SECURITIES PURCHASE AGREEMENT By and Between MDWERKS, INC. and VICIS CAPITAL MASTER FUND DATED SEPTEMBER 28, 2007
By
and Between
and
VICIS
CAPITAL MASTER FUND
DATED
SEPTEMBER 28, 2007
This
SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated this 28th day of
September, 2007, 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) 200 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 Certificate of Designations for the Series B Preferred Stock set forth
on
Exhibit
A
attached
hereto; (b) a newly-designated Series F Warrant to purchase an aggregate of
1,500,000 shares of common stock, par value $.001 per share (the “Common
Stock”), of the Company initially at an exercise price of $2.25 per share in the
form attached hereto as Exhibit
B
(the
“Series F Warrant”); and (c) a newly-designated Series G Warrant to
purchase an aggregate of 1,000,000 shares of Common Stock initially at an
exercise price of $2.50 per share in the form attached hereto as Exhibit
C
(the
“Series G Warrant”, and together with the Series F Warrant, the
“Warrants”).
WHEREAS,
the Purchaser desires to purchase such Securities from the Company according
to
the terms hereinafter set forth.
WHEREAS,
Purchaser is the holder of that certain Convertible Note (the "Bridge Note")
issued by the Company on August 31, 2007 in the principal amount of
$250,000.
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 the $2,000,000 (the “Purchase Price”) consisting of the following: (a)
$1,750,000 in cash, less the sum of (i) documentary stamp taxes imposed
upon the Transaction Documents in the amount of $7,000, (ii) Bridge Note
Interest in the amount of $1555, and (iii) the fee owed to Vicis pursuant to
Section 12.9 hereof in the amount of $50,000 (the “Cash Payment”); and
(b) the surrender of the Bridge Note 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 September
28,
2007, 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
and surrender of the Bridge Note to the Company for cancellation.
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 the Gottbetter’s and
Purchaser’s total subscription amounts for 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 (the “Subsequent
Financing”). In the event Gottbetter elects not to participate in such
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,
the Person with whom such Subsequent Financing is proposed to be effected,
and
attached to which shall be 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. 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 to 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.
(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
Preferred Shares 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.
2
(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 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 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,
(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., (vi) the issuance to Gottbetter of a Series D Warrant of the
Company to purchase 500,000 shares of stock of the Company at an exercise price
of $2.25 per share as consideration for Gottbetter granting certain waivers
and
consent to the transaction contemplated hereby,
and
(vii) the
amendments to that certain Series E Warrant of the Company issued to Gottbetter
as a result of the transactions contemplated hereby to
reduce
the exercise price of such warrant to $2.25 per share and increase the number
of
shares of Common Stock for which such warrants may be exercised to 541,666
and
2/3 shares.
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 a security agreement dated of even
date
herewith between the Company and the Purchaser in the form attached hereto
as
Exhibit
D
(“Security Agreement”). Such lien shall be expressly subordinated and junior to
the liens of Gottbetter.
(b) Guaranty.
All of
the obligations of the Company under the Preferred Shares shall be guaranteed
pursuant to a guaranty agreement in the form attached hereto as Exhibit
E
(“Guaranty Agreement”) by each of the following subsidiaries of the Company
(each a “Subsidiary and collectively, the “Subsidiaries”): MDwerks
Global Holdings, Inc., a corporation, organized under the laws of the State
of
Florida (“MGHI”), Xeni Medical Systems, Inc., a corporation organized under the
laws of the State of Delaware (“XMSI”), Xeni 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”).
3
(c) Guarantor
Security Documents.
All of
the obligations of each Subsidiary under its Guaranty Agreement shall be secured
by a lien on all the personal property and assets of such Subsidiary now
existing or hereinafter acquired granted pursuant to a guarantor security
agreement dated of even date herewith between such Subsidiary and the Purchaser
in the form attached hereto as Exhibit
F
(“Guarantor Security Agreement”); provided,
however,
that
lien on the personal property of XFSC shall not include the accounts receivable
of XFSC as shall be set forth in XFSC’s security agreement with Purchaser; and
provided,
further,
that
such liens shall be expressly subordinated and junior to the liens of
Gottbetter.
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 (as hereinafter defined).
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 (defined below), except Permitted Liens (defined
below), 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.
4
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.
(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 (A)
12,940,065 shares are outstanding, (B) 10,923,984 shares 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, and (2) 10,000,000 shares of preferred
stock, par value $.001 per share, of which 1,000 shares of Series A Convertible
Preferred Stock are authorized and 2 shares Series A Preferred Stock are
outstanding. All of such outstanding shares have been, or upon issuance will
be,
validly issued, are fully paid and nonassessable.
5
(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;
(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.
6
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 twenty-five percent (125%)
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
Warrants (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 Warrants, 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.
3.6 Authorization;
Enforcement; Validity.
The
Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement, the Registration Rights Agreement
between the Company and the Purchaser, dated as of the date hereof, in the
form
of Exhibit
G
attached
hereto (the “Registration Rights Agreement”) the Security Agreement, the
Certificate of Designations for the Preferred Shares, and the Warrants, and
each
of the other agreements or instruments entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the “Transaction Documents”) and to issue the Securities (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 Warrants, 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.
7
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 Warrants, 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.
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 hereinafter defined),
(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 hereinafter
defined) in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case, in accordance
with the terms hereof or thereof. 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.
8
3.11 Placement
Agent’s Fees.
Except
as set forth on Schedule 3.11, 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) 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 Section 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.
9
3.13 Indebtedness
and Other Contracts.
Except
as disclosed in the SEC Documents (as hereinafter defined), neither the Company
nor any Subsidiary (a) has any outstanding Indebtedness (as defined below),
(b) is a party to any contract, agreement or instrument, the violation of
which, or default under, by any other party to such contract, agreement or
instrument would result in a Material Adverse Effect, (c) is in violation
of any term of or in default under any contract, agreement or instrument
relating to any Indebtedness, except where such violations and defaults would
not result, individually or in the aggregate, in a Material Adverse Effect,
or
(d) is a party to any contract, agreement or instrument relating to any
Indebtedness, the performance of which, in the judgment of 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.
10
3.14 Financial
Information; SEC Documents.
The
Company has filed all reports required to be filed by it under the Exchange
Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required
by
law to file such material) (the foregoing materials, including the exhibits
thereto, being collectively referred to herein as the “SEC Documents”) on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Documents prior to the expiration of any such extension.
As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the 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.
11
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, 2006:
(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;
(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;
12
(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;
(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
(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 present fair saleable
value of the Company’s assets is less than the amount required to pay the
Company’s total Indebtedness, contingent or otherwise, (ii) the Company is
unable to pay its debts and liabilities, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured, (iii) 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 (iv) 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.
13
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.
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.
14
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.
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.
15
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 June 30, 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.
16
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.
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.
17
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.
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 Warrants, 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.
18
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.
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 any 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 F Warrant in the form of Exhibit
B
attached
hereto;
(c) The
Series G Warrant in the form of Exhibit
C
attached
hereto;
(d) The
Security Agreement in the form of Exhibit
D
hereto,
executed by the Company;
19
(e) The
Guaranty Agreement in the form of Exhibit
E
attached
hereto executed by each Subsidiary;
(f) The
Guarantor Security Agreement in the form of Exhibit
F
attached
hereto, executed by each Subsidiary;
(g) The
Registration Rights Agreement in the form of Exhibit
G
hereto,
executed by the Company;
(h) An
opinion of counsel to the Company, dated the date of the Closing, substantially
in the form of Exhibit
H
hereto,
with such exceptions and limitations as shall be reasonably acceptable to
counsel to the Purchaser;
(i) The
Irrevocable Transfer Agent Instructions, in the form of Exhibit
I
attached
hereto, shall have been delivered to the Company’s transfer agent.
(j) Financing
Statements on Form UCC-1 with respect to all personal property and assets of
the
Company and each Subsidiary;
(k) A
Certificate of Good Standing from the state of incorporation of the Company
and
each Subsidiary;
(l) 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.
5.5 Certificate
of Designations.
The
Company shall have filed the 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 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.
20
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.
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.
21
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 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 one hundred percent (100%) of the aggregate number of
shares of Common Stock to effect the exercise of the Warrants.
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.
22
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.
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 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 and payment
of the following Indebtedness (but not for the prepayment of Indebtedness);
provided that, the Company will not use such proceeds for the purpose of paying
Indebtedness for borrowed money, except for such Indebtedness for borrowed
money
set forth in Schedule 7.14 hereto.
23
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 Designations
for
the Series B Preferred Stock.
7.16 SEC
Reporting Requirements.
For so
long as a Purchaser beneficially owns any of the Securities, and until such
time
as all the Securities are saleable by the Purchaser under Rule 144(k) 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 any Purchaser owns Securities, the Company
will prepare and furnish to the Purchaser and make publicly available in
accordance with Rule 144(c) or any successor rule such information as is
required for the Purchaser to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to
time
to enable such Person to sell such Securities 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.
24
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 25 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.
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;
25
(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;
(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.
26
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;
(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 $10 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.
27
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 of Control Transaction for purposes hereof), (b) a
replacement at one time or over time of more than one-half of the members of
the
Board of 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).
8.8 Amendment
of Charter Documents.
The
Company shall not 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.
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.
28
(c) Divert
(or permit anyone to divert) any business or opportunity of the Company or
subsidiary to any other corporate or business entity.
8.11 Other
Business.
Enter
into or engage, directly or indirectly, in any business other than the business
currently conducted or proposed to be conducted as of the date of this Agreement
by 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 and (ii) loans made to,
and
purchases of accounts receivable of, healthcare providers in the ordinary course
of business of XFSC.
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 Warrant
Shares is declared effective by the Commission; and (ii) the date the Warrant
Shares are saleable under Rule 144(k) under the Securities Act; 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.
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) subject
to any grace periods and the ability of the Company to delay the effectiveness
of the Registration Statement pursuant the Registration Rights Agreement, any
registration statement (each a “Registration Statement”) providing for the
resale of Conversion Shares and Warrant Shares is not declared effective by
the
Commission on or prior to the date which is thirty (30) days after the date
required therefor by the Registration Rights Agreement, unless the failure
of
such Registration Statement to become effective results from the Commission’s
refusal to grant effectiveness by reason of its application of Rule 415 under
the Securities Act;
29
(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 Warrants;
(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) while
a
Registration Statement is required to be maintained effective pursuant to the
terms of the Registration Rights Agreement, the effectiveness of the
Registration Statement lapses for any reason (including, without limitation,
the
issuance of a stop order) or is unavailable to the Purchaser for sale of the
Registrable Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and such lapse
or unavailability continues for a period of ten (10) consecutive Trading Days,
provided that the Company has not exercised its rights pursuant to Section
3(n)
of the Registration Rights Agreement;
(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;
30
(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;
(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.
31
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.
(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.
32
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
Warrants 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 5.1. Certificates evidencing the Conversion
Shares and Warrant Shares shall not contain any legend (including the legend
set
forth in Section 5.1 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(k),
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 5.1, 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).
33
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 5.1
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.
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), (j), or (l) 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).
34
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.
(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.
35
(e) Notwithstanding
anything in this Article VI to the contrary, the indemnifying party shall not,
without the indemnified party’s prior written consent, settle or compromise any
claim or consent to entry of any judgment in respect thereof which imposes
any
future obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to
the
indemnified party of a release from all liability in respect of such claim.
The
indemnification obligations to defend the indemnified party required by this
Article XI shall be made by periodic payments of the amount thereof during
the
course of investigation or defense, as and when the Loss is incurred, so long
as
the indemnified party shall refund such moneys if it is ultimately determined
by
a court of competent jurisdiction that such party was not entitled to
indemnification. The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE
XII
MISCELLANEOUS
12.1 Governing
Law.
This
Agreement and the rights of the parties hereunder shall be governed in all
respects by the laws of the State of New York wherein the terms of this
Agreement were negotiated.
12.2 Survival.
Except
as specifically provided herein, the representations, warranties, covenants
and
agreements made herein shall survive the Closing.
12.3 Amendment.
This
Agreement may not be amended, discharged or terminated (or any provision hereof
waived) without the written consent of 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:
if
to the
Company:
▇▇▇▇
▇▇
▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
Attention:
▇▇▇▇▇▇ ▇. ▇▇▇▇, CEO
36
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.
37
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 $50,000 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 $50,000 from the Purchase Price. The Company shall pay all
reasonable 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 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.
38
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]
39
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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/s/
▇▇▇▇▇▇ ▇. ▇▇▇▇
|
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|
Name:
▇▇▇▇▇▇ ▇. ▇▇▇▇
Title:
Chief Executive Officer
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PURCHASER:
VICIS
CAPITAL MASTER FUND
By:
Vicis Capital LLC
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|
/s/
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
|
||
|
Name:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title:
Chief Financial Officer
|
||
EXHIBIT
A
FORM
OF CERTIFICATE OF DESIGNATIONS OF
SERIES
B CONVERTIBLE PREFERRED STOCK
EXHIBIT
B
FORM
OF SERIES F WARRANTS
EXHIBIT
C
FORM
OF SERIES G WARRANTS
EXHIBIT
D
FORM
OF SECURITY AGREEMENT
EXHIBIT
E
FORM
OF GUARANTY AGREEMENT
EXHIBIT
F
FORM
OF GUARANTOR SECURITY AGREEMENT
EXHIBIT
G
FORM
OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT
H
FORM
OF OPINION OF COUNSEL
EXHIBIT
I
FORM
OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
as
of
September __, 2007
[Name
and
address of Transfer Agent]
Attn:
_____________
Ladies
and Gentlemen:
Reference
is made to that certain Securities Purchase Agreement (the “Purchase
Agreement”), dated as of September 28, 2007, by and among MDwerks, Inc., a
Delaware corporation (the “Company”), and the purchasers named therein
(collectively, 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 no subsequent notice by the Company or its counsel of the
suspension or termination of its effectiveness, 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 ___________.
|
Very
truly yours,
|
||
| |
|
|
| By: | ||
|
Name:
_____________________________
|
||
|
Title:
_____________________________
|
||
ACKNOWLEDGED
AND AGREED:
[TRANSFER
AGENT]
By:
____________________________________
Name:
____________________________________
Title:
____________________________________
Date:
____________________________________
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:
____________________
[HOLDER]
| By: | |||
|
Name:
Title:
|
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.
|
Dated:
_________________
|
Signature
______________________________
|
|
|
Address ______________________________
_________________________
_________________________
|
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):
Cash
Exercise
_______
Cashless
Exercise _______
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 __________________.
Net
Number
= (A
x B) -
(A x C)
____________
B
For
purposes of the foregoing formula:
|
A
=
|
the
total number of shares with respect to which this Warrant is then
being
exercised.
|
|
B
=
|
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.
|
|
C
=
|
the
Exercise Price then in effect for the applicable Warrant Shares at
the
time of such exercise.
|
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.
|
Dated:
_________________
|
Signature
______________________________
|
|
|
Address ______________________________
_________________________
_________________________
|
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.
|
Dated:
_________________
|
Signature
______________________________
|
|
|
Address ______________________________
_________________________
_________________________
|
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 September 28, 2007, 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 September 28, 2007, 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 ________________, 2007, the Company filed a Registration Statement
on Form SB-2 (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.
|
Very
truly yours,
[COMPANY
COUNSEL]
|
||
| |
|
|
| By: | ||
|
|
||
cc: [LIST
NAMES OF PURCHASERS]
Schedule
1.4(a)—Subscription Amounts
|
Investor
|
Subscription
Amount
|
|||
|
Gottbetter
Capital Master, Ltd.
|
$
|
5,000,000
|
||
|
Vicis
Capital Master Fund
|
$
|
2,000,000
|
||
By
and
Between MDwerks, Inc. and Vicis Capital Master Fund
September
28, 2007
Schedule
3.4(b)(i)
Section
4(o)(iii) of the Securities Purchase Agreement, dated October 19, 2006, between
Gottbetter Capital Master, Ltd. and the Company contains a right of first
refusal in favor of Gottbetter Capital Master, Ltd. with respect to issuances
of
securities by the Company.
Schedule
3.4(b)(ii)
MDwerks,
Inc.
Fully
Diluted Capital Table
As
of 9/26/07
|
Issued
&
|
|||||||
|
Issued
&
|
Outstanding
|
||||||
|
Outstanding
|
w/
Reserve
|
||||||
|
Common
Stock
|
12,940,065
|
12,940,065
|
|||||
|
Preferred
Series A (Common Stock Equivalent)
|
40,000
|
40,000
|
|||||
|
Warrants*
|
3,066,345
|
4,003,845
|
|||||
|
Options
|
3,031,250
|
3,031,250
|
|||||
|
Debt
Conversions (Gottbetter)*
|
2,222,222
|
3,888,889
|
|||||
|
Totals
|
21,299,882
|
23,904,049
|
|||||
|
*Gottbetter
Warrants and Debt Conversion reserved at 175% (included
above)
|
||||||||||
|
Warrants
|
1,250,000
|
2,187,500
|
||||||||
|
Debt
Conversions
|
2,222,222
|
3,888,889
|
||||||||
Schedule
3.4(b)(ii)
MDwerks,
Inc.
Warrants
As
of 9/26/07
|
Warrant
|
|||||||||||||
|
Warrant
Grant
|
Shares
|
Expiration
|
|||||||||||
|
Date
|
Value
|
Granted
|
Date
|
||||||||||
|
MDwerks,
Inc.
|
|||||||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
5,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
8,800
|
11/16/08
|
||||||||
|
▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇/▇▇▇▇▇ ▇▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
20,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇▇
▇'▇▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
40,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇▇
▇. ▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
100,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇ Rev. Trust
|
11/16/05
|
$
|
2.50
|
20,000
|
11/16/08
|
||||||||
|
▇▇.
▇▇▇▇▇▇ ▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
||||||||
|
▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇/▇▇▇▇▇ ▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
||||||||
|
JTP
Holdings, LLC
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
40,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
30,000
|
11/16/08
|
||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
||||||||
|
SCG
Capital LLC
|
11/16/05
|
$
|
2.50
|
120,000
|
11/16/08
|
||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
20,000
|
11/16/08
|
||||||||
|
▇▇▇
▇▇▇▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
20,000
|
11/16/08
|
||||||||
|
▇▇▇▇
▇▇▇▇▇▇
|
11/16/05
|
$
|
2.50
|
20,000
|
11/16/08
|
||||||||
|
RAJ
Inv
|
3/22/06
|
$
|
3.00
|
20,000
|
3/22/09
|
||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
3/22/06
|
$
|
3.00
|
40,000
|
3/22/09
|
||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
3/22/06
|
$
|
3.00
|
20,000
|
3/22/09
|
||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇
|
3/22/06
|
$
|
3.00
|
20,000
|
3/22/09
|
||||||||
|
▇▇▇▇▇▇▇▇▇▇
Placement fee
|
6/28/06
|
$
|
1.50
|
10,000
|
6/27/11
|
||||||||
|
▇▇▇▇▇
▇▇▇▇▇
|
4/20/06
|
$
|
3.00
|
40,000
|
4/20/09
|
||||||||
|
Rion
Needs
|
4/20/06
|
$
|
3.00
|
20,000
|
4/20/09
|
||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇
|
5/4/06
|
$
|
3.00
|
20,000
|
5/4/09
|
||||||||
|
▇▇▇
▇▇▇▇▇▇▇
|
5/4/06
|
$
|
3.00
|
20,000
|
5/4/09
|
||||||||
|
▇▇▇
Sparieino
|
5/4/06
|
$
|
3.00
|
20,000
|
5/4/09
|
||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇
|
5/12/06
|
$
|
3.00
|
16,666
|
5/12/09
|
||||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇
|
5/12/06
|
$
|
3.00
|
20,000
|
5/12/09
|
||||||||
|
▇▇▇▇▇
& ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
|
5/12/06
|
$
|
3.00
|
8,333
|
5/12/09
|
||||||||
|
PHD
Investements
|
5/15/06
|
$
|
3.00
|
50,000
|
5/15/09
|
||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
5/15/06
|
$
|
3.00
|
8,334
|
5/15/09
|
||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
5/18/06
|
$
|
3.00
|
16,667
|
5/18/09
|
||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
|
5/18/06
|
$
|
3.00
|
8,334
|
5/18/09
|
||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇
|
5/18/06
|
$
|
3.00
|
20,000
|
5/18/09
|
||||||||
|
GH
Medical PSP
|
5/22/06
|
$
|
3.00
|
25,000
|
5/22/09
|
||||||||
Schedule
3.4(b)(ii)
MDwerks,
Inc.
Warrants
As
of 9/26/07
|
Warrant
|
|||||||||||||
|
Warrant
Grant
|
Shares
|
Expiration
|
|||||||||||
|
Date
|
Value
|
Granted
|
Date
|
||||||||||
| MDwerks, Inc. | |||||||||||||
|
▇▇▇
& ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
|
5/22/06
|
$
|
3.00
|
20,000
|
5/22/09
|
||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
5/22/06
|
$
|
3.00
|
10,000
|
5/22/09
|
||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
6/6/06
|
$
|
3.00
|
20,000
|
6/6/09
|
||||||||
|
▇▇▇▇▇
▇▇▇▇ Revocable
|
6/6/06
|
$
|
3.00
|
10,000
|
6/6/09
|
||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇/▇▇▇▇▇▇ Fortunate
|
6/6/06
|
$
|
3.00
|
10,000
|
6/6/09
|
||||||||
|
▇▇▇▇▇
& ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
|
6/6/06
|
$
|
3.00
|
8,333
|
6/6/09
|
||||||||
|
▇▇▇▇▇
▇▇▇▇
|
6/6/06
|
$
|
3.00
|
25,000
|
6/6/09
|
||||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
6/6/06
|
$
|
3.00
|
20,000
|
6/6/09
|
||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇
|
6/29/06
|
$
|
3.00
|
30,000
|
6/29/09
|
||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
6/29/06
|
$
|
3.00
|
10,000
|
6/29/09
|
||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇/▇▇▇▇▇▇ Fortunate
|
6/29/06
|
$
|
3.00
|
10,000
|
6/29/09
|
||||||||
|
Arrowhead
Consultants, Inc
|
11/16/05
|
$
|
2.50
|
59,800
|
11/16/08
|
||||||||
|
▇▇▇▇▇▇▇▇▇▇
Securities Corp.
|
11/16/05
|
$
|
1.25
|
64,000
|
11/16/10
|
||||||||
|
▇▇▇▇▇▇▇▇▇▇
Securities Corp.
|
11/16/05
|
$
|
2.50
|
6,800
|
11/16/08
|
||||||||
|
▇▇▇▇▇▇▇▇▇▇
Placement fee
|
6/28/06
|
$
|
1.50
|
46,667
|
6/27/11
|
||||||||
|
Noteholders
|
7/5/06
|
$
|
1.25
|
90,000
|
7/4/10
|
||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇
|
8/24/06
|
$
|
2.25
|
111,111
|
8/24/09
|
||||||||
|
▇▇▇▇
▇▇▇▇▇
|
10/18/06
|
$
|
1.25
|
30,000
|
10/18/09
|
||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇
|
10/18/06
|
$
|
1.25
|
15,000
|
10/18/09
|
||||||||
|
Gottbetter
|
10/19/06
|
$
|
2.25
|
187,500
|
10/19/11
|
||||||||
|
Gottbetter
|
10/19/06
|
$
|
3.25
|
187,500
|
10/19/11
|
||||||||
|
Gottbetter
|
11/9/06
|
$
|
2.25
|
187,500
|
11/9/11
|
||||||||
|
Gottbetter
|
11/9/06
|
$
|
3.25
|
187,500
|
11/9/11
|
||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇
|
10/18/06
|
$
|
3.76
|
175,000
|
10/18/09
|
||||||||
|
▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
10/18/06
|
$
|
3.76
|
10,000
|
10/18/09
|
||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
10/18/06
|
$
|
3.76
|
15,000
|
10/18/09
|
||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
10/18/06
|
$
|
3.76
|
25,000
|
10/18/09
|
||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇
|
10/18/06
|
$
|
4.00
|
2,500
|
10/18/09
|
||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
10/18/06
|
$
|
4.00
|
2,500
|
10/18/09
|
||||||||
|
Sierra
Equity Group
|
10/18/06
|
$
|
3.00
|
12,500
|
10/18/09
|
||||||||
|
Gottbetter
Series D Warrants
|
9/27/07
|
$
|
2.25
|
500,000
|
9/27/12
|
||||||||
|
|
|||||||||||||
|
Total
Warrants
|
3,066,345
|
||||||||||||
Schedule
3.4(b)(ii)
MDwerks,
Inc.
2005
Incentinve Compensation Plan Report
As
of 9/26/07
|
Shares
Granted
|
|||||||||||||||||||||||||
|
Incentive
|
Non-Qual
|
||||||||||||||||||||||||
|
Option
Grant
|
Stock
|
Stock
|
Exercise
Date and %
|
||||||||||||||||||||||
|
Date
|
Value
|
Option
|
Option
|
Total
|
33.3%
|
33.3%
|
33.4%
|
||||||||||||||||||
|
MDwerks,
Inc.
|
|||||||||||||||||||||||||
|
▇▇▇▇▇▇
▇▇▇▇
|
12/29/05
|
$
|
3.25
|
25,000
|
0
|
25,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
▇▇▇▇▇▇
▇▇▇▇
|
1/3/06
|
$
|
3.40
|
25,000
|
0
|
25,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
H&D
▇▇▇▇ as TEN ENT
|
1/3/06
|
$
|
3.40
|
0
|
400,000
|
400,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
▇▇▇▇▇▇
▇▇▇▇
|
6/19/06
|
$
|
4.00
|
3,750
|
0
|
3,750
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
H&D
▇▇▇▇ TEN ENT
|
6/19/06
|
$
|
4.00
|
0
|
246,250
|
246,250
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
H&D
▇▇▇▇ TEN ENT
|
10/11/06
|
$
|
2.25
|
0
|
500,000
|
500,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
H&D
▇▇▇▇ TEN ENT
|
12/27/06
|
$
|
1.39
|
0
|
50,000
|
50,000
|
12/27/06
|
12/27/06
|
12/27/06
|
||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
12/29/05
|
$
|
3.25
|
25,000
|
0
|
25,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
1/3/06
|
$
|
3.40
|
25,000
|
0
|
25,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
S&V
▇▇▇▇▇▇ TEN ENT
|
1/3/06
|
$
|
3.40
|
0
|
275,000
|
275,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
6/19/06
|
$
|
4.00
|
3,750
|
0
|
3,750
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
S&V
▇▇▇▇▇▇ TEN ENT
|
6/19/06
|
$
|
4.00
|
0
|
71,250
|
71,250
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
S&V
▇▇▇▇▇▇ TEN ENT
|
10/11/06
|
$
|
2.25
|
0
|
100,000
|
100,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
12/29/05
|
$
|
3.25
|
25,000
|
0
|
25,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
1/3/06
|
$
|
3.40
|
25,000
|
0
|
25,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
V&M
▇▇▇▇▇▇▇▇▇ TEN ENT
|
1/3/06
|
$
|
3.40
|
0
|
100,000
|
100,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
6/19/06
|
$
|
4.00
|
3,750
|
0
|
3,750
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
V&M
▇▇▇▇▇▇▇▇▇ TEN ENT
|
6/19/06
|
$
|
4.00
|
0
|
71,250
|
71,250
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
V&M
▇▇▇▇▇▇▇▇▇ TEN ENT
|
10/11/06
|
$
|
2.25
|
0
|
75,000
|
75,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
V&M
▇▇▇▇▇▇▇▇▇ TEN ENT
|
12/27/06
|
$
|
1.39
|
0
|
15,000
|
15,000
|
12/27/06
|
12/27/06
|
12/27/06
|
||||||||||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
12/29/05
|
$
|
3.25
|
25,000
|
0
|
25,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
1/3/06
|
$
|
3.40
|
5,000
|
0
|
5,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
6/19/06
|
$
|
4.00
|
20,750
|
0
|
20,750
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
6/19/06
|
$
|
4.00
|
0
|
4,250
|
4,250
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
10/11/06
|
$
|
2.25
|
0
|
25,000
|
25,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇
|
12/29/05
|
$
|
3.25
|
25,000
|
0
|
25,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇
|
1/3/06
|
$
|
3.40
|
5,000
|
0
|
5,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇
|
6/19/06
|
$
|
4.00
|
20,750
|
0
|
20,750
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇
|
6/19/06
|
$
|
4.00
|
0
|
4,250
|
4,250
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇
|
10/11/06
|
$
|
2.25
|
0
|
25,000
|
25,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
▇▇▇▇▇▇▇
▇▇▇▇▇
|
12/27/06
|
$
|
1.39
|
0
|
15,000
|
15,000
|
12/27/06
|
12/27/07
|
12/27/08
|
||||||||||||||||
|
Total
|
262,750
|
1,977,250
|
2,240,000
|
||||||||||||||||||||||
|
Xeni
Medical Systems,
Inc.
|
|||||||||||||||||||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
6/19/06
|
$
|
4.00
|
25,000
|
0
|
25,000
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
6/19/06
|
$
|
4.00
|
0
|
15,000
|
15,000
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
12/27/06
|
$
|
1.39
|
0
|
5,000
|
5,000
|
12/27/06
|
12/27/07
|
12/27/08
|
||||||||||||||||
|
▇▇▇▇
▇▇▇▇▇
|
12/27/06
|
$
|
1.39
|
30,000
|
0
|
30,000
|
12/27/06
|
12/27/07
|
12/27/08
|
||||||||||||||||
|
▇▇▇▇
▇▇▇▇▇ (resigned)
|
5/24/07
|
-20,000
|
0
|
-20,000
|
|||||||||||||||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
12/29/05
|
$
|
3.25
|
20,000
|
0
|
20,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
6/19/06
|
$
|
4.00
|
12,500
|
0
|
12,500
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
12/27/06
|
$
|
1.39
|
10,000
|
0
|
10,000
|
12/27/06
|
12/27/07
|
12/27/08
|
||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
12/29/05
|
$
|
3.25
|
20,000
|
0
|
20,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
6/19/06
|
$
|
4.00
|
12,500
|
0
|
12,500
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
▇▇▇
▇▇▇▇▇▇
|
12/29/05
|
$
|
3.25
|
15,000
|
0
|
15,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
▇▇▇
▇▇▇▇▇▇
|
6/19/06
|
$
|
4.00
|
6,250
|
0
|
6,250
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇
|
12/29/05
|
$
|
3.25
|
10,000
|
0
|
10,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇
|
6/19/06
|
$
|
4.00
|
5,000
|
0
|
5,000
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
Total
|
146,250
|
20,000
|
166,250
|
||||||||||||||||||||||
Schedule
3.4(b)(ii)
MDwerks,
Inc.
2005
Incentinve Compensation Plan Report
As
of 9/26/07
|
Shares
Granted
|
|||||||||||||||||||||||||
|
Incentive
|
Non-Qual
|
||||||||||||||||||||||||
|
Option
Grant
|
Stock
|
Stock
|
Exercise
Date and %
|
||||||||||||||||||||||
|
Date
|
Value
|
Option
|
Option
|
Total
|
33.3%
|
33.3%
|
33.4%
|
||||||||||||||||||
|
Xeni
Medical Systems,
Inc.
|
|||||||||||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
12/29/05
|
$
|
3.25
|
10,000
|
0
|
10,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
6/19/06
|
$
|
4.00
|
5,000
|
0
|
5,000
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇▇ (resigned)
|
8/25/06
|
-15,000
|
0
|
-15,000
|
|||||||||||||||||||||
|
Total
|
0
|
0
|
0
|
||||||||||||||||||||||
|
Directors,
Vendors and
Other
|
|||||||||||||||||||||||||
|
▇▇▇▇▇▇▇
▇▇▇▇
|
10/11/06
|
$
|
2.25
|
44,000
|
0
|
44,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
▇▇▇▇▇▇▇
▇▇▇▇
|
10/11/06
|
$
|
2.25
|
0
|
131,000
|
131,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
10/11/06
|
$
|
2.25
|
44,000
|
0
|
44,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
10/11/06
|
$
|
2.25
|
0
|
31,000
|
31,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇
|
6/19/06
|
$
|
4.00
|
25,000
|
0
|
25,000
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇
|
6/19/06
|
$
|
4.00
|
0
|
50,000
|
50,000
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇
|
10/11/06
|
$
|
2.25
|
0
|
25,000
|
25,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇
|
6/22/06
|
$
|
4.25
|
23,500
|
0
|
23,500
|
6/22/07
|
6/22/08
|
6/22/09
|
||||||||||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇
|
6/22/06
|
$
|
4.25
|
0
|
51,500
|
51,500
|
6/22/07
|
6/22/08
|
6/22/09
|
||||||||||||||||
|
▇▇▇▇
▇▇▇▇▇▇▇
|
10/11/06
|
$
|
2.25
|
0
|
25,000
|
25,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
Bennu
Advisors
|
9/27/07
|
$
|
0.67
|
100,000
|
0
|
100,000
|
9/27/07
|
9/27/08
|
9/27/09
|
||||||||||||||||
|
▇▇▇▇▇
▇▇▇▇▇▇▇
|
9/27/07
|
$
|
0.67
|
0
|
75,000
|
75,000
|
9/27/08
|
9/27/09
|
9/27/10
|
||||||||||||||||
|
Total
|
236,500
|
388,500
|
625,000
|
||||||||||||||||||||||
|
Total
Options
|
645,500
|
2,385,750
|
3,031,250
|
||||||||||||||||||||||
|
Expiration
Schedule
|
|||||||||||||||||||||||||
|
All
options expire on the tenth anniversary of the Option Grant
Date
|
|||||||||||||||||||||||||
Schedule
3.4(b)(iii)
Senior
Secured Convertible Note, dated October 19, 2006, in the original principal
amount of $2,500,000, issued by the Company to Gottbetter Capital Master, Ltd.
Senior
Secured Convertible Note, dated November 9, 2006, in the original principal
amount of $2,500,000, issued by the Company to Gottbetter Capital Master, Ltd.
Secured
Promissory Note, dated August 24, 2006, in the original principal amount of
$250,000, issued by the Company to ▇▇▇▇▇ ▇▇▇▇▇▇▇.
Schedule
3.4(b)(iv)
See
attached UCC filing reports and attachments thereto.
Schedule
3.4(b)(v)
Registration
rights contained in Registration Rights Agreement, dated October 19, 2006,
between Gottbetter Capital Master, Ltd. and the Company.
Piggyback
Registration rights granted to ▇▇▇▇▇ ▇▇▇▇▇▇▇ in Subscription Agreement, dated
August 24, 2006.
Registration
rights granted to purchasers of the Company’s Series A Preferred Stock, Common
Stock and detachable warrants contained in the Subscription Agreements for
the
private placement of such securities.
Schedule
3.4(b)(vi)
Senior
Secured Convertible Note, dated October 19, 2006, in the original principal
amount of $2,500,000, issued by the Company to Gottbetter Capital Master,
Ltd.
Senior
Secured Convertible Note, dated November 9, 2006, in the original principal
amount of $2,500,000, issued by the Company to Gottbetter Capital Master, Ltd.
Warrants
to initially purchase 187,500 shares of Common Stock at a price of $3.25 per
share, issued by the Company to Gottbetter Capital Master, Ltd. on October
19,
2006.
Warrants
to initially purchase 187,500 shares of Common Stock at a price of $3.25 per
share, issued by the Company to Gottbetter Capital Master, Ltd. on November
9,
2006.
Schedule
3.4(b)(vii)
Warrants
to purchase shares of Common Stock at a price of $3.25 per share, issued by
the
Company to Gottbetter Capital Master, Ltd. on October 19, 2006.
Warrants
to purchase shares of Common Stock at a price of $3.25 per share, issued by
the
Company to Gottbetter Capital Master, Ltd. on November 9, 2006.
Schedule
3.4(b)(viii)
MDwerks,
Inc. 2005 Incentive Compensation Plan.
MDWERKS,
INC.
2005
INCENTIVE COMPENSATION PLAN
MDWERKS,
INC.
2005
INCENTIVE COMPENSATION PLAN
1. Purpose.
The
purpose of this MDWERKS, INC. 2005 INCENTIVE
COMPENSATION PLAN (the “Plan”) is to assist MDwerks, Inc., a Delaware
corporation (the “Company”) and its Related Entities (as hereinafter defined) in
attracting, motivating, retaining and rewarding high-quality executives and
other employees, officers, directors, consultants and other persons who provide
services to the Company or its Related Entities by enabling such persons
to
acquire or increase a proprietary interest in the Company in order to strengthen
the mutuality of interests between such persons and the Company's shareholders,
and providing such persons with performance incentives to expend their maximum
efforts in the creation of shareholder value.
2. Definitions.
For
purposes of the Plan, the following terms shall be defined as set forth below,
in addition to such terms defined in Section 1 hereof.
(a) “Award”
means
any Option, Stock Appreciation Right, Restricted Stock Award, Deferred Stock
Award, Share granted as a bonus or in lieu of another award, Dividend
Equivalent, Other Stock-Based Award or Performance Award, together with any
other right or interest, granted to a Participant under the Plan.
(b) “Award
Agreement”
means
any written agreement, contract or other instrument or document evidencing
any
Award granted by the Committee hereunder.
(c) “Beneficiary”
means
the person, persons, trust or trusts that have been designated by a Participant
in his or her most recent written beneficiary designation filed with the
Committee to receive the benefits specified under the Plan upon such
Participant's death or to which Awards or other rights are transferred if
and to
the extent permitted under Section 10(b) hereof. If, upon a Participant's
death,
there is no designated Beneficiary or surviving designated Beneficiary, then
the
term Beneficiary means the person, persons, trust or trusts entitled by will
or
the laws of descent and distribution to receive such benefits.
(d) “Beneficial
Owner”
shall
have the meaning ascribed to such term in Rule 13d-3 under the Exchange Act
and
any successor to such Rule.
(e) “Board”
means
the Company's Board of Directors.
(f) “Cause”
shall,
with respect to any Participant have the meaning specified in the Award
Agreement. In the absence of any definition in the Award Agreement, “Cause”
shall have the equivalent meaning or the same meaning as “cause” or “for cause”
set forth in any employment, consulting, or other agreement for the performance
of services between the Participant and the Company or a Related Entity or,
in
the absence of any such agreement or any such definition in such agreement,
such
term shall mean (i) the failure by the Participant to perform, in a reasonable
manner, his or her duties as assigned by the Company or a Related Entity,
(ii)
any violation or breach by the Participant of his or her employment, consulting
or other similar agreement with the Company or a Related Entity, if any,
(iii)
any violation or breach by the Participant of any non-competition,
non-solicitation, non-disclosure and/or other similar agreement with the
Company
or a Related Entity, (iv) any act by the Participant of dishonesty or bad
faith
with respect to the Company or a Related Entity, (v) use of alcohol, drugs
or
other similar substances in a manner that adversely affects the Participant’s
work performance, or (vi) the commission by the Participant of any act,
misdemeanor, or crime reflecting unfavorably upon the Participant or the
Company
or any Related Entity. The good faith determination by the Committee of whether
the Participant’s Continuous Service was terminated by the Company for “Cause”
shall be final and binding for all purposes hereunder.
(g) “Change
in Control”
means
a
Change in Control as defined with related terms in Section 9(b) of the
Plan.
(h) “Code”
means
the Internal Revenue Code of 1986, as amended from time to time, including
regulations thereunder and successor provisions and regulations thereto.
(i) “Committee”
means
a
committee designated by the Board to administer the Plan; provided, however,
that if the Board fails to designate a committee or if there are no longer
any
members on the committee so designated by the Board, then the Board shall
serve
as the Committee. The Committee shall consist of at least two directors,
and
each member of the Committee shall be (i) a “non-employee director” within
the meaning of Rule 16b-3 (or any successor rule) under the Exchange Act,
unless
administration of the Plan by “non-employee directors” is not then required in
order for exemptions under Rule 16b-3 to apply to transactions under the
Plan,
(ii) an “outside director” within the meaning of Section 162(m) of the Code, and
(iii) “Independent.”
(j) “Consultant”
means
any person (other than an Employee or a Director, solely with respect to
rendering services in such person’s capacity as a director) who is engaged by
the Company or any Related Entity to render consulting or advisory services
to
the Company or such Related Entity.
(k) “Continuous
Service”
means
the uninterrupted provision of services to the Company or any Related Entity
in
any capacity of Employee, Director, Consultant or other service provider.
Continuous Service shall not be considered to be interrupted in the case
of (i)
any approved leave of absence, (ii) transfers among the Company, any Related
Entities, or any successor entities, in any capacity of Employee, Director,
Consultant or other service provider, or (iii) any change in status as long
as
the individual remains in the service of the Company or a Related Entity
in any
capacity of Employee, Director, Consultant or other service provider (except
as
otherwise provided in the Award Agreement). An approved leave of absence
shall
include sick leave, military leave, or any other authorized personal leave.
(l) “Covered
Employee”
means
an Eligible Person who is a “covered employee” within the meaning of Section
162(m)(3) of the Code, or any successor provision thereto.
(m) “Deferred
Stock”
means
a
right to receive Shares, including Restricted Stock, cash or a combination
thereof, at the end of a specified deferral period.
(n) “Deferred
Stock Award”
means
an Award of Deferred Stock granted to a Participant under Section 6(e) hereof.
(o) “Director”
means
a
member of the Board or the board of directors of any Related Entity.
(p) “Disability”
means
a
permanent and total disability (within the meaning of Section 22(e) of the
Code), as determined by a medical doctor satisfactory to the Committee.
(q) “Discounted
Option”
means
any Option awarded under Section 6(b) hereof with an exercise price that
is less
than the Fair Market Value of a Share on the date of grant.
(r) “Discounted
Stock Appreciation Right”
means
any Stock Appreciation Right awarded under Section 6(c) hereof with an exercise
price that is less than the Fair Market Value of a Share on the date of
grant.
(s) “Dividend
Equivalent”
means
a
right, granted to a Participant under Section 6(g) hereof, to receive cash,
Shares, other Awards or other property equal in value to dividends paid with
respect to a specified number of Shares, or other periodic payments.
(t) “Effective
Date”
means
the effective date of the Plan, which shall be October __, 2005.
(u) “Eligible
Person”
means
each officer, Director, Employee, Consultant and other person who provides
services to the Company or any Related Entity. The foregoing notwithstanding,
only employees of the Company, or any parent corporation or subsidiary
corporation of the Company (as those terms are defined in Sections 424(e)
and
(f) of the Code, respectively), shall be Eligible Persons for purposes of
receiving any Incentive Stock Options. An Employee on leave of absence may
be
considered as still in the employ of the Company or a Related Entity for
purposes of eligibility for participation in the Plan.
(v) “Employee”
means
any person, including an officer or Director, who is an employee of the Company
or any Related Entity. The payment of a director’s fee by the Company or a
Related Entity shall not be sufficient to constitute “employment” by the
Company.
(w) “Exchange
Act”
means
the Securities Exchange Act of 1934, as amended from time to time, including
rules thereunder and successor provisions and rules thereto.
(x) “Fair
Market Value”
means
the fair market value of Shares, Awards or other property as determined by
the
Committee, or under procedures established by the Committee. Unless otherwise
determined by the Committee, the Fair Market Value of a Share as of any given
date shall be the closing sale price per Share reported on a consolidated
basis
for stock listed on the principal stock exchange or market on which Shares
are
traded on the date as of which such value is being determined or, if there
is no
sale on that date, then on the last previous day on which a sale was reported.
(y) “Good
Reason”
shall,
with respect to any Participant, have the meaning specified in the Award
Agreement. In the absence of any definition in the Award Agreement, “Good
Reason” shall have the equivalent meaning or the same meaning as “good reason”
or “for good reason” set forth in any employment, consulting or other agreement
for the performance of services between the Participant and the Company or
a
Related Entity or, in the absence of any such agreement or any such definition
in such agreement, such term shall mean (i) the assignment to the Participant
of
any duties inconsistent in any material respect with the Participant's position,
authority, duties or responsibilities as assigned by the Company or a Related
Entity, or any other action by the Company or a Related Entity which results
in
a material diminution in such position, authority, duties or responsibilities,
excluding for this purpose any action not taken in bad faith and which is
remedied by the Company or a Related Entity promptly after receipt of notice
thereof given by the Participant, or any action taken with the consent of
the
Participant; or (ii) any material failure by the Company or a Related Entity
to
comply with its obligations to the Participant as agreed upon, other than
any
failure not occurring in bad faith and which is remedied by the Company or
a
Related Entity promptly after receipt of notice thereof given by the
Participant.
(z) “Incentive
Stock Option”
means
any Option intended to be designated as an incentive stock option within
the
meaning of Section 422 of the Code or any successor provision thereto.
(aa) “Independent,”
when
referring to either the Board or members of the Committee, shall have the
same
meaning as used in the rules of the American Stock Exchange or any national
securities market on which any securities of the Company are listed for trading,
and if not quoted or listed for trading, by the rules of the American Stock
Exchange.
(bb) “Incumbent
Board”
means
the Incumbent Board as defined in Section 9(b)(ii) of the Plan.
(cc) “Option”
means
a
right granted to a Participant under Section 6(b) hereof, to purchase Shares
or
other Awards at a specified price during specified time periods.
(dd) “Optionee”
means
a
person to whom an Option is granted under this Plan or any person who succeeds
to the rights of such person under this Plan.
(ee) “Option
Proceeds”
means
the cash actually received by the Company for the exercise price in connection
with the exercise of Options that are exercised after the Effective Date
of the
Plan, plus the maximum tax benefit that could be realized by the Company
as a
result of the exercise of such Options, which tax benefit shall be determined
by
multiplying (i) the amount that is deductible for Federal income tax purposes
as
a result of any such option exercise (currently, equal to the amount upon
which
the Participant's withholding tax obligation is calculated), times (ii) the
maximum Federal corporate income tax rate for the year of exercise. With
respect
to Options, to the extent that a Participant pays the exercise price and/or
withholding taxes with Shares, Option Proceeds shall not be calculated with
respect to the amounts so paid in Shares.
(ff) “Other
Stock-Based Awards”
means
Awards granted to a Participant under Section 6(i) hereof.
(gg) “Outside
Director”
means
a
member of the Board who is not an Employee.
(hh) “Participant”
means
a
person who has been granted an Award under the Plan which remains outstanding,
including a person who is no longer an Eligible Person.
(ii) “Performance
Award”
shall
mean any Award of Performance Shares or Performance Units granted pursuant
to
Section 6(h).
(jj) “Performance
Period”
means
that period established by the Committee at the time any Performance Award
is
granted or at any time thereafter during which any performance goals specified
by the Committee with respect to such Award are to be measured.
(kk) “Performance
Share”
means
any grant pursuant to Section 6(h) of a unit valued by reference to a designated
number of Shares, which value may be paid to the Participant by delivery
of such
property as the Committee shall determine, including cash, Shares, other
property, or any combination thereof, upon achievement of such performance
goals
during the Performance Period as the Committee shall establish at the time
of
such grant or thereafter.
(ll) “Performance
Unit”
means
any grant pursuant to Section 6(h) of a unit valued by reference to a designated
amount of property (including cash) other than Shares, which value may be
paid
to the Participant by delivery of such property as the Committee shall
determine, including cash, Shares, other property, or any combination thereof,
upon achievement of such performance goals during the Performance Period
as the
Committee shall establish at the time of such grant or thereafter.
(mm) “Person”
shall
have the meaning ascribed to such term in Section 3(a)(9) of the Exchange
Act and used in Sections 13(d) and 14(d) thereof, and shall include a “group” as
defined in Section 13(d) thereof.
(nn) “Related
Entity”
means
any Subsidiary, and any business, corporation, partnership, limited liability
company or other entity designated by Board in which the Company or a Subsidiary
holds a substantial ownership interest, directly or indirectly.
(oo) “Restricted
Stock”
means
any Share issued with the restriction that the holder may not sell, transfer,
pledge or assign such Share and with such risks of forfeiture and other
restrictions as the Committee, in its sole discretion, may impose (including
any
restriction on the right to vote such Share and the right to receive any
dividends), which restrictions may lapse separately or in combination at
such
time or times, in installments or otherwise, as the Committee may deem
appropriate.
(pp) “Restricted
Stock Award”
means
an Award granted to a Participant under Section 6(d) hereof.
(qq) “Rule
16b-3”
means
Rule 16b-3, as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
(rr) “Shareholder
Approval Date”
means
the date on which this Plan is approved shareholders of the Company eligible
to
vote in the election of directors, by a vote sufficient to meet the requirements
of Code Sections 162(m) (if applicable) and ▇▇▇, ▇▇▇▇ ▇▇▇-▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ (▇▇ applicable), applicable requirements under the rules of any stock
exchange or automated quotation system on which the Shares may be listed
on
quoted, and other laws, regulations and obligations of the Company applicable
to
the Plan.
(ss) “Shares”
means
the shares of common stock of the Company, par value $.001 per share, and
such
other securities as may be substituted (or resubstituted) for Shares pursuant
to
Section 10(c) hereof.
(tt) “Stock
Appreciation Right”
means
a
right granted to a Participant under Section 6(c) hereof.
(uu) “Subsidiary”
means
any corporation or other entity in which the Company has a direct or indirect
ownership interest of 50% or more of the total combined voting power of the
then
outstanding securities or interests of such corporation or other entity entitled
to vote generally in the election of directors or in which the Company has
the
right to receive 50% or more of the distribution of profits or 50% or more
of
the assets on liquidation or dissolution.
(vv) “Substitute
Awards”
shall
mean Awards granted or Shares issued by the Company in assumption of, or
in
substitution or exchange for, awards previously granted, or the right or
obligation to make future awards, by a company acquired by the Company or
any
Related Entity or with which the Company or any Related Entity
combines.
3. Administration.
(a) Authority
of the Committee.
The
Plan shall be administered by the Committee, except
to
the extent the Board elects to administer the Plan, in which case the Plan
shall
be administered by only those directors who are Independent Directors, in
which
case references herein to the “Committee” shall be deemed to include references
to the Independent members of the Board. The Committee shall have full and
final
authority, subject to and consistent with the provisions of the Plan, to
select
Eligible Persons to become Participants, grant Awards, determine the type,
number and other terms and conditions of, and all other matters relating
to,
Awards, prescribe Award Agreements (which need not be identical for each
Participant) and rules and regulations for the administration of the Plan,
construe and interpret the Plan and Award Agreements and correct defects,
supply
omissions or reconcile inconsistencies therein, and to make all other decisions
and determinations as the Committee may deem necessary or advisable for the
administration of the Plan. In exercising any discretion granted to the
Committee under the Plan or pursuant to any Award, the Committee shall not
be
required to follow past practices, act in a manner consistent with past
practices, or treat any Eligible Person or Participant in a manner consistent
with the treatment of other Eligible Persons or Participants.
(b) Manner
of Exercise of Committee Authority.
The
Committee, and not the Board, shall exercise sole and exclusive discretion
on
any matter relating to a Participant then subject to Section 16 of the
Exchange Act with respect to the Company to the extent necessary in order
that
transactions by such Participant shall be exempt under Rule 16b-3 under the
Exchange Act. Any action of the Committee shall be final, conclusive and
binding
on all persons, including the Company, its Related Entities, Participants,
Beneficiaries, transferees under Section 10(b) hereof or other persons claiming
rights from or through a Participant, and shareholders. The express grant
of any
specific power to the Committee, and the taking of any action by the Committee,
shall not be construed as limiting any power or authority of the Committee.
The
Committee may delegate to officers or managers of the Company or any Related
Entity, or committees thereof, the authority, subject to such terms as the
Committee shall determine, to perform such functions, including administrative
functions as the Committee may determine to the extent that such delegation
will
not result in the loss of an exemption under Rule 16b-3(d)(1) for Awards
granted
to Participants subject to Section 16 of the Exchange Act in respect of the
Company and will not cause Awards intended to qualify as “performance-based
compensation” under Code Section 162(m) to fail to so qualify. The Committee may
appoint agents to assist it in administering the Plan.
(c) Limitation
of Liability.
The
Committee and the Board, and each member thereof, shall be entitled to, in
good
faith, rely or act upon any report or other information furnished to him
or her
by any officer or Employee, the Company's independent auditors, Consultants
or
any other agents assisting in the administration of the Plan. Members of
the
Committee and the Board, and any officer or Employee acting at the direction
or
on behalf of the Committee or the Board, shall not be personally liable for
any
action or determination taken or made in good faith with respect to the Plan,
and shall, to the extent permitted by law, be fully indemnified and protected
by
the Company with respect to any such action or determination.
4. Shares
Subject to Plan.
(a) Limitation
on Overall Number of Shares Available for Delivery Under Plan.
Subject
to adjustment as provided in Section 10(c) hereof, the total number of Shares
reserved and available for delivery under the Plan shall be 10,000,000. Any
Shares delivered under the Plan may consist, in whole or in part, of authorized
and unissued shares or treasury shares.
(b) Application
of Limitation to Grants of Award.
No Award
may be granted if the number of Shares to be delivered in connection with
such
an Award or, in the case of an Award relating to Shares but settled only
in cash
(such as cash-only Stock Appreciation Rights), the number of Shares to which
such Award relates, exceeds the number of Shares remaining available for
delivery under the Plan, minus the number of Shares deliverable in settlement
of
or relating to then outstanding Awards. The Committee may adopt reasonable
counting procedures to ensure appropriate counting, avoid double counting
(as,
for example, in the case of tandem or substitute awards) and make adjustments
if
the number of Shares actually delivered differs from the number of Shares
previously counted in connection with an Award.
(c) Availability
of Shares Not Delivered under Awards and Adjustments to Limits.
(i) If
any
Shares subject to an Award are forfeited, expire or otherwise terminate without
issuance of such Shares, or any Award is settled for cash or otherwise does
not
result in the issuance of all or a portion of the Shares subject to such
Award
or award, the Shares shall, to the extent of such forfeiture, expiration,
termination, cash settlement or non-issuance, again be available for Awards
under the Plan, subject to Section 4(c)(v) below.
(ii) In
the
event that any Option or other Award granted hereunder is exercised through
the
tendering of Shares (either actually or by attestation) or by the withholding
of
Shares by the Company, or withholding tax liabilities arising from such option
or other award are satisfied by the tendering of Shares (either actually
or by
attestation) or by the withholding of Shares by the Company, then only the
number of Shares issued net of the Shares tendered or withheld shall be counted
for purposes of determining
the maximum number of Shares available for grant under the Plan.
(iii) Shares
reacquired by the Company on the open market using Option Proceeds shall
be
available for Awards under the Plan. The increase in Shares available pursuant
to the repurchase of Shares with Option Proceeds shall not be greater than
the
amount of such proceeds divided by the Fair Market Value of a Share on the
date
of exercise of the Option giving rise to such Option Proceeds.
(iv) Substitute
Awards shall not reduce the Shares authorized for grant under the Plan or
authorized for grant to a Participant in any period. Additionally, in the
event
that a company acquired by the Company or any Related Entity or with which
the
Company or any Related Entity combines has shares available under a pre-existing
plan approved by shareholders and not adopted in contemplation of such
acquisition or combination, the shares available for delivery pursuant to
the
terms of such pre-existing plan (as adjusted, to the extent appropriate,
using
the exchange ratio or other adjustment or valuation ratio or formula used
in
such acquisition or combination to determine the consideration payable to
the
holders of common stock of the entities party to such acquisition or
combination) may be used for Awards under the Plan and shall not reduce the
Shares authorized for delivery under the Plan; provided that Awards using
such
available shares shall not be made after the date awards or grants could
have
been made under the terms of the pre-existing plan, absent the acquisition
or
combination, and shall only be made to individuals who were not Employees
or
Directors prior to such acquisition or combination.
(v) Any
Shares that again become available for delivery pursuant to this Section
4(c)
shall be added back as one (1) Share.
(vi) Notwithstanding
anything in this Section 4(c) to the contrary and solely for purposes of
determining whether Shares are available for the delivery of Incentive Stock
Options, the maximum aggregate number of shares that may be granted under
this
Plan shall be determined without regard to any Shares restored pursuant to
this
Section 4(c) that, if taken into account, would cause the Plan to fail the
requirement under Code Section 422 that the Plan designate a maximum aggregate
number of shares that may be issued.
5. Eligibility;
Per-Person Award Limitations. Awards
may be granted under the Plan only to Eligible Persons. Subject to adjustment
as
provided in Section 10(c), in any fiscal year of the Company during any part
of
which the Plan is in effect, no Participant may be granted (i) Options or
Stock
Appreciation Rights with respect to more than 2,000,000 Shares or (ii)
Restricted Stock, Deferred Stock, Performance Shares and/or Other Stock-Based
Awards with respect to more than 2,000,000 Shares. In addition, the maximum
dollar value payable to any one Participant with respect to Performance Units
is
(x) $3,000,000 with respect to any 12-month Performance Period, and (y) with
respect to any Performance Period that is more than 12 months, $3,000,000
multiplied by the number of full years in the Performance Period.
6. Specific
Terms of Awards.
(a) General.
Awards
may be granted on the terms and conditions set forth in this Section 6. In
addition, the Committee may impose on any Award or the exercise thereof,
at the
date of grant or thereafter (subject to Section 10(e)), such additional terms
and conditions, not inconsistent with the provisions of the Plan, as the
Committee shall determine, including terms requiring forfeiture of Awards
in the
event of termination of the Participant’s Continuous Service and terms
permitting a Participant to make elections relating to his or her Award.
The
Committee shall retain full power and discretion to accelerate, waive or
modify,
at any time, any term or condition of an Award that is not mandatory under
the
Plan. Except in cases in which the Committee is authorized to require other
forms of consideration under the Plan, or to the extent other forms of
consideration must be paid to satisfy the requirements of applicable law,
no
consideration other than services may be required for the grant (but not
the
exercise) of any Award.
(b) Options.
The
Committee is authorized to grant Options to any Eligible Person on the following
terms and conditions:
(i) Exercise
Price. Other
than in connection with Substitute Awards, the exercise price per Share
purchasable under an Option shall be determined by the Committee, provided
that
such exercise price shall not, in the case of Incentive Stock Options, be
less
than 100% of the Fair Market Value of a Share on the date of grant of the
Option
and shall not, in any event, be less than the par value of a Share on the
date
of grant of the Option. If an Employee owns or is deemed to own (by reason
of
the attribution rules applicable under Section 424(d) of the Code) more than
10%
of the combined voting power of all classes of stock of the Company (or any
parent corporation or subsidiary corporation of the Company, as those terms
are
defined in Sections 424(e) and (f) of the Code, respectively) and an Incentive
Stock Option is granted to such employee, the exercise price of such Incentive
Stock Option (to the extent required by the Code at the time of grant) shall
be
no less than 110% of the Fair Market Value a Share on the date such Incentive
Stock Option is granted.
(ii) Time
and Method of Exercise.
The
Committee shall determine the time or times at which or the circumstances
under
which an Option may be exercised in whole or in part (including based on
achievement of performance goals and/or future service requirements), the
time
or times at which Options shall cease to be or become exercisable following
termination of Continuous Service or upon other conditions, the methods by
which
the exercise price may be paid or deemed to be paid (including in the discretion
of the Committee a cashless exercise procedure), the form of such payment,
including, without limitation, cash, Shares, other Awards or awards granted
under other plans of the Company or a Related Entity, or other property
(including notes or other contractual obligations of Participants to make
payment on a deferred basis provided that such deferred payments are not
in
violation of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, or any rule or regulation adopted
thereunder or any other applicable law), and the methods by or forms in which
Shares will be delivered or deemed to be delivered to Participants.
(iii) Incentive
Stock Options.
The
terms of any Incentive Stock Option granted under the Plan shall comply in
all
respects with the provisions of Section 422 of the Code. Anything in the
Plan to
the contrary notwithstanding, no term of the Plan relating to Incentive Stock
Options (including any Stock Appreciation Right issued in tandem therewith)
shall be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify either the Plan
or any
Incentive Stock Option under Section 422 of the Code, unless the Participant
has
first requested, or consents to, the change that will result in such
disqualification. Thus, if and to the extent required to comply with Section
422
of the Code, Options granted as Incentive Stock Options shall be subject
to the
following special terms and conditions:
(A) the
Option shall not be exercisable more than ten years after the date such
Incentive Stock Option is granted; provided, however, that if a Participant
owns
or is deemed to own (by reason of the attribution rules of Section 424(d)
of the
Code) more than 10% of the combined voting power of all classes of stock
of the
Company (or any parent corporation or subsidiary corporation of the Company,
as
those terms are defined in Sections 424(e) and (f) of the Code, respectively)
and the Incentive Stock Option is granted to such Participant, the term of
the
Incentive Stock Option shall be (to the extent required by the Code at the
time
of the grant) for no more than five years from the date of grant;
and
(B) The
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of the Shares with respect to which Incentive Stock Options
granted under the Plan and all other option plans of the Company (and any
parent
corporation or subsidiary corporation of the Company, as those terms are
defined
in Sections 424(e) and (f) of the Code, respectively) during any calendar
year
exercisable for the first time by the Participant during any calendar year
shall
not (to the extent required by the Code at the time of the grant) exceed
$100,000.
(c) Stock
Appreciation Rights.
The
Committee may grant Stock Appreciation Rights to any Eligible Person in
conjunction with all or part of any Option granted under the Plan or at any
subsequent time during the term of such Option (a “Tandem Stock Appreciation
Right”), or without regard to any Option (a “Freestanding Stock Appreciation
Right”), in each case upon such terms and conditions as the Committee may
establish in its sole discretion, not inconsistent with the provisions of
the
Plan, including the following:
(i) Right
to Payment.
A Stock
Appreciation Right shall confer on the Participant to whom it is granted
a right
to receive, upon exercise thereof, the excess of (A) the Fair Market Value
of
one Share on the date of exercise over (B) the ▇▇▇▇▇ ▇▇▇▇▇ of the Stock
Appreciation Right as determined by the Committee. The ▇▇▇▇▇ ▇▇▇▇▇ of a Stock
Appreciation Right shall not be less than 100% of the Fair Market Value of
a
Share on the date of grant, in the case of a Freestanding Stock Appreciation
Right, or less than the associated Option exercise price, in the case of
a
Tandem Stock Appreciation Right.
(ii) Other
Terms.
The
Committee shall determine at the date of grant or thereafter, the time or
times
at which and the circumstances under which a Stock Appreciation Right may
be
exercised in whole or in part (including based on achievement of performance
goals and/or future service requirements), the time or times at which Stock
Appreciation Rights shall cease to be or become exercisable following
termination of Continuous Service or upon other conditions, the method of
exercise, method of settlement, form of consideration payable in settlement,
method by or forms in which Shares will be delivered or deemed to be delivered
to Participants, whether or not a Stock Appreciation Right shall be in tandem
or
in combination with any other Award, and any other terms and conditions of
any
Stock Appreciation Right.
(iii) Tandem
Stock Appreciation Rights. Any
Tandem Stock Appreciation Right may be granted at the same time as the related
Option is granted or, for Options that are not Incentive Stock Options, at
any
time thereafter before exercise or expiration of such Option. Any Tandem
Stock
Appreciation Right related to an Option may be exercised only when the related
Option would be exercisable and the Fair Market Value of the Shares subject
to
the related Option exceeds the exercise price at which Shares can be acquired
pursuant to the Option. In addition, if a Tandem Stock Appreciation Right
exists
with respect to less than the full number of Shares covered by a related
Option,
then an exercise or termination of such Option shall not reduce the number
of
Shares to which the Tandem Stock Appreciation Right applies until the number
of
Shares then exercisable under such Option equals the number of Shares to
which
the Tandem Stock Appreciation Right applies. Any Option related to a Tandem
Stock Appreciation Right shall no longer be exercisable to the extent the
Tandem
Stock Appreciation Right has been exercised, and any Tandem Stock Appreciation
Right shall no longer be exercisable to the extent the related Option has
been
exercised.
(d) Restricted
Stock Awards.
The
Committee is authorized to grant Restricted Stock Awards to any Eligible
Person
on the following terms and conditions:
(i) Grant
and Restrictions.
Restricted Stock Awards shall be subject to such restrictions on
transferability, risk of forfeiture and other restrictions, if any, as the
Committee may impose, or as otherwise provided in this Plan, covering a period
of time specified by the Committee (the “Restriction Period”). The terms of any
Restricted Stock Award granted under the Plan shall be set forth in a written
Award Agreement which shall contain provisions determined by the Committee
and
not inconsistent with the Plan. The restrictions may lapse separately or
in
combination at such times, under such circumstances (including based on
achievement of performance goals and/or future service requirements), in
such
installments or otherwise, as the Committee may determine at the date of
grant
or thereafter. Except to the extent restricted under the terms of the Plan
and
any Award Agreement relating to a Restricted Stock Award, a Participant granted
Restricted Stock shall have all of the rights of a shareholder, including
the
right to vote the Restricted Stock and the right to receive dividends thereon
(subject to any mandatory reinvestment or other requirement imposed by the
Committee). During the Restriction Period, subject to Section 10(b) below,
the
Restricted Stock may not be sold, transferred, pledged, hypothecated, margined
or otherwise encumbered by the Participant.
(ii) Forfeiture.
Except
as otherwise determined by the Committee, upon termination of a Participant's
Continuous Service during the applicable Restriction Period, the Participant's
Restricted Stock that is at that time subject to a risk of forfeiture that
has
not lapsed or otherwise been satisfied shall be forfeited and reacquired
by the
Company; provided that the Committee may provide, by rule or regulation or
in
any Award Agreement, or may determine in any individual case, that forfeiture
conditions relating to Restricted Stock Awards shall be waived in whole or
in
part in the event of terminations resulting from specified causes.
(iii) Certificates
for Stock.
Restricted Stock granted under the Plan may be evidenced in such manner as
the
Committee shall determine. If certificates representing Restricted Stock
are
registered in the name of the Participant, the Committee may require that
such
certificates bear an appropriate legend referring to the terms, conditions
and
restrictions applicable to such Restricted Stock, that the Company retain
physical possession of the certificates, and that the Participant deliver
a
stock power to the Company, endorsed in blank, relating to the Restricted
Stock.
(iv) Dividends
and Splits.
As a
condition to the grant of a Restricted Stock Award, the Committee may require
or
permit a Participant to elect that any cash dividends paid on a Share of
Restricted Stock be automatically reinvested in additional Shares of Restricted
Stock or applied to the purchase of additional Awards under the Plan. Unless
otherwise determined by the Committee, Shares distributed in connection with
a
stock split or stock dividend, and other property distributed as a dividend,
shall be subject to restrictions and a risk of forfeiture to the same extent
as
the Restricted Stock with respect to which such Shares or other property
have
been distributed.
(e) Deferred
Stock Award.
The
Committee is authorized to grant Deferred Stock Awards to any Eligible Person
on
the following terms and conditions:
(i) Award
and Restrictions.
Satisfaction of a Deferred Stock Award shall occur upon expiration of the
deferral period specified for such Deferred Stock Award by the Committee
(or, if
permitted by the Committee, as elected by the Participant). In addition,
a
Deferred Stock Award shall be subject to such restrictions (which may include
a
risk of forfeiture) as the Committee may impose, if any, which restrictions
may
lapse at the expiration of the deferral period or at earlier specified times
(including based on achievement of performance goals and/or future service
requirements), separately or in combination, in installments or otherwise,
as
the Committee may determine. A Deferred Stock Award may be satisfied by delivery
of Shares, cash equal to the Fair Market Value of the specified number of
Shares
covered by the Deferred Stock, or a combination thereof, as determined by
the
Committee at the date of grant or thereafter. Prior to satisfaction of a
Deferred Stock Award, a Deferred Stock Award carries no voting or dividend
or
other rights associated with Share ownership.
(ii) Forfeiture.
Except
as otherwise determined by the Committee, upon termination of a Participant's
Continuous Service during the applicable deferral period or portion thereof
to
which forfeiture conditions apply (as provided in the Award Agreement evidencing
the Deferred Stock Award), the Participant's Deferred Stock Award that is
at
that time subject to a risk of forfeiture that has not lapsed or otherwise
been
satisfied shall be forfeited; provided that the Committee may provide, by
rule
or regulation or in any Award Agreement, or may determine in any individual
case, that forfeiture conditions relating to a Deferred Stock Award shall
be
waived in whole or in part in the event of terminations resulting from specified
causes, and the Committee may in other cases waive in whole or in part the
forfeiture of any Deferred Stock Award.
(iii) Dividend
Equivalents.
Unless
otherwise determined by the Committee at date of grant, any Dividend Equivalents
that are granted with respect to any Deferred Stock Award shall be either
(A)
paid with respect to such Deferred Stock Award at the dividend payment date
in
cash or in Shares of unrestricted stock having a Fair Market Value equal
to the
amount of such dividends, or (B) deferred with respect to such Deferred Stock
Award and the amount or value thereof automatically deemed reinvested in
additional Deferred Stock, other Awards or other investment vehicles, as
the
Committee shall determine or permit the Participant to elect.
(f) Bonus
Stock and Awards in Lieu of Obligations.
The
Committee is authorized to grant Shares to any Eligible Persons as a bonus,
or
to grant Shares or other Awards in lieu of obligations to pay cash or deliver
other property under the Plan or under other plans or compensatory arrangements,
provided that, in the case of Eligible Persons subject to Section 16 of the
Exchange Act, the amount of such grants remains within the discretion of
the
Committee to the extent necessary to ensure that acquisitions of Shares or
other
Awards are exempt from liability under Section 16(b) of the Exchange Act.
Shares
or Awards granted hereunder shall be subject to such other terms as shall
be
determined by the Committee.
(g) Dividend
Equivalents.
The
Committee is authorized to grant Dividend Equivalents to any Eligible Person
entitling the Eligible Person to receive cash, Shares, other Awards, or other
property equal in value to the dividends paid with respect to a specified
number
of Shares, or other periodic payments. Dividend Equivalents may be awarded
on a
free-standing basis or in connection with another Award. The Committee may
provide that Dividend Equivalents shall be paid or distributed when accrued
or
shall be deemed to have been reinvested in additional Shares, Awards, or
other
investment vehicles, and subject to such restrictions on transferability
and
risks of forfeiture, as the Committee may specify.
(h) Performance
Awards.
The
Committee is authorized to grant Performance Awards to any Eligible Person
payable in cash, Shares, or other Awards, on terms and conditions established
by
the Committee, subject to the provisions of Section 8 if and to the extent
that
the Committee shall, in its sole discretion, determine that an Award shall
be
subject to those provisions. The performance criteria to be achieved during
any
Performance Period and the length of the Performance Period shall be determined
by the Committee upon the grant of each Performance Award.
Except
as provided in Section 9 or as may be provided in an Award Agreement,
Performance Awards will be distributed only after the end of the relevant
Performance Period. The performance goals to be achieved for each Performance
Period shall be conclusively determined by the Committee and may be based
upon
the criteria set forth in Section 8(b), or in the case of an Award that the
Committee determines shall not be subject to Section 8 hereof, any other
criteria that the Committee, in its sole discretion, shall determine should
be
used for that purpose. The amount of the Award to be distributed shall be
conclusively determined by the Committee. Performance Awards may be paid
in a
lump sum or in installments following the close of the Performance Period
or, in
accordance with procedures established by the Committee, on a deferred
basis.
(i) Other
Stock-Based Awards.
The
Committee is authorized, subject to limitations under applicable law, to
grant
to any Eligible Person such other Awards that may be denominated or payable
in,
valued in whole or in part by reference to, or otherwise based on, or related
to, Shares, as deemed by the Committee to be consistent with the purposes
of the
Plan. Other Stock-Based Awards may be granted to Participants either alone
or in
addition to other Awards granted under the Plan, and such Other Stock-Based
Awards shall also be available as a form of payment in the settlement of
other
Awards granted under the Plan. The Committee shall determine the terms and
conditions of such Awards. Shares delivered pursuant to an Award in the nature
of a purchase right granted under this Section 6(i) shall be purchased for
such
consideration (including,
without limitation, loans from the Company or a Related Entity provided that
such loans are not in violation of the Sarbanes Oxley Act of 2002, or any
rule
or regulation adopted thereunder or any other applicable law)
paid for
at such times, by such methods, and in such forms, including, without
limitation, cash, Shares, other Awards or other property, as the Committee
shall
determine.
7. Certain
Provisions Applicable to Awards.
(a) Stand-Alone,
Additional, Tandem and Substitute Awards.
Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company,
any
Related Entity, or any business entity to be acquired by the Company or a
Related Entity, or any other right of a Participant to receive payment from
the
Company or any Related Entity. Such additional, tandem, and substitute or
exchange Awards may be granted at any time. If an Award is granted in
substitution or exchange for another Award or award, the Committee shall
require
the surrender of such other Award or award in consideration for the grant
of the
new Award. In addition, Awards may be granted in lieu of cash compensation,
including in lieu of cash amounts payable under other plans of the Company
or
any Related Entity, in which the value of Stock subject to the Award is
equivalent in value to the cash compensation (for example, Deferred Stock
or
Restricted Stock), or in which the exercise price, ▇▇▇▇▇ ▇▇▇▇▇ or purchase
price
of the Award in the nature of a right that may be exercised is equal to the
Fair
Market Value of the underlying Stock minus the value of the cash compensation
surrendered (for example, Options or Stock Appreciation Right granted with
an
exercise price or ▇▇▇▇▇ ▇▇▇▇▇ “discounted” by the amount of the cash
compensation surrendered).
(b) Term
of Awards.
The
term of each Award shall be for such period as may be determined by the
Committee; provided that in no event shall the term of any Option or Stock
Appreciation Right exceed a period of ten years (or in the case of an Incentive
Stock Option such shorter term as may be required under Section 422 of the
Code).
(c) Form
and Timing of Payment Under Awards; Deferrals.
Subject
to the terms of the Plan and any applicable Award Agreement, payments to
be made
by the Company or a Related Entity upon the exercise of an Option or other
Award
or settlement of an Award may be made in such forms as the Committee shall
determine, including, without limitation, cash, Shares, other Awards or other
property, and may be made in a single payment or transfer, in installments,
or
on a deferred basis. Any installment or deferral provided for in the preceding
sentence shall, however, be subject to the Company’s compliance with the
provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, the rules and regulations adopted
by the U.S. Securities and Exchange Commission thereunder, and all applicable
rules of the Nasdaq Stock Market or any national securities exchange on which
the Company’s securities are listed for trading and, if not listed for trading
on either the Nasdaq Stock Market or a national securities exchange, then
the
rules of the Nasdaq Stock Market. The settlement of any Award may be
accelerated, and cash paid in lieu of Shares in connection with such settlement,
in the discretion of the Committee or upon occurrence of one or more specified
events (in addition to a Change in Control). Installment or deferred payments
may be required by the Committee (subject to Section 10(e) of the Plan,
including the consent provisions thereof in the case of any deferral of an
outstanding Award not provided for in the original Award Agreement) or permitted
at the election of the Participant on terms and conditions established by
the
Committee. Payments may include, without limitation, provisions for the payment
or crediting of a reasonable interest rate on installment or deferred payments
or the grant or crediting of Dividend Equivalents or other amounts in respect
of
installment or deferred payments denominated in Shares.
(d) Exemptions
from Section 16(b) Liability.
It is
the intent of the Company that the grant of any Awards to or other transaction
by a Participant who is subject to Section 16 of the Exchange Act shall be
exempt from Section 16 pursuant to an applicable exemption (except for
transactions acknowledged in writing to be non-exempt by such Participant).
Accordingly, if any provision of this Plan or any Award Agreement does not
comply with the requirements of Rule 16b-3 then applicable to any such
transaction, such provision shall be construed or deemed amended to the extent
necessary to conform to the applicable requirements of Rule 16b-3 so that
such
Participant shall avoid liability under Section 16(b).
8. Code
Section 162(m) Provisions.
(a) Covered
Employees.
The
Committee, in its discretion, may determine at the time an Award is granted
to
an Eligible Person who is, or is likely to be, as of the end of the tax year
in
which the Company would claim a tax deduction in connection with such Award,
a
Covered Employee, that the provisions of this Section 8 shall be applicable
to
such Award.
(b) Performance
Criteria.
If an
Award is subject to this Section 8, then the lapsing of restrictions thereon
and
the distribution of cash, Shares or other property pursuant thereto, as
applicable, shall be contingent upon achievement of one or more objective
performance goals. Performance goals shall be objective and shall otherwise
meet
the requirements of Section 162(m) of the Code and regulations thereunder
including the requirement that the level or levels of performance targeted
by
the Committee result in the achievement of performance goals being
“substantially uncertain.” One or more of the following business criteria for
the Company, on a consolidated basis, and/or for Related Entities, or for
business or geographical units of the Company and/or a Related Entity (except
with respect to the total shareholder return and earnings per share criteria),
shall be used by the Committee in establishing performance goals for such
Awards: (1) earnings per share; (2) revenues or margins; (3) cash
flow; (4) operating margin; (5) return on net assets, investment,
capital, or equity; (6) economic value added; (7) direct contribution;
(8) net income; pretax earnings; earnings before interest and taxes;
earnings before interest, taxes, depreciation and amortization; earnings
after
interest expense and before extraordinary or special items; operating income;
income before interest income or expense, unusual items and income taxes,
local,
state or federal and excluding budgeted and actual bonuses which might be
paid
under any ongoing bonus plans of the Company; (9) working capital;
(10) management of fixed costs or variable costs; (11) identification
or consummation of investment opportunities or completion of specified projects
in accordance with corporate business plans, including strategic mergers,
acquisitions or divestitures; (12) total shareholder return; and
(13) debt reduction. Any of the above goals may be determined on an
absolute or relative basis or as compared to the performance of a published
or
special index deemed applicable by the Committee including, but not limited
to,
the Standard & Poor’s 500 Stock Index or a group of companies that are
comparable to the Company. The Committee may exclude the impact of an event
or
occurrence which the Committee determines should appropriately be excluded,
including without limitation (i) restructurings, discontinued operations,
extraordinary items, and other unusual or non-recurring charges, (ii) an
event
either not directly related to the operations of the Company or not within
the
reasonable control of the Company’s management, or (iii) a change in accounting
standards required by generally accepted accounting principles.
(c) Performance
Period; Timing For Establishing Performance Goals.
Achievement
of performance goals in respect of such Performance Awards shall be measured
over a Performance Period no shorter than 12 months and no longer than five
years, as specified by the Committee. Performance goals shall be established
not
later than 90 days after the beginning of any Performance Period applicable
to
such Performance Awards, or at such other date as may be required or permitted
for “performance-based compensation” under Code Section 162(m).
(d) Adjustments.
The
Committee may, in its discretion, reduce the amount of a settlement otherwise
to
be made in connection with Awards subject to this Section 8, but may not
exercise discretion to increase any such amount payable to a Covered Employee
in
respect of an Award subject to this Section 8. The Committee shall specify
the
circumstances in which such Awards shall be paid or forfeited in the event
of
termination of Continuous Service by the Participant prior to the end of
a
Performance Period or settlement of Awards.
(e) Committee
Certification.
No
Participant shall receive any payment under the Plan unless the Committee
has
certified, by resolution or other appropriate action in writing, that the
performance criteria and any other material terms previously established
by the
Committee or set forth in the Plan, have been satisfied to the extent necessary
to qualify as “performance based compensation” under Code Section
162(m).
9. Change
in Control.
(a) Effect
of “Change in Control.”
Subject
to Section 9(a)(iv), and if and only to the extent provided in the Award
Agreement, or to the extent otherwise determined by the Committee, upon the
occurrence of a “Change in Control,” as defined in Section 9(b):
(i) Any
Option or Stock Appreciation Right that was not previously vested and
exercisable as of the time of the Change in Control, shall become immediately
vested and exercisable, subject to applicable restrictions set forth in Section
10(a) hereof.
(ii) Any
restrictions, deferral of settlement, and forfeiture conditions applicable
to a
Restricted Stock Award, Deferred Stock Award or an Other Stock-Based Award
subject only to future service requirements granted under the Plan shall
lapse
and such Awards shall be deemed fully vested as of the time of the Change
in
Control, except to the extent of any waiver by the Participant and subject
to
applicable restrictions set forth in Section 10(a) hereof.
(iii) With
respect to any outstanding Award subject to achievement of performance goals
and
conditions under the Plan, the Committee may, in its discretion, deem such
performance goals and conditions as having been met as of the date of the
Change
in Control.
(iv) Notwithstanding
the foregoing, if in the event of a Change in Control the successor company
assumes or substitutes for an Option, Stock Appreciation Right, Restricted
Stock
Award, Deferred Stock Award or Other Stock-Based Award, then each outstanding
Option, Stock Appreciation Right, Restricted Stock Award, Deferred Stock
Award
or Other Stock-Based Award shall not be accelerated as described in Sections
9(a)(i), (ii) and (iii). For the purposes of this Section 9(a)(iv), an Option,
Stock Appreciation Right, Restricted Stock Award, Deferred Stock Award or
Other
Stock-Based Award shall be considered assumed or substituted for if following
the Change in Control the award confers the right to purchase or receive,
for
each Share subject to the Option, Stock Appreciation Right, Restricted Stock
Award, Deferred Stock Award or Other Stock-Based Award immediately prior
to the
Change in Control, the consideration (whether stock,
cash or
other securities or property) received in the transaction constituting a
Change
in Control by holders of Shares for each Share held on the effective date
of
such transaction (and if holders were offered a choice of consideration,
the
type of consideration chosen by the holders of a majority of the outstanding
shares); provided, however, that if such consideration received in the
transaction constituting a Change in Control is not solely common stock of
the
successor company or its parent or subsidiary, the Committee may, with the
consent of the successor company or its parent or subsidiary, provide that
the
consideration to be received upon the exercise or vesting of an Option, Stock
Appreciation Right, Restricted Stock Award, Deferred Stock Award or Other
Stock-Based Award, for each Share subject thereto, will be solely common
stock
of the successor company or its parent or subsidiary substantially equal
in fair
market value to the per share consideration received by holders of Shares
in the
transaction constituting a Change in Control. The determination of such
substantial equality of value of consideration shall be made by the Committee
in
its sole discretion and its determination shall be conclusive and binding.
(b) Definition
of “Change in Control.”
Unless
otherwise specified in an Award Agreement, a “Change in Control” shall mean the
occurrence of any of the following:
(i) The
acquisition by any Person of Beneficial Ownership (within the meaning of
Rule
13d-3 promulgated under the Exchange Act) of more than fifty percent (50%)
of
either (A) the then outstanding shares of common stock of the Company (the
“Outstanding Company Common Stock”) or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the
election of directors (the “Outstanding Company Voting Securities) (the
foregoing Beneficial Ownership hereinafter being referred to as a “Controlling
Interest”); provided, however, that for purposes of this Section 9(b), the
following acquisitions shall not constitute or result in a Change of Control:
(v) any acquisition directly from the Company; (w) any acquisition by the
Company; (x) any acquisition by any Person that as of the Effective Date
owns
Beneficial Ownership of a Controlling Interest; (y) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any Subsidiary; or (z) any acquisition by any corporation pursuant to
a
transaction which complies with clauses (A), (B) and (C) of subsection (iii)
below; or
(ii) During
any period of two (2) consecutive years (not including any period prior to
the
Effective Date) individuals who constitute the Board on the Effective Date
(the
“Incumbent Board”) cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent
to
the Effective Date whose election, or nomination for election by the Company’s
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as
a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies
or
consents by or on behalf of a Person other than the Board; or
(iii) Consummation
of a reorganization, merger, statutory share exchange or consolidation or
similar corporate transaction involving the Company or any of its Subsidiaries,
a sale or other disposition of all or substantially all of the assets of
the
Company, or the acquisition of assets or stock of another entity by the Company
or any of its Subsidiaries (each a “Business Combination”), in each case,
unless, following such Business Combination, (A) all or substantially all
of the
individuals and entities who were the Beneficial Owners, respectively, of
the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly
or
indirectly, more than fifty percent (50%) of the then outstanding shares
of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns
the
Company or all or substantially all of the Company’s assets either directly or
through one or more subsidiaries) in substantially the same proportions as
their
ownership, immediately prior to such Business Combination, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case
may
be, (B) no Person (excluding any employee benefit plan (or related trust)
of the
Company or such corporation resulting from such Business Combination or any
Person that as of the Effective Date owns Beneficial Ownership of a Controlling
Interest) beneficially owns, directly or indirectly, fifty percent (50%)
or more
of the then outstanding shares of common stock of the corporation resulting
from
such Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (C) at least a majority of
the
members of the Board of Directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for
such Business Combination; or
(iv) Approval
by the shareholders of the Company of a complete liquidation or dissolution
of
the Company.
10. General
Provisions.
(a) Compliance
With Legal and Other Requirements.
The
Company may, to the extent deemed necessary or advisable by the Committee,
postpone the issuance or delivery of Shares or payment of other benefits
under
any Award until completion of such registration or qualification of such
Shares
or other required action under any federal or state law, rule or regulation,
listing or other required action with respect to any stock exchange or automated
quotation system upon which the Shares or other Company securities are listed
or
quoted, or compliance with any other obligation of the Company, as the
Committee, may consider appropriate, and may require any Participant to make
such representations, furnish such information and comply with or be subject
to
such other conditions as it may consider appropriate in connection with the
issuance or delivery of Shares or payment of other benefits in compliance
with
applicable laws, rules, and regulations, listing requirements, or other
obligations.
(b) Limits
on Transferability; Beneficiaries.
No
Award or other right or interest granted under the Plan shall be pledged,
hypothecated or otherwise encumbered or subject to any lien, obligation or
liability of such Participant to any party, or assigned or transferred by
such
Participant otherwise than by will or the laws of descent and distribution
or to
a Beneficiary upon the death of a Participant, and such Awards or rights
that
may be exercisable shall be exercised during the lifetime of the Participant
only by the Participant or his or her guardian or legal representative, except
that Awards and other rights (other than Incentive Stock Options and Stock
Appreciation Rights in tandem therewith) may be transferred to one or more
Beneficiaries or other transferees during the lifetime of the Participant,
and
may be exercised by such transferees in accordance with the terms of such
Award,
but only if and to the extent such transfers are permitted by the Committee
pursuant to the express terms of an Award Agreement (subject to any terms
and
conditions which the Committee may impose thereon). A Beneficiary, transferee,
or other person claiming any rights under the Plan from or through any
Participant shall be subject to all terms and conditions of the Plan and
any
Award Agreement applicable to such Participant, except as otherwise determined
by the Committee, and to any additional terms and conditions deemed necessary
or
appropriate by the Committee.
(c) Adjustments.
(i) Adjustments
to Awards. In
the
event that any extraordinary dividend or other distribution (whether in the
form
of cash, Shares, or other property), recapitalization, forward or reverse
split,
reorganization, merger, consolidation, spin-off, combination, repurchase,
share
exchange, liquidation, dissolution or other similar corporate transaction
or
event affects the Shares and/or such other securities of the Company or any
other issuer such that a substitution, exchange, or adjustment is determined
by
the Committee to be appropriate, then the Committee shall, in such manner
as it
may deem equitable, substitute, exchange or adjust any or all of (A) the
number and kind of Shares which may be delivered in connection with Awards
granted thereafter, (B) the number and kind of Shares by which annual
per-person Award limitations are measured under Section 5 hereof, (C) the
number and kind of Shares subject to or deliverable in respect of outstanding
Awards, (D) the exercise price, ▇▇▇▇▇ ▇▇▇▇▇ or purchase price relating to
any Award and/or make provision for payment of cash or other property in
respect
of any outstanding Award, and (E) any other aspect of any Award that the
Committee determines to be appropriate.
(ii) Adjustments
in Case of Certain Corporate Transactions.
In the
event of any merger, consolidation or other reorganization in which the Company
does not survive, or in the event of any Change in Control, any outstanding
Awards may be dealt with in accordance with any of the following approaches,
as
determined by the agreement effectuating the transaction or, if and to the
extent not so determined, as determined by the Committee: (a) the continuation
of the outstanding Awards by the Company, if the Company is a surviving
corporation, (b) the assumption or substitution for, as those terms are defined
in Section 9(b)(iv) hereof, the outstanding Awards by the surviving corporation
or its parent or subsidiary, (c) full exercisability or vesting and accelerated
expiration of the outstanding Awards, or (d) settlement of the value of the
outstanding Awards in cash or cash equivalents or other property followed
by
cancellation of such Awards (which value, in the case of Options or Stock
Appreciation Rights, shall be measured by the amount, if any, by which the
Fair
Market Value of a Share exceeds the exercise or ▇▇▇▇▇ ▇▇▇▇▇ of the Option
or
Stock Appreciation Right as of the effective date of the transaction). The
Committee shall give written notice of any proposed transaction referred
to in
this Section 10(c)(ii) a reasonable period of time prior to the closing date
for
such transaction (which notice may be given either before or after the approval
of such transaction), in order that Participants may have a reasonable period
of
time prior to the closing date of such transaction within which to exercise
any
Awards that are then exercisable (including any Awards that may become
exercisable upon the closing date of such transaction). A Participant may
condition his exercise of any Awards upon the consummation of the
transaction.
(iii) Other
Adjustments.
The
Committee (and the Board if and only to the extent such authority is not
required to be exercised by the Committee to comply with Section 162(m) of
the
Code) is authorized to make adjustments in the terms and conditions of, and
the
criteria included in, Awards (including Performance Awards, or performance
goals
relating thereto) in recognition of unusual or nonrecurring events (including,
without limitation, acquisitions and dispositions of businesses and assets)
affecting the Company, any Related Entity or any business unit, or the financial
statements of the Company or any Related Entity, or in response to changes
in
applicable laws, regulations, accounting principles, tax rates and regulations
or business conditions or in view of the Committee's assessment of the business
strategy of the Company, any Related Entity or business unit thereof,
performance of comparable organizations, economic and business conditions,
personal performance of a Participant, and any other circumstances deemed
relevant; provided that no such adjustment shall be authorized or made if
and to
the extent that such authority or the making of such adjustment would cause
Options, Stock Appreciation Rights, Performance Awards granted pursuant to
Section 8(b) hereof to Participants designated by the Committee as Covered
Employees and intended to qualify as “performance-based compensation” under Code
Section 162(m) and the regulations thereunder to otherwise fail to qualify
as
“performance-based compensation” under Code Section 162(m) and regulations
thereunder.
(d) Taxes.
The
Company and any Related Entity are authorized to withhold from any Award
granted, any payment relating to an Award under the Plan, including from
a
distribution of Shares, or any payroll or other payment to a Participant,
amounts of withholding and other taxes due or potentially payable in connection
with any transaction involving an Award, and to take such other action as
the
Committee may deem advisable to enable the Company or any Related Entity
and
Participants to satisfy obligations for the payment of withholding taxes
and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Shares or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations,
either on a mandatory or elective basis in the discretion of the
Committee.
(e) Changes
to the Plan and Awards.
The
Board may amend, alter, suspend, discontinue or terminate the Plan, or the
Committee's authority to grant Awards under the Plan, without the consent
of
shareholders or Participants, except that any amendment or alteration to
the
Plan shall be subject to the approval of the Company's shareholders not later
than the annual meeting next following such Board action if such shareholder
approval is required by any federal or state law or regulation (including,
without limitation, Rule 16b-3 or Code Section 162(m)) or the rules of any
stock
exchange or automated quotation system on which the Shares may then be listed
or
quoted), and the Board may otherwise, in its discretion, determine to submit
other such changes to the Plan to shareholders for approval; provided that,
without the consent of an affected Participant, no such Board action may
materially and adversely affect the rights of such Participant under any
previously granted and outstanding Award. The Committee may waive any conditions
or rights under, or amend, alter, suspend, discontinue or terminate any Award
theretofore granted and any Award Agreement relating thereto, except as
otherwise provided in the Plan; provided that, without the consent of an
affected Participant, no such Committee or the Board action may materially
and
adversely affect the rights of such Participant under such Award.
(f) Limitation
on Rights Conferred Under Plan.
Neither
the Plan nor any action taken hereunder shall be construed as (i) giving
any Eligible Person or Participant the right to continue as an Eligible Person
or Participant or in the employ or service of the Company or a Related Entity;
(ii) interfering in any way with the right of the Company or a Related
Entity to terminate any Eligible Person's or Participant's Continuous Service
at
any time, (iii) giving an Eligible Person or Participant any claim to be
granted any Award under the Plan or to be treated uniformly with other
Participants and Employees, or (iv) conferring on a Participant any of the
rights of a shareholder of the Company unless and until the Participant is
duly
issued or transferred Shares in accordance with the terms of an
Award.
(g) Unfunded
Status of Awards; Creation of Trusts.
The
Plan is intended to constitute an “unfunded” plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant
or
obligation to deliver Shares pursuant to an Award, nothing contained in the
Plan
or any Award shall give any such Participant any rights that are greater
than
those of a general creditor of the Company; provided that the Committee may
authorize the creation of trusts and deposit therein cash, Shares, other
Awards
or other property, or make other arrangements to meet the Company's obligations
under the Plan. Such trusts or other arrangements shall be consistent with
the
“unfunded” status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant. The trustee of such trusts may be
authorized to dispose of trust assets and reinvest the proceeds in alternative
investments, subject to such terms and conditions as the Committee may specify
and in accordance with applicable law.
(h) Nonexclusivity
of the Plan.
Neither
the adoption of the Plan by the Board nor its submission to the shareholders
of
the Company for approval shall be construed as creating any limitations on
the
power of the Board or a committee thereof to adopt such other incentive
arrangements as it may deem desirable including incentive arrangements and
awards which do not qualify under Section 162(m) of the Code.
(i) Payments
in the Event of Forfeitures; Fractional Shares.
Unless
otherwise determined by the Committee, in the event of a forfeiture of an
Award
with respect to which a Participant paid cash or other consideration, the
Participant shall be repaid the amount of such cash or other consideration.
No
fractional Shares shall be issued or delivered pursuant to the Plan or any
Award. The Committee shall determine whether cash, other Awards or other
property shall be issued or paid in lieu of such fractional shares or whether
such fractional shares or any rights thereto shall be forfeited or otherwise
eliminated.
(j) Governing
Law.
The
validity, construction and effect of the Plan, any rules and regulations
under
the Plan, and any Award Agreement shall be determined in accordance with
the
laws of the State of Delaware without giving effect to principles of conflict
of
laws, and applicable federal law.
(k) Non-U.S.
Laws.
The
Committee shall have the authority to adopt such modifications, procedures,
and
subplans as may be necessary or desirable to comply with provisions of the
laws
of foreign countries in which the Company or its Subsidiaries may operate
to
assure the viability of the benefits from Awards granted to Participants
performing services in such countries and to meet the objectives of the Plan.
(l) Plan
Effective Date and Shareholder Approval; Termination of Plan.
The
Plan shall become effective on the Effective Date, subject to subsequent
approval, within 12 months of its adoption by the Board, by shareholders
of the
Company eligible to vote in the election of directors, by a vote sufficient
to
meet the requirements of Code Sections 162(m) (if applicable) and ▇▇▇, ▇▇▇▇
▇▇▇-▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ (▇▇ applicable), applicable requirements under
the
rules of any stock exchange or automated quotation system on which the Shares
may be listed or quoted, and other laws, regulations, and obligations of
the
Company applicable to the Plan. Awards may be granted subject to shareholder
approval, but may not be exercised or otherwise settled in the event the
shareholder approval is not obtained. The Plan shall terminate at the earliest
of (a) such time as no Shares remain available for issuance under the Plan,
(b)
termination of this Plan by the Board, or (c) the tenth anniversary of the
Effective Date. Awards outstanding upon expiration of the Plan shall remain
in
effect until they have been exercised or terminated, or have expired.
Adopted
October __, 2005
Schedule
3.11
None.
Schedule
3.20
The
Company has not obtained Key Man and other life and disability insurance with
respect to any of its executive officers.
Schedule
7.14—Use of Proceeds
|
1.
|
Principal
and interest owed by the Company under the ▇▇▇▇▇▇▇ Note in the principal
amount of $150,000 due October 1,
2007.
|
|
2.
|
Interest
owed by the Company under notes issued to Gottbetter in the aggregate
principal amount of $5,000,000.
|