
Registration Rights Agreement”), as amended by that certain First Amendment to
the Registration Rights Agreement, dated January 18, 2008, the Security
Agreement, the Certificate of Designations for the Series B Preferred Stock,
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
Securities (including without limitation, the Conversion Shares and Warrant
Shares) in accordance with the terms hereof and thereof. The execution and
delivery of the Transaction Documents by the Company and the consummation by
the
Company of the transactions contemplated hereby and thereby, including, without
limitation, and the issuance of the Preferred Shares, and the Warrant, have
been
duly authorized by the Board, and no further consent or authorization is
required by the Company, the Board or its stockholders. This Agreement and
the
other Transaction Documents have been duly executed and delivered by the
Company, and constitute the legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except (i) as 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.
The
Company understands and acknowledges that its obligation to issue the Conversion
Shares and Warrant Shares upon conversion of the Preferred Shares and exercise
of the Warrant, as the case may be, 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 the Company
and the consummation by the Company of the transactions contemplated hereby
and
thereby (including, without limitation, the reservation for issuance of the
Conversion Shares and Warrant Shares) will not (i) result in a violation of
any articles or certificate of incorporation, any certificate of designations,
preferences and rights of any outstanding series of preferred stock or bylaws
of
the Company or 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 the Company 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 Company’s 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 Company 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) the filing of a registration statement pursuant to the
Registration Rights Agreement (as defined in Section 3.6),
(iii) application(s) to each Trading Market for the listing of the
Conversion Shares and Warrant Shares for trading thereon in the time and manner
required thereby, and (iv) the filing of Form D with the Commission and
such filings as are required to be made under applicable state securities
laws,
the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental or any regulatory
agency, self-regulatory organization or any other Person (as defined in Section
3.12) 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. The
Company is unaware of any facts or circumstances relating to the Company or
its
Subsidiaries which might prevent the Company 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 Purchaser, 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 Securities 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 Securities by the
Purchaser or other Persons), no registration under the Securities Act is
required for the offer and sale of the Securities by the Company to the
Purchaser 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 any of the Securities 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 any of the Securities 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 Securities; 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 Securities 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 Securities
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 Securities to be integrated with
other offerings.
9
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 the Company or any of its affiliates. The Company agrees
that it shall be responsible for the payment of any placement agent’s fees,
financial advisory fees, or brokers’ commissions (other than for Persons engaged
by the Purchaser or any of its affiliates) relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold the Purchaser
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.
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 Company, threatened against or affecting
the
Common Stock or the Company, 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
Securities or (ii) would, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. To the Company’s
knowledge, neither the Company 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 Company, threatened in writing against or involving the Company
or any of its 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 the Company or any
executive officers or directors of the Company in their capacities as such,
which individually or in the aggregate, would reasonably be expected to have
a
Material Adverse Effect.
10
3.13 Indebtedness
and Other Contracts.
Except
as disclosed in the SEC Documents (as defined in Section 3.14), neither the
Company 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 Company’s officers, has or is expected to have a Material
Adverse Effect. For purposes of this Agreement: (x) “Indebtedness” of any
Person means, without duplication (i) all indebtedness for borrowed money,
(ii) all obligations issued, undertaken or assumed as the deferred purchase
price of property or services (other than trade payables entered into in the
ordinary course of business), (iii) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and other similar
instruments, (iv) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses, (v) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect
to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in
the
event of default are limited to repossession or sale of such property),
(vi) all monetary obligations under any leasing or similar arrangement
which, in connection with generally accepted accounting principles, consistently
applied for the periods covered thereby, is classified as a capital lease,
(vii) all indebtedness referred to in clauses (i) through (vi) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, Lien, pledge, change,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable
for
the payment of such indebtedness, and (viii) all Contingent Obligations in
respect of indebtedness or obligations of others of the kinds referred to in
clauses (i) through (vii) above; (y) “Contingent Obligation” means, as
to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) “Person” means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust,
an
unincorporated organization and a government or any department or agency
thereof.
11
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 Company makes no
representation as to the information included in any SEC Documents prepared
by
third parties and included therein, and the Company makes 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 Company makes no representation as
to
the information included in any SEC Documents prepared by third parties and
included therein, and the Company makes 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 Company makes no representation as to the information included in
any
SEC Documents prepared by third parties and included therein and the Company
makes 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) the
Company has not:
(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
Company;
12
(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;
(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;
(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 Company
stock, option, equity incentive or similar incentive plans; or
13
(xvi) entered
into an agreement, written or otherwise, to take any of the foregoing
actions.
3.16 Solvency.
The
Company has not taken, nor does it have any intention to take, any steps to
seek
protection pursuant to any bankruptcy or similar law. The Company does not
have
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, the Company will not be Insolvent (as hereinafter defined). For
purposes of this Agreement, “Insolvent” means (i) the Company is unable to
pay its debts and liabilities, subordinated, contingent or otherwise, as such
debts and liabilities become absolute and matured, (ii) the Company intends
to incur or believes that it will incur debts that would be beyond its ability
to pay as such debts mature or (iii) the Company 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 the Company 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.
None of
the Company, 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 the Company 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 or as disclosed in Schedule 3.19 attached
hereto, none of the officers, directors or employees of the Company is presently
a party to any transaction with the Company 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 Company, 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.
Except
as disclosed in Schedule 3.20, the Company and each Subsidiary are insured
by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and each Subsidiary are
engaged. Neither the Company nor any Subsidiary has been refused any insurance
coverage sought or applied for and neither the Company 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.
14
3.21 Employee
Relations.
Neither
the Company nor any Subsidiary is a party to any collective bargaining agreement
or employs any member of a union. No Executive Officer of the Company (as
defined in Rule 501(f) of the Securities Act) has notified the Company that
such
officer intends to leave the Company or otherwise terminate such officer’s
employment with the Company. No Executive Officer of the Company, to the
knowledge of the Company, 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 Company, the continued
employment of each such executive officer does not subject the Company or any
Subsidiary to any liability with respect to any of the foregoing matters. The
Company 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 or Schedule 3.22, the Company 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. Any real property and facilities held under lease by the Company
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 the Company or any
Subsidiary.
3.23 Intellectual
Property Rights.
The
Company and its 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 the Company nor any Subsidiary has received a written
notice that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the knowledge
of the Company, all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights. The Company and its Subsidiaries have taken reasonable measures
to protect the value of the Intellectual Property Rights.
3.24 Environmental
Laws.
The
Company and each of its Subsidiaries (a) are in compliance with any and all
Environmental Laws (as hereinafter defined), (b) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws
to conduct their respective businesses and (c) are in compliance with all
terms and conditions of any such permit, license or approval where, in each
of
the foregoing clauses (a), (b) and (c), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term “Environmental Laws” means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
15
3.25 Tax
Matters.
The
Company and each of its Subsidiaries (a) have made or filed all federal and
state income and all other tax returns, reports and declarations required by
any
jurisdiction to which it is subject, (b) have paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (c) have set aside on its books
reasonably adequate provision for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply,
except where such failure would not have a Material Adverse Effect. There are
no
unpaid taxes in any material amount claimed to be due by the taxing authority
of
any jurisdiction, and the officers of the Company 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, 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.
16
3.27 Investment
Company Status.
The
Company is not, and immediately after receipt of payment for the Securities
will
not be, an “investment company,” an “affiliated person” of, “promoter” for or
“principal underwriter” for, or an entity “controlled” by an “investment
company,” within the meaning of the Investment Company Act.
3.28 Material
Contracts.
Each
contract of the Company 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. The Company is and has been in
full compliance with all applicable terms and requirements of each 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 the Company 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. The
Company 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.
3.29 Inventory.
All
inventory of the Company consists of a quality and quantity usable and salable
in the ordinary course of business, except for obsolete items and items of
below-standard quality, all of which have been or will be written off or written
down to net realizable value on the unaudited consolidated balance sheet of
the
Company and its Subsidiaries as of December 31, 2007. The quantities of each
type of inventory (whether raw materials, work-in-process, or finished goods)
are not excessive, but are reasonable and warranted in the present circumstances
of the Company.
3.30 No
Disagreements with Accountants.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants formerly or
presently employed by the Company.
3.31 Ranking
of Series B Preferred Stock.
No
capital stock of the Company is senior to or ranks pari
passu
with the
Series B Preferred Stock in right of payment, whether with respect of payment
of
redemptions, interest, damages or upon liquidation or dissolution or
otherwise.
3.32 Manipulation
of Price.
The
Company 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
any of the Securities.
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.
17
3.34 Application
of Takeover Protections.
The
Company 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 Company’s Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchaser as a result
of
the Purchaser and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including without limitation the
Company’s issuance of the Securities and the Purchaser’s ownership of the
Securities.
3.35 Disclosure.
All
written disclosure provided to the Purchaser regarding the Company, its business
and
the
transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of the
Company 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 Company makes no representation
as
to studies and reports prepared by third parties not engaged by the Company
and
included in the materials delivered to Purchaser.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF THE PURCHASER
The
Purchaser hereby represents and warrants to the Company as of the date of this
Agreement as follows:
4.1 Organization;
Authority.
The
Purchaser 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
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of the
Purchaser. Each Transaction Document to which it is a party has been duly
executed by the Purchaser, and when delivered by the Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding obligation
of the Purchaser, 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.
4.2 Own
Account.
The
Purchaser understands that the Securities are “restricted securities” and have
not been registered under the Securities Act or any applicable state securities
law and is acquiring the Securities as principal for its own account and not
with a view to or for distributing or reselling such Securities or any part
thereof except in compliance with the Securities Act, has no present intention
of distributing any of such Securities and has no arrangement or understanding
with any other persons regarding the distribution of such Securities (this
representation and warranty not limiting the Purchaser’s right to sell the
Securities 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 Purchaser is acquiring the Securities
hereunder in the ordinary course of its business. The Purchaser does not have
any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.
18
4.3 Purchaser
Status.
At the
time the Purchaser was offered the Securities, 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 Purchaser.
The
Purchaser, 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 Securities, and has so evaluated the merits and risks of such investment.
The Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of such
investment.
4.5 General
Solicitation.
The
Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities 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 Purchaser nor any of its affiliates has an open short position in the Common
Stock of the Company. From and after Closing, the Purchaser 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.
ARTICLE
V
CONDITIONS
TO CLOSING OF THE PURCHASER
The
obligation of the Purchaser to purchase the Securities at the Closing is subject
to the fulfillment to the Purchaser’s satisfaction on or prior to the Closing
Date of each of the following conditions, any of which may be waived by such
Purchaser:
5.1 Representations
and Warranties Correct.
The
representations and warranties in Article III hereof shall be true and correct
when made, and shall be true and correct on the Closing Date with the same
force
and effect as if they had been made on and as of the Closing Date.
19
5.2 Performance.
All
covenants, agreements and conditions contained in this Agreement to be performed
or complied with by the Company on or prior to the Closing Date shall have
been
performed or complied with by the Company in all material respects.
5.3 No
Impediments.
Neither
the Company nor the Purchaser 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 Purchaser to exercise full rights of ownership
of the Securities. At the time of the Closing, the purchase of the Securities
to
be purchased by the Purchaser hereunder shall be legally permitted by all laws
and regulations to which the Purchaser and the Company are subject.
5.4 Other
Agreements and Documents.
The
Company shall have delivered the following agreements and
documents:
(a) Certificates,
registered in the name of the Purchaser, representing the Preferred
Shares;
(b) The
Series H Warrant in the form of Exhibit
B
attached
hereto;
(c) [Intentionally
Omitted]
(d) The
Registration Rights Agreement in the form of Exhibit
C
hereto,
executed by the Company;
(e) An
opinion of counsel to the Company, dated the date of the Closing, substantially
in the form of Exhibit
D
hereto,
with such exceptions and limitations as shall be reasonably acceptable to
counsel to the Purchaser;
(f) The
Irrevocable Transfer Agent Instructions, substantially in the form of
Exhibit
E
attached
hereto, shall have been delivered to the Company’s transfer agent.
(g) To
the
extent necessary, Financing Statements on Form UCC-1 with respect to all
personal property and assets of the Company and each Subsidiary;
(h) A
Certificate of Good Standing from the state of incorporation of the Company
and
each Subsidiary;
(i) A
certificate of the Company’s CEO, dated the Closing Date, certifying
(i) the fulfillment of the conditions specified in Sections 5.1 and 5.2 of
this Agreement, (ii) the Board resolutions approving this Agreement and the
transactions contemplated hereby, and (iii) other matters as the Purchaser
shall reasonably request; and
(j) A
completed and duly executed Florida documentary stamp tax return on Form
DR-228.
20
5.5 Certificate
of Designations.
The
Company shall have filed the Amended and Restated Certificate of Designations
for the Series B Preferred Stock in the form attached hereto as Exhibit
A
with the
Delaware Secretary of State.
5.6 Trading
Markets.
The
listing or trading of the Conversion Shares and Warrant Shares on each Trading
Market shall have been approved by such Trading Market authority.
5.7 Gottbetter
Consent.
The
Company shall have obtained the consent of Gottbetter to the transactions
contemplated hereby.
5.8 Lock
Up and Leak Out Agreements.
The
persons set forth on Schedule
5.8
shall
have executed and delivered to Purchaser a Lock-Up Leak-Out Agreement with
respect to the Common Stock of the Company owned by them in a form reasonably
satisfactory to the Purchaser.
5.9 Due
Diligence Investigation.
No fact
shall have been discovered, whether or not reflected in the Schedules hereto,
which in the Purchaser’s determination would make the consummation of the
transactions contemplated by this Agreement not in the Purchaser’s best
interests.
ARTICLE
VI
CONDITIONS
TO CLOSING OF THE COMPANY
The
Company’s obligation to sell the Securities at the Closing is 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 Purchaser 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 Company nor the Purchaser 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 Purchaser to exercise full rights of ownership
of the Securities. At the time of the Closing, the purchase of the Securities
to
be purchased by the Purchaser hereunder shall be legally permitted by all laws
and regulations to which the Purchaser and the Company are subject.
6.3 Cancellation
of Existing Vicis Warrants.
The
Purchaser shall have surrendered for cancellation the Existing Vicis
Warrants.
21
ARTICLE
VII
AFFIRMATIVE
COVENANTS
The
Company hereby covenants and agrees, so long as any Preferred Share remains
outstanding, as follows:
7.1 Maintenance
of Corporate Existence.
The
Company 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 Purchaser under any Transaction Document.
7.2 Maintenance
of Properties.
The
Company 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 the Company 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.
The
Company 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 Company 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 Company or its subsidiaries shall have set aside on its
books adequate reserves with respect thereto, and the failure to pay shall
not
be prejudicial in any material respect to the holders of the Securities, and
provided, further, that the Company or its subsidiaries will pay or cause to
be
paid any such tax, assessment, charge or levy forthwith upon the commencement
of
proceedings to foreclose any Lien which may have attached as security therefor.
7.4 Payment
of Indebtedness.
The
Company shall, and shall cause its subsidiaries to, pay or cause to be paid
when
due all Indebtedness incident to the operations of the Company 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 Company or its subsidiaries, except where
the
Company (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 conversion of the Preferred
Shares and one hundred percent (100%) of the aggregate number of shares of
Common Stock to effect the exercise of the Warrant.
22
7.6 Maintenance
of Insurance.
The
Company 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 Company or its
subsidiaries, in amounts sufficient to prevent the Company and its subsidiaries
from becoming a co-insurer of the property insured; and the Company 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 Company or its subsidiaries is a party or by which it is
bound.
7.7 Notice
of Adverse Change.
The
Company shall promptly give notice to all holders of any Securities (but in
any
event within seven (7) days) after becoming aware of the existence of any
condition or event which constitutes, or the occurrence of, any of the
following:
(a) any
Event
of Default (as hereinafter defined);
(b) any
other
event of noncompliance by the Company or its subsidiaries under this Agreement
in any material respect;
(c) the
institution of an action, suit or proceeding against the Company 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 the Company 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 Company has taken and/or
proposes to take with respect thereto.
7.8 Compliance
With Agreements.
The
Company 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 Company or any of its subsidiaries is a party or
by
which it or they may be bound.
7.9 Other
Agreements.
The
Company 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 Company under
any Transaction Document.
23
7.10 Compliance
With Laws.
The
Company 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.
The
Company 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
Company 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
Purchaser 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 Company.
7.12 Accounts
and Records; Inspections.
(a) The
Company 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 Company and its subsidiaries in accordance with
GAAP
applied on a consistent basis.
(b) The
Company shall permit each holder of any Securities or any of such holder’s
officers, employees or representatives during regular business hours of the
Company, upon reasonable notice and as often as such holder may reasonably
request, to visit and inspect the offices and properties of the Company and
its
subsidiaries and to make extracts or copies of the books, accounts and records
of the Company 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 any Securities may otherwise have with respect to the books and
records of the Company and its subsidiaries, to inspect its properties or to
discuss its affairs, finances and accounts.
7.13 Maintenance
of Office.
The
Company will maintain its principal office at the address of the Company set
forth in Section 12.6 of this Agreement where notices, presentments and demands
in respect of this Agreement and any of the Securities may be made upon the
Company, until such time as the Company shall notify the holders of the
Securities in writing, at least thirty (30) days prior thereto, of any change
of
location of such office.
7.14 Use
of
Proceeds.
The
Company shall use all the proceeds received from the sale of the Securities
pursuant to this Agreement solely for the purpose of working capital; the
Company will not use such proceeds for the purpose of paying Indebtedness for
borrowed money except for principal and interest payments, when due, owed to
Gottbetter pursuant to promissory notes issued on October 19 and November 9,
2006, respectively, in the aggregate principal amount of $5,000,000.
24
7.15 Payment
of the Preferred Share Dividends.
The
Company shall pay the dividends on, and redeem, the Preferred Shares, in the
time, the manner and the form as provided in the Certificate of Designation
for
the Series B Preferred Stock.
7.16 SEC
Reporting Requirements.
For so
long as the Purchaser beneficially owns any of the Securities, and until such
time as all the Conversion Shares and Warrant Shares are saleable by the
Purchaser 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 Purchaser owns Securities,
Conversion Shares or Warrant Shares, the Company will prepare and furnish to
the
Purchaser and make publicly available in accordance with Rule 144 or any
successor rule such information as is required for the Purchaser to sell the
Securities 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 Securities, Conversion Shares or Warrant Shares may reasonably
request, all to the extent required from time to time to enable such Person
to
sell such Securities, Conversion Shares 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 Conversion Shares and Warrant Shares,
and
will take such other action as is necessary to cause all of the Conversion
Shares and 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 Guaranty Agreements, the Guarantor Security Agreements, each
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 Purchaser. 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 Further
Assurances.
From
time to time the Company shall execute and deliver to the Purchaser and the
Purchaser shall execute and deliver to the Company such other instruments,
certificates, agreements and documents and take such other action and do all
other things as may be reasonably requested by the other party in order to
implement or effectuate the terms and provisions of this Agreement and any
of
the Securities.
25
7.20 Implementation
of Series B Preferred Shareholders’ Rights to Elect Directors.
Promptly
after Closing, the Company shall take the following actions:
(a) amend
its
bylaws and take such other action at any such time as necessary to implement
the
rights of holders of Series B Preferred Stock to nominate and elect two (2)
members of the board of directors as set forth in the Certificate of Designation
for the Series B Preferred Stock beginning with the first meeting of the
shareholders of the Company following Closing; and
(b) expand
the current size of the board by two (2) members and appoint persons, who will
be designated by the Purchaser, to fill the newly-created vacancies; provided
that, the Company shall not be obligated to appoint a designee if (i) the
nomination of such designee would violate rules, regulations or other standards
of the Commission or the Trading Market, or (ii) the designee does not meet
the Company’s written director qualification standards.
7.21 Authorization
of and Reservation of Additional Shares of Common Stock.
Promptly after Closing, the Company shall use its commercially reasonably best
efforts to: (a) file an amendment to its certificate of incorporation to
increase the number of authorized shares of the Company’s Common Stock available
for issuance in order to reserve for issuance of the Conversion Shares
a
number
of its authorized but unissued shares of Common Stock equal to one hundred
twenty-five percent (125%) of the aggregate number of shares of Common Stock
to
effect the conversion of the Preferred Shares; and (b) take
all action necessary to reserve out of the newly-authorized Common Stock for
issuance of the Conversion Shares a
number
of its authorized but unissued shares of Common Stock equal to one hundred
twenty-five percent (125%) of the aggregate number of shares of Common Stock
to
effect the conversion of the Preferred Shares
For
purposes of Articles VII-IX, the term “subsidiary” shall be deemed to include
each Subsidiary and any subsidiary of the Company acquired or formed after
the
date hereof.
ARTICLE
VIII
NEGATIVE
COVENANTS
The
Company hereby covenants and agrees, so long as more than 12.5% of the aggregate
amount of authorized shares of Series B Preferred Stock remain outstanding
(or
such amount as adjusted for stock splits, recapitalizations and similar
transactions), it will not (and not allow any subsidiary to), without the prior
written consent of the holder(s) of more than 50% of number of shares of Series
B Preferred Stock outstanding (the “Majority Holders”), directly or indirectly:
8.1 Distributions
and Redemptions.
(i) Except with respect to the Series B Preferred Stock, 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;
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.
26
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
the Company 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 the Company or any subsidiary (each, a “Lien” and collectively,
“Liens”), except that the foregoing restrictions shall not apply
to:
(a) liens
for
taxes, assessments and other governmental charges, if payment thereof shall
not
at the time be required to be made, and provided such reserve as shall be
required by generally accepted accounting principles consistently applied shall
have been made therefor;
(b) liens
of
workmen, materialmen, vendors, suppliers, mechanics, carriers, warehouseman
and
landlords or other like liens, incurred in the ordinary course of business
for
sums not then due or being contested in good faith, if an adverse decision
in
which contest would not materially affect the business of the
Company;
(c) liens
existing on the date hereof securing Indebtedness of the Company or any
subsidiary that are senior to liens on the same assets held by the Purchaser
and
that are filed prior to the date hereof and disclosed in Schedule 3.22
hereto;
(d) liens
securing Indebtedness of the Company 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 Purchaser;
(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;
27
(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 the Company 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 the Company and its subsidiaries;
(m) 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; and
(n) Liens
on
accounts receivable, security interests, loan documents, reserve accounts and
the proceeds thereof of the Company and its subsidiaries securing obligations
under any Permitted Financing Indebtedness (defined below); provided that such
Liens are: (i) placed on assets of the Company and its subsidiaries not securing
obligations of the Company to Purchaser under the Transaction Documents; or
(ii)
expressly subordinated to the Liens on the assets of the Company and its
subsidiaries granted to Purchaser under the Transaction Documents.
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 the Company which
in
the aggregate principal amount does not exceed $250,000 and is subordinate
to
the Indebtedness under this Agreement;
28
(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 the Company and its subsidiaries under
guaranties in the ordinary course of business of the obligations of suppliers,
customers, and licensees of the Company and its subsidiaries;
(e) Indebtedness
relating to loans from the Company 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;
(h) Indebtedness
of XFSC to Northern Healthcare LLC or its affiliates in connection with a
revolving credit facility not to exceed $2.5 million to be used by XFSC to
provide financing to certain clients of Medical Solutions Management, Inc.;
or
(i) Indebtedness
of the Company and its subsidiaries to a third party relating to a credit
facility or similar financing arrangement not to exceed $25 million between
such
third party and XFSC.
The
foregoing Indebtedness described in subsections (h) – (i) above shall be
referred to as “Permitted Financing Indebtedness”.
8.5 Capital
Stock.
Except
for issuances to the Purchaser, issue any equity security that is senior to
or
ranks pari
passu
with the
Series B Preferred Stock, whether with respect to right of payment of
redemptions, interest, damages or upon liquidation or dissolution or
otherwise.
8.6 Liquidation
or Sale.
Sell,
transfer, lease or otherwise dispose of 10% or more of its consolidated assets
(as shown on the most recent financial statements of the Company or the
subsidiary, as the case may be) in any single transaction or series of related
transactions (other than the sale of inventory in the ordinary course of
business), or liquidate, dissolve, recapitalize or reorganize in any form of
transaction.
8.7 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
the
Company, by contract or otherwise) of in excess of fifty percent (50%) of the
voting securities of the Company (except that the acquisition of Securities
by
the Purchaser 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 the Company which is not approved by a majority
of those individuals who are members of the Board on the date hereof (or by
those individuals who are serving as members of the Board on any date whose
nomination to the Board was approved by a majority of the members of the Board
who are members on the date hereof), (c) the merger or consolidation of the
Company or any subsidiary of the Company in one or a series of related
transactions with or into another entity (except in connection with a merger
involving the Company solely for the purpose, and with the sole effect, of
reorganizing the Company 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 Company and do not otherwise adversely impair the rights of the
Purchaser), or (d) the execution by the Company of an agreement to which
the Company is a party or by which it is bound, providing for any of the events
set forth above in (a), (b) or (c).
29
8.8 Amendment
of Charter Documents.
Amend
or waive any provision of the Certificate of Incorporation or Bylaws of the
Company in any way that materially adversely affects the rights of the Purchaser
without the prior written consent of the Purchaser.
8.9 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. Notwithstanding anything
to
the contrary contained herein, Purchaser hereby consents, pursuant to the terms
of this Agreement to the following loans made by the Company to Patient Access
Solutions, Inc. (“PAS”), each of which is evidenced by a secured promissory
note:
|
Principal
Amount
|
Date
|
||
|
$
|
25,000
|
September
30, 2007
|
|
|
$
|
25,000
|
October
15, 2007
|
|
|
$
|
16,667
|
October
30, 2007
|
|
|
$
|
16,667
|
November
15, 2007
|
|
|
$
|
16,667
|
November
30, 2007
|
|
|
$
|
16,667
|
December
15, 2007
|
|
|
$
|
16,667
|
December
31, 2007
|
|
8.10 Transactions
with Affiliates.
(a) Make
any
intercompany transfers to 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
the Company or of its subsidiaries, except on terms no less favorable to the
Company 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 the Company or
subsidiary to any other corporate or business entity.
30
8.11 Other
Business.
Enter
into or engage, directly or indirectly, in any business other than the business
currently conducted or proposed to be conducted as of the date of this Agreement
by the Company or any subsidiary, except where the entry into such new lines
of
business in the aggregate does not involve expenditures by the Company 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.
8.12 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 $133,335 from
the
Company to PAS.
8.13 Registration
Statements.
Without
the consent of the Purchaser, 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 Conversion
Shares and Warrant Shares is declared effective by the Commission; and (ii)
the
date the Conversion Shares and Warrant Shares are saleable by Purchaser 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 from for securities
to be
issued in connection with acquisitions of businesses by the Company 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.
8.14 Expand
the Board of Directors.
Except
as required by this Agreement, expand the size of the Board of Directors of
the
Company.
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
the
Company shall default in the payment of any dividend on or redemption of any
Preferred Share when the same shall become due and payable; and in each case
such default shall have continued without cure for five (5) Trading Days after
written notice (a “Default Notice”) is given to the Company of such
default;
(b) if
the
Company shall default in the performance of any of the covenants contained
in
Articles VII or VIII hereof and (i) such default shall have continued without
cure for ten (10) Trading Days after a Default Notice is given to the Company
or
(ii) such default shall have materially adversely affected the Purchaser
regardless of any action taken by the Company to cure such default;
(c) [Intentionally
Omitted]
31
(d) 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;
(e) the
Company’s notice to the Purchaser, 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 Conversion Shares upon conversion
of
Preferred Shares or issuance of Warrant Shares upon exercise of the Warrant;
(f) the
Company shall fail to (i) timely deliver the shares of Common Stock upon
conversion of the Preferred Shares or 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 Purchaser delivers a Default Notice to the Company of
the
incurrence thereof;
(g) [Intentionally
Omitted]
(h) if
the
Company shall default in the performance of any other material agreement or
covenant contained in this Agreement or the Transaction Documents and such
default shall not have been remedied to the satisfaction of the Purchaser within
thirty-five (35) days after a Default Notice shall have been given to the
Company;
(i) if
any
material representation or warranty made in this Agreement, any Transaction
Document or in or any certificate delivered by the Company or its subsidiaries
pursuant hereto or thereto shall prove to have been incorrect in any material
respect when made;
(j) the
Company 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;
(k) if
any of
the Company 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;
32
(l) if
a
final judgment which, either alone or together with other outstanding final
judgments against the Company and its subsidiaries, exceeds an aggregate of
$250,000 shall be rendered against the Company or any subsidiary and such
judgment shall have continued undischarged or unstayed for thirty-five (35)
days
after entry thereof; or
(m) the
Company 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
(n) a
proceeding or case shall be commenced in respect of the Company or any of its
subsidiaries, 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 the Company or any of its
subsidiaries or action under the laws of any jurisdiction (foreign or domestic)
analogous to any of the foregoing shall be taken with respect to the Company
or
any of its subsidiaries and shall continue undismissed, or unstayed and in
effect for a period of thirty (30) days; or.
9.2 Remedies.
(a) Upon
the
occurrence and continuance of an Event of Default, the Purchaser may at any
time
(unless all defaults shall theretofore have been remedied) at its option, by
written notice or notices to the Company require the Company to immediately
redeem in cash all or a portion of the Preferred Shares held by the Purchaser
at
a price per share equal to one hundred twenty-five percent (125%) of the Stated
Value of the Series B Preferred Stock plus all accrued and unpaid dividends
thereon at the time of such request. 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
Purchaser, by written notice or notices to the Company, 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.
33
(c) In
case
any one or more Events of Default shall occur and be continuing, the Purchaser
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 dividend on or redemption of any Preferred Share,
the Company will pay to the Purchaser 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 Purchaser in exercising any rights shall operate as
a
waiver thereof or otherwise prejudice such Purchaser’s rights. No right
conferred hereby or by any Transaction Document upon the Purchaser 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.
Each
certificate representing the Securities 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.
34
The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates, registered in the name of
each
Purchaser or its respective nominee(s), for the Conversion Shares and the
Warrant Shares in such amounts as specified from time to time by each Purchaser
to the Company upon conversion of the Preferred Shares or exercise of the
Warrant in the form of Exhibit
I
attached
hereto (the “Irrevocable
Transfer Agent Instructions”).
Prior
to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in this Section 10.1. Certificates evidencing the Conversion
Shares and 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
Conversion Shares or Warrant Shares pursuant to Rule 144, or (iii) if such
Conversion Shares or Warrant Shares are eligible for sale under Rule 144 by
the
Purchaser 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 Conversions Shares or 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 Preferred Shares or a Warrant is exercised at a time
when
there is an effective registration statement to cover the resale of the
Conversion Shares or the Warrant Shares, such Conversions Shares and 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
Conversion Shares or 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 Purchaser to the Company or the Company’s
transfer agent of a certificate representing Conversion Shares or 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 Purchaser 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
Conversion Shares or Warrant Shares is required to be issued to the Purchaser
without a legend, in lieu of delivering physical certificates representing
the
Conversion Shares or 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 Conversion Shares or Warrant
Shares to the Purchaser by crediting the account of such Purchaser’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
Company understands that a delay in the delivery of unlegended certificates
for
the Conversion Shares or the Warrant Shares as set forth in Section 10.1
hereof beyond the Delivery Date could result in economic loss to the Purchaser.
If the Company fails to deliver to a Purchaser such shares via DWAC or a
certificate or certificates pursuant to this Section hereunder by the
Delivery Date, the Company shall pay to the Purchaser, in cash,
as
partial liquidated damages and not as a penalty, for each $500 of Conversion
Shares or 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 Purchaser’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 Purchaser 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.
35
10.3 Sales
by the Purchaser.
The
Purchaser agrees that the removal of the restrictive legend from certificates
representing Securities as set forth in Section 10.1 is predicated upon the
Company’s reliance that the Purchaser will sell any 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 Company.
The
Company agrees to defend, indemnify and hold harmless the Purchaser and shall
reimburse the Purchaser 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 the
Company contained in any Transaction Document or
in any
certificate, document, or instrument delivered
by the
Company
to the
Purchaser pursuant to Section 5.4(i) hereof;
or (b)
any action instituted against the Purchaser or its affiliates, by any
stockholder of the Company who is not an affiliate of the Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of the Purchaser’s representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings the Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by the Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance).
11.2 Indemnification
by the Purchaser.
Purchaser shall defend, indemnify and hold harmless the Company and its
subsidiaries and shall reimburse the Company and its 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
Purchaser contained in any Transaction Document delivered to the Company 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.
36
(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).
(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. The 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.
37
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 the Company and the Purchaser.
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
Purchaser may assign its rights hereunder, and the Company may not assign its
rights or obligations hereunder without the consent of the Purchaser.
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:
38
if
to the
Company:
▇▇▇▇
▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
Attention:
▇▇▇▇▇▇ ▇. ▇▇▇▇, CEO
with
a
copy to:
▇▇▇▇▇▇▇
▇. ▇▇▇▇, Esq.
Peckar
& ▇▇▇▇▇▇▇▇, P.C.
▇▇
▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
if
to the
Purchaser:
Vicis
Capital Master Fund
▇▇▇▇▇
▇▇,
▇▇▇▇▇ ▇▇▇
▇▇▇
▇.
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇ ▇▇▇▇▇
Phone:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
Attn:
▇▇▇▇ ▇▇▇▇▇▇▇▇
with
a
copy to:
▇▇▇▇▇▇
▇.
▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇
& ▇▇▇▇▇ LLP
▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Phone:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
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.
12.7 Delays
or Omissions.
No
delay or omission to exercise any right, power or remedy accruing to any holder
of any Securities upon any breach or default of the Company 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.
39
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
Company shall bear its own expenses and legal fees incurred on its behalf with
respect to the negotiation, execution and consummation of the transactions
contemplated by this Agreement and 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 Company will reimburse the Purchaser
$100,000 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 Purchaser. Such reimbursement shall be paid on the Closing
Date
by the Purchaser deducting such $100,000 from the Purchase Price. The
Company shall pay all reasonable, documented third-party fees and expenses
incurred by the Purchaser 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 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.
40
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]
41
IN
WITNESS WHEREOF, the parties hereto have duly executed this Securities Purchase
Agreement, as of the day and year first above written.
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COMPANY:
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By:
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/s/
▇▇▇▇▇▇ ▇. ▇▇▇▇
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▇▇▇▇▇▇
▇. ▇▇▇▇, Chief Executive Officer
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| PURCHASER: | |
| VICIS CAPITAL MASTER FUND | |
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By: Vicis
Capital LLC
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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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Managing
Director
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EXHIBIT
A
FORM
OF AMENDED AND RESTATED CERTIFICATE OF DESIGNATIONS OF
SERIES
B CONVERTIBLE PREFERRED STOCK
EXHIBIT
B
FORM
OF SERIES H WARRANT
EXHIBIT
C
FORM
OF AMENDED AND RESTATED REGISTRATION RIGHTS
AGREEMENT
EXHIBIT
D
FORM
OF OPINION OF COUNSEL
EXHIBIT
E
FORM
OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
as
of
March __, 2008
[Name
and
address of Transfer Agent]
Attn:
_____________
Ladies
and Gentlemen:
Reference
is made to that certain Securities Purchase Agreement (the “Purchase
Agreement”), dated March __, 2008, by and between MDwerks, Inc., a Delaware
corporation (the “Company”), and the purchaser named therein (the “Purchasers”)
pursuant to which the Company is issuing to the Purchasers shares of its Series
B Preferred Stock, par value $0.001 per share (the “Preferred Shares”),
convertible into shares of the Company’s common stock, par value $0.001 per
share (the “Common Stock”) and warrants (the “Warrants”) to purchase shares of
the Company’s Common Stock. This letter shall serve as our irrevocable
authorization and direction to you (provided that you are the transfer agent
of
the Company at such time) to issue shares of Common Stock upon conversion of
the
Preferred Shares (the “Conversion Shares”) and exercise of the Warrants (the
“Warrant Shares”) to or upon the order of a Purchaser from time to time upon
(i) surrender to you of a properly completed and duly executed Conversion
Notice or Exercise Notice, as the case may be, in the form attached hereto
as
Exhibit I and Exhibit II, respectively, (ii) in the case of the conversion
of Preferred Shares, a copy of the certificate representing the Preferred Shares
(with the original delivered to the Company) representing the Preferred Shares
being converted or, in the case of Warrants being exercised, a copy of the
Warrants (with the original Warrants delivered to the Company) being exercised
(or, in each case, an indemnification undertaking with respect to such Preferred
Shares or the Warrants in the case of their loss, theft or destruction), and
(iii) delivery of a treasury order or other appropriate order duly executed
by a duly authorized officer of the Company. So long as you have previously
received written confirmation from counsel to the Company that a registration
statement covering resales of the Conversion Shares or Warrant Shares, as
applicable, has been declared effective by the Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933
Act”), and you have not received any subsequent notice by the Company or its
counsel of the suspension or termination of the effectiveness of such
registration statement, then certificates representing the Conversion Shares
and
the Warrant Shares, as the case may be, shall not bear any legend restricting
transfer of the Conversion Shares and the Warrant Shares, as the case may be,
thereby and should not be subject to any stop-transfer restriction; provided,
however, that if you have not previously received written confirmation from
counsel to the Company that a registration statement covering resales of the
Conversion Shares or Warrant Shares, as applicable, has been declared effective
by the SEC under the 1933 Act, then the certificates for the Conversion Shares
and the Warrant Shares shall bear the following legend:
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.
A
form of
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares and the Warrant Shares has been
declared effective by the SEC under the 1933 Act is attached hereto as Exhibit
III.
Please
be
advised that the Purchasers are relying upon this letter as an inducement to
enter into the Purchase Agreement, and, accordingly, each Purchaser is a third
party beneficiary to these instructions.
Please
execute this letter in the space indicated to acknowledge your agreement to
act
in accordance with these instructions. Should you have any questions concerning
this matter, please contact me at ___________.
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Very
truly yours,
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By:
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Name:
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Title:
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ACKNOWLEDGED
AND AGREED:
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[TRANSFER
AGENT]
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By:
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Name:
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Title:
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Date:
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EXHIBIT
I
FORM
OF CONVERSION NOTICE
Reference
is made to the Certificate of Designations Designating the Series B Preferred
Stock of MDwerks, Inc. (the “Certificate
of Designations”).
In
accordance with and pursuant to the Certificate of Designations, the undersigned
hereby elects to convert the number of shares of Series B Preferred Stock,
par
value $.001 per share (the “Preferred
Shares”),
of
MDwerks, Inc., a Delaware corporation (the “Company”),
indicated below into shares of Common Stock, par value $.001 per share (the
“Common
Stock”),
of
the Company, by tendering the stock certificate(s) representing the share(s)
of
Preferred Shares specified below as of the date specified below.
Date to effect conversion: _______________________________________________________________________________
Number of shares of Preferred Stock owned prior to conversion: ___________________________________________________
Number of shares of Preferred Stock to be converted: ___________________________________________________________
Stated Value of shares of Preferred Stock to be converted: _______________________________________________________________________
Applicable Conversion Price: _____________________________________________________________________________________________
Number of shares of Common Stock to be issued: ______________________________________________________________________________
Number of shares of Preferred Stock owned subsequent to conversion: ______________________________________________________________
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[HOLDER]
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By:
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Name:
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Title:
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EXHIBIT
II
MDWERKS,
INC.
FORM
OF EXERCISE NOTICE
The
undersigned holder hereby exercises the right to purchase _________________
of
the shares of Common Stock (“Warrant
Shares”)
of
MDwerks, Inc., a Delaware corporation (the “Company”),
evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.
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Dated:
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Signature
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|||
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Address
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||||
Number
of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the date of Exercise: _________________________
The
undersigned intends that payment of the Warrant Price shall be made as (check
one or both):
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Cash
Exercise
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_______
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Cashless
Exercise
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_______
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In
the
event that the holder has elected a Cash Exercise with respect to some or all
of
the Warrant Shares to be issued pursuant hereto, the holder shall pay the
Aggregate Exercise Price in the sum of $___________________ to the Company
in
accordance with the terms of the Warrant.
If
the
Holder has elected a Cashless Exercise, a certificate shall be issued to the
Holder for the number of shares equal to the whole number portion of the product
of the calculation set forth below, which
is .
The
Company shall pay a cash adjustment in respect of the fractional portion of
the
product of the calculation set forth below in an amount equal to the product
of
the fractional portion of such product and the Closing Sale Price of the shares
of Common Stock (as reported by Bloomberg) on the date prior to exercise, which
product is ____________________.
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Net Number =
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(A
x B) - (A x C)
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B
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For
purposes of the foregoing formula:
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A
=
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the
total number of shares with respect to which this Warrant is then
being
exercised.
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B
=
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the
Closing Sale Price of the shares of Common Stock (as reported by
Bloomberg) on the date immediately preceding the date of the Exercise
Notice.
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C
=
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the
Exercise Price then in effect for the applicable Warrant Shares at
the
time of such exercise.
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ASSIGNMENT
FOR
VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and
does
irrevocably constitute and appoint _____________, attorney, to transfer the
said
Warrant on the books of the within named corporation.
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Dated:
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Signature
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|||
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Address
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||||
PARTIAL
ASSIGNMENT
FOR
VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ Warrant Shares evidenced
by
the within Warrant together with all rights therein, and does irrevocably
constitute and appoint ___________________, attorney, to transfer that part
of
the said Warrant on the books of the within named
corporation.
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Dated:
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Signature
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|||
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Address
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||||
FOR
USE
BY THE ISSUER ONLY:
This
Warrant No. W-___ canceled (or transferred or exchanged) this _____ day of
___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock
in
the name of _______________.
EXHIBIT
III
FORM
OF NOTICE OF EFFECTIVENESS
OF
REGISTRATION STATEMENT
[Name
and
address of Transfer Agent]
Attn:
_____________
Re: MDwerks,
Inc.
Ladies
and Gentlemen:
We
are
special counsel to MDwerks, a Delaware corporation (the “Company”),
and
have represented the Company in connection with that certain Securities Purchase
Agreement (the “Purchase
Agreement”),
dated
as of March __, 2008, by and among the Company and the purchasers named therein
(collectively, the “Purchasers”)
pursuant to which the Company issued to the Purchasers secured convertible
promissory notes (the “Notes”)
and
warrants (the “Warrants”)
to
purchase shares of the Company’s common stock, par value $0.001 per share (the
“Common
Stock”).
Pursuant to the Purchase Agreement, the Company has also entered into a
Registration Rights Agreement with the Purchasers (the “Registration
Rights Agreement”),
dated
as of March __, 2008, pursuant to which the Company agreed, among other things,
to register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of
the
Notes and exercise of the Warrants, under the Securities Act of 1933, as amended
(the “1933
Act”).
In
connection with the Company’s obligations under the Registration Rights
Agreement, on ________________, 2008, the Company filed a Registration Statement
on Form S-1 (File No. 333-________) (the “Registration
Statement”)
with
the Securities and Exchange Commission (the “SEC”)
relating to the resale of the Registrable Securities which names each of the
present Purchasers as a selling stockholder thereunder.
In
connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER
TIME OF EFFECTIVENESS]
on
[ENTER
DATE OF EFFECTIVENESS]
and we
have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that
any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC
and
accordingly, the Registrable Securities are available for resale under the
1933
Act pursuant to the Registration Statement.
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[LIST
NAMES OF PURCHASERS]
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