Filed
pursuant to Rule 424(b)(3)
Registration
Statement File No. 333-132296
PROSPECTUS
SUPPLEMENT NO. 9
TO
PROSPECTUS
DATED APRIL 25, 2007
MDWERKS,
INC.
This
prospectus supplement should be read in conjunction with our prospectus
dated
April
25,
2007 and in particular “Risk Factors” beginning on page 7 of the
prospectus.
This
prospectus supplement includes the attached Current Report on Form 8-K of
MDwerks, Inc.,
filed
with the Securities and Exchange Commission on January 23, 2008.
The
date
of this prospectus supplement is January 23, 2008
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
8-K
CURRENT
REPORT PURSUANT
TO
SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of
Report (Date of earliest event reported): January 18, 2008
MDWERKS,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State
or
Other Jurisdiction of Incorporation)
|
333-118155
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33-1095411
|
|
(Commission
File Number)
|
|
(IRS
Employer Identification
Number)
|
Windolph
Center, Suite I
1020
N.W.
6th
Street
Deerfield
Beach, FL 33442
(Address
of Principal Executive Offices)
(954)
389-8300
(Registrant’s
Telephone Number, Including Area Code)
_____________________________________________
(Former
Name or Former Address, if Changed Since Last Report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
| o |
Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
|
| o |
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14-12)
|
| o |
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
|
| o |
Pre-commencement
communications pursuant to Rule 13-e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
|
The
use of the terms “we,” “us” or “the Company” in this report shall be deemed to
mean MDwerks, Inc., unless the context requires otherwise. References in this
report to “our subsidiaries” shall be deemed to mean each of MDwerks Global
Holdings, Inc., Xeni Medical Systems, Inc., Xeni Financial Services Corp.,
Xeni
Medical Billing, Corp. and Patient Payment Solutions, Inc.
Item
1.01 Entry
into a Material Definitive Agreement
On
January 18, 2008, we received net proceeds of $500,000 in connection with a
financing provided by Vicis Capital Master Fund, an unaffiliated, accredited
institutional investor (the “Investor”). In connection with the financing, we
and the Investor entered into a Securities Purchase Agreement, dated January
18,
2008 (the “January Securities Purchase Agreement”), pursuant to which we issued
50 shares of Series B Convertible Preferred Stock, par value $0.001 per
share ( “Series B Preferred Stock”), a seven year Series F Warrant to
purchase 375,000 shares of our common stock at a price of $2.25 per share and
a
seven year Series G Warrant to purchase 250,000 shares of our common stock
at a
price of $2.50 per share.
The
Securities Purchase Agreement, dated January 18, 2008, by and between the
Investor and us (the “January Securities Purchase Agreement”) provides that our
obligations to the Investor under the Series B Preferred Stock, the January
Securities Purchase Agreement and the various transaction documents entered
into
in connection with the January Securities Purchase Agreement (the “January
Transaction Documents”) are secured by a lien on all of our assets pursuant to
the security agreement, dated September 28, 2007, between us and the Investor
(the “Company Security Agreement”). The Company Security Agreement is more fully
described below and is attached as an exhibit to our Current Report on Form
8-K,
which was filed with the Securities and Exchange Commission (the “SEC”) on
October 2, 2007.
The
January Securities Purchase Agreement further provides that our obligations
under the Series B Preferred Stock, the January Securities Purchase Agreement
and the January Transaction Documents are guaranteed by each of our subsidiaries
pursuant to the terms of the guaranty agreements, dated September 28, 2007,
between Investor and each of our subsidiaries (the “Guaranty Agreements”). The
Guaranty Agreements are more fully described below and are attached as exhibits
to our Current Report on Form 8-K, which was filed with the SEC on October
2,
2007.
The
January Securities Purchase Agreement also provides that the guaranty
obligations of our subsidiaries in connection with the January Securities
Purchase Agreement and the January Transaction Documents are secured by the
liens on all of the assets of each our subsidiaries, except for the accounts
receivable and certain contract rights of Xeni Financial Services, Corp.,
created pursuant to the security agreements, dated September 28, 2007 by
and between our subsidiaries and the Investor (the “Guarantor Security
Agreements”). The Guarantor Security Agreements are more fully described below
and are attached as exhibits to our Current Report on Form 8-K, which was filed
with the SEC on October 2, 2007.
1
In
connection with the sale of the Series B Preferred Stock, we amended the
Registration Rights Agreement, dated September 28, 2007, by and between the
Investor and us (the “Registration Rights Agreement”), pursuant to which we
agreed, in addition to registering the securities previously covered by such
Registration Rights Agreement, to register for resale, the shares of our common
stock into which the Series B Preferred Stock sold pursuant to the January
Securities Purchase Agreement is convertible and the shares of our common stock
for which the Series F Warrants and the Series G Warrants sold pursuant to
the
January Securities Purchase Agreement are exercisable.
The
following summary description of the material agreements entered into in
connection with the transaction described above and the terms of the Series
B
Preferred Stock is qualified in its entirety by reference to the copies of
such
material agreements and the Certificate of Designations for the Series B
Preferred Stock filed as exhibits to this Current Report on Form 8-K.
January
Securities Purchase Agreement
The
January Securities Purchase Agreement provided for the sale by us to the
Investor of (i) 50 shares of Series B Preferred Stock (ii) Series F Warrants
to
purchase an aggregate of 375,000 shares of common stock and (iii) Series G
Warrants to purchase an aggregate of 250,000 shares of common stock. Pursuant
to
the January Securities Purchase Agreement, the aggregate purchase price for
the
Series Preferred Stock, the Series F Warrants and the Series G Warrants was
$500,000, which was paid by wire transfer of immediately available funds.
The
January Securities Purchase Agreement provides to the Investor, for a period
of
eighteen months after the closing date, a right of first refusal with respect
to
subsequent placements of equity or equity equivalent securities by us. The
right
of first refusal is on a pro
rata
basis
(based upon the amount invested) with Gottbetter Capital Master,
Ltd.
The
January Securities Purchase Agreement contains certain restrictions on our
ability to: (i) declare dividends; (ii) reclassify, combine or reverse split
our
Common Stock; (iii) incur liens; (iii) incur certain types of indebtedness;
(iv)
issue classes of securities senior to, or parri
passu
with,
the Series B Preferred Stock; (v) liquidate or sell a substantial portion of
our
assets; (vi) enter into transactions that would result in a Change of Control
(as defined in the January Securities Purchase Agreement); (vi) amend our
charter documents in a way that adversely affects the rights of the Investor;
(vii) except through Xeni Financial Services, Corp., make loans to, or advances
or guarantee the obligations of, third parties; (viii) make intercompany
transfers; (ix) engage in transactions with officers, directors, employees
or
affiliates; (x) divert business to other business entities; (xi) make
investments in securities or evidences of indebtedness (excluding of loans
made
by Xeni Financial Services, Corp.) in excess of $250,000 in a calendar year;
and
(xii) file registration statements.
2
Events
of
default under the January Securities Purchase Agreement include: (i) default
in
the payment of dividends on or the failure to redeem the Series B Preferred
Stock when due; (ii) failure to perform the covenants contained in the
Securities Purchase Agreement or the related transaction documents; (iii)
failure to file, or cause to become effective, a registration statement covering
the shares of common stock underlying the Series F Warrants, the Series G
Warrants and the Series B Preferred Stock within the timeframes required by
the
Registration Rights Agreement or the failure to keep such registration effective
as required by the Registration Rights Agreement; (iv) suspension from listing
on the OTC Bulletin Board or other exchange for 10 consecutive trading days;
(v)
the failure to timely deliver shares of common stock upon conversion of the
Series B Preferred Stock or exercise of the Series F Warrants or the Series
G
Warrants; (vi) default in the payment of indebtedness in excess of $250,000;
(vii) a judgment entered against us in excess of $250,000; and (viii)
insolvency, bankruptcy and similar circumstances.
The
January Securities Purchase Agreement also contains customary representations,
warranties, covenants and indemnification provisions for transactions of the
type entered into between the Company and Investor.
Series
B Preferred Stock
On
January 17, 2008 we filed an amended and restated Certificate of Designations
(as amended and restated, the “Certificate of Designations”) with the Secretary
of State of the State of Delaware, to, among other things, increase the number
of authorized shares of Series B Preferred Stock from 250 shares to 325
shares.
The
Certificate of Designations, which designates the rights, preferences,
privileges and terms of the Series B Preferred Stock provides that the Series
B
Preferred Stock will rank senior to other classes of common stock and preferred
Stock that are currently outstanding as to distributions of assets upon
liquidation, dissolution or winding up and as to payment of dividends on shares
of equity securities.
Each
share of Series B Preferred Stock is entitled to cumulative dividends at the
annual rate of 8% of the stated value of the Series B Preferred Stock. The
stated value of each share of Series B Preferred Stock is $10,000. Dividends
are
payable in cash or additional shares of Series B Preferred Stock.
Each
share of Series B Preferred Stock is convertible, at any time, at the option
of
the holder, into the number of shares of common stock determined by dividing
the
stated value of the Series B Preferred Stock by the conversion price. The
initial conversion price of the Series B Preferred Stock is $2.25 per
share.
The
conversion price is subject to adjustment for stock splits, dividends,
subdivisions, distributions reorganizations and similar transactions.
Furthermore, the conversion price is also subject to adjustment in the event
of
the issuance of securities for a price below the conversion price then in effect
or the issuance of convertible securities with an exercise or conversion price
that is less than the then current conversion price for the shares of Series
B
Preferred Stock.
3
To
the
extent that any shares Series B Preferred Stock remain outstanding on September
28, 2008, each holder thereof shall have the option to either require us to
redeem such holder’s shares of Series B Preferred Stock or convert such holder’s
shares of Series B Preferred Stock into shares of common stock at the conversion
price then in effect.
Holders
of Series B Preferred Stock have the option to require us to redeem shares
of
Series B Preferred Stock in the event of a Change of Control (as defined in
the
Certificate of Designations).
Holders
of Series B Preferred Stock are entitled to vote on matters submitted to our
stockholders as if the Series B Preferred Stock had been converted into shares
of Common Stock pursuant to the terms of the Certificate of Designations. To
the
extent the holders of Series B Preferred Stock are required to vote separately,
as a class, the affirmative vote of the holders of a majority of the outstanding
shares of Series B Preferred Stock will be required to approve the matter to
be
voted upon.
As
of the
date of this report, there are 250 shares of Series B Preferred Stock issued
and
outstanding.
Series
F Warrants
The
Series F Warrants are exercisable at a price of $2.25 per share for a period
of
seven years from the date of issuance. The Series F Warrants may be exercised
on
a cashless basis. The exercise price will be subject to adjustment in the event
of subdivision or combination of shares of our common stock and similar
transactions, distributions of assets, issuances of shares of common stock
with
a purchase price below the exercise price of the Series F Warrants, issuances
of
any rights, warrants or options to purchase shares of our common stock with
an
exercise price below the exercise price of the Series F Warrants, issuances
of
convertible securities with a conversion price below the exercise price of
the
Series F Warrants.
As
of the
date of this report, the outstanding Series F Warrants are exercisable for
an
aggregate of 1,875,000 shares or our common stock.
Series
G Warrants
The
Series G Warrants are exercisable at a price of $2.50 per share for a period
of
seven years from the date of issuance. The Series G Warrants may be exercised
on
a cashless basis. The exercise price will be subject to adjustment in the event
of subdivision or combination of shares of our common stock and similar
transactions, distributions of assets, issuances of shares of common stock
with
a purchase price below the exercise price of the Series G Warrants, issuances
of
any rights, warrants or options to purchase shares of our common stock with
an
exercise price below the exercise price of the Series G Warrants, issuances
of
convertible securities with a conversion price below the exercise price of
the
Series G Warrants.
As
of the
date of this report, the outstanding Series G Warrants are exercisable for
an
aggregate of 1,250,000 shares of our common stock.
4
Company
Security Agreement
Pursuant
to the terms of the January Securities Purchase Agreement, we agreed that the
lien granted pursuant to the Company Security Agreement would, in addition
to
securing the obligations previously secured thereby, secure our obligations
in
connection with the January Securities Purchase Agreement, the January
Transaction Documents and the Series B Preferred Stock issued in connection
with
the January Securities Purchase Agreement. The Company Security Agreement
provides for a lien on all of our assets in favor of the Investor.
Guaranty
Agreements
Pursuant
to the terms of the January Securities Purchase Agreement, we agreed that the
Guaranty Agreements would, in addition to applying to the obligations previously
guaranteed thereby, apply to our obligations in connection with the January
Securities Purchase Agreement, the January Transaction Documents and the Series
B Preferred Stock issued pursuant to the January Securities Purchase Agreement.
The Guaranty Agreements provide for unconditional guaranties of the obligations
guaranteed thereunder.
Guarantor
Security Agreements
Pursuant
to the terms of the January Securities Purchase Agreement, we agreed that the
security interests granted by our subsidiaries pursuant to the Guarantor
Security Agreements would, in addition to securing the obligations previously
secured thereunder, secure the obligations of our subsidiaries under the
Guaranty Agreements insofar as those obligations related to the January
Securities Purchase Agreement, the January Transaction Documents and the
Series B Preferred Stock issued pursuant to January Securities Purchase
Agreement. The Guarantor Security Agreements provide for liens in favor of
the
Investor on all of the assets of each of our subsidiaries, except for the
accounts receivable and certain contract rights of Xeni Financial Services,
Corp.
Amendment
to Registration Rights Agreement
Pursuant
to a First Amendment to Registration Rights Agreement, dated January 18, 2008,
we agreed that, in addition to registering the securities previously covered
by
the Registration Rights Agreement, to register for resale, the shares of our
common stock into which the Series B Preferred Stock sold pursuant to the
January Securities Purchase Agreement is convertible and the shares of our
common stock for which the Series F Warrants and the Series G Warrants sold
pursuant to the January Securities Purchase Agreement are
exercisable.
The
Registration Rights Agreement requires us to file a registration statement
covering the resale of the shares underlying the Senior Note, the Series D
Warrants and the Series E Warrants within 365 calendar days after September
28,
2007. We are required to cause such registration statement to become effective
on or before the date which is 485 calendar days after the filing of such
registration statement. In addition to it being an event of default under the
Securities Purchase Agreement, if we fail to file such registration statement
in
the time frame required, fail to cause it to become effective in the time frame
required, or fail to maintain the effectiveness of the registration statement
as
required by the Registration Rights Agreement, we will be required to pay a
cash
penalty in the amount of 2% of the aggregate stated value of the Series B
Preferred Stock for each month, or part thereof, that the registration statement
is not filed or effective, as the case may be. The cash penalty is limited
to
15% of the aggregate stated value of the Series B Preferred Stock.
5
The
Registration Rights Agreement also provides for piggyback registration
rights.
Item
3.02 Unregistered
sales of Equity Securities.
Item
1.01
above is incorporated into this Item 3.02 by reference.
Investor
is an “accredited investor,” as defined in Regulation D under the Securities Act
of 1933, as amended, or the Securities Act. None of the Series
B
Preferred Stock, the Series F Warrant, the Series G Warrant
or the
shares of our common stock underlying such securities were registered under
the
Securities Act, or the securities laws of any state and were offered and sold
in
reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions
of
state securities laws, which exempts transactions by an issuer not involving
any
public offering.
We
made
this determination with respect to the sale of the Series B Preferred Stock,
the
Series F Warrant, the Series G Warrant based on the representations of the
Investor, which included, in pertinent part, that Investor is an “accredited
investor” within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act, and that Investor was acquiring the securities it was acquiring
for investment purposes for its own account and not as nominee or agent, and
not
with a view to the resale or distribution, and that Investor understood such
securities may not be sold or otherwise disposed of without registration under
the Securities Act or an applicable exemption therefrom.
Thus,
the
Series B Preferred Stock, the Series F Warrant, the Series G Warrant and shares
of common stock underlying such securities may not be offered or sold in the
United States absent registration or an applicable exemption from the
registration requirements and certificates evidencing such shares contain a
legend stating the same.
Item
9.01 Financial
Statements and Exhibits.
|
(d)
|
Exhibits
|
The
following exhibits are filed as part of this report:
|
Exhibit
No.
|
Description
|
|
|
3.1
|
Amended
and Restated Certificate of Designations designating the rights,
preferences, privileges and restrictions on the Series B Preferred
Stock.
|
6
|
4.1
|
Securities
Purchase Agreement, dated January 18, 2008, by and between Investor
and
MDwerks, Inc.
|
|
|
4.2
|
Class
F Warrant to purchase 375,000 shares of Common Stock at a price
of $2.25
per share
|
|
|
4.3
|
Class
G Warrant to purchase 250,000 shares of Common Stock at a price
of $2.50
per share
|
|
|
4.5
|
First
Amendment to Registration Rights Agreement between MDwerks, Inc.
and
Investor
|
|
|
10.1
|
Guaranty
issued to Investor by Xeni Financial Services, Corp.*
|
|
|
10.2
|
Guaranty
issued to Investor by Xeni Medical Billing, Corp.*
|
|
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10.3
|
Guaranty
issued to Investor by MDwerks Global Holdings, Inc.*
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|
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10.4
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Guaranty
issued to Investor by Xeni Medical Systems, Inc.*
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|
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10.5
|
Guaranty
issued to Investor by Patient Payment Solutions, Inc.*
|
|
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10.6
|
Security
Agreement entered into by and between Investor and MDwerks,
Inc.*
|
|
|
10.7
|
Security
Agreement entered into by and between Investor and Xeni Medical
Billing,
Corp.*
|
|
|
10.8
|
Security
Agreement entered into by and between Investor and MDwerks Global
Holdings, Inc.*
|
|
|
Security
Agreement entered into by and between Investor and Xeni Medical
Systems,
Inc.*
|
||
|
10.10
|
Security
Agreement entered into by and between Investor and Xeni Financial
Services, Corp.*
|
*
Incorporated by reference to our Current Report on Form 8-K, filed with the
Securities and Exchange Commission on October 2, 2007.
7
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
| MDWERKS, INC. | ||
| |
|
|
| Dated: January 23, 2008 | By: | /s/ Howard B. Katz |
|
Howard B. Katz |
||
| Chief Executive Officer | ||
8
Exhibit
Index
|
Exhibit
No.
|
Description
|
|
|
3.1
|
Amended
and Restated Certificate of Designations designating the rights,
preferences, privileges and restrictions on the Series B Preferred
Stock.
|
|
|
4.1
|
Securities
Purchase Agreement, dated January 18, 2008, by and between Investor
and
MDwerks, Inc.
|
|
|
4.2
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Class
F Warrant to purchase 375,000 shares of Common Stock at a price
of $2.25
per share
|
|
|
4.3
|
Class
G Warrant to purchase 250,000 shares of Common Stock at a price
of $2.50
per share
|
|
|
4.5
|
First
Amendment to Registration Rights Agreement between MDwerks, Inc.
and
Investor
|
|
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10.1
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Guaranty
issued to Investor by Xeni Financial Services, Corp.*
|
|
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10.2
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Guaranty
issued to Investor by Xeni Medical Billing, Corp.*
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|
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10.3
|
Guaranty
issued to Investor by MDwerks Global Holdings, Inc.*
|
|
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10.4
|
Guaranty
issued to Investor by Xeni Medical Systems, Inc.*
|
|
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10.5
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Guaranty
issued to Investor by Patient Payment Solutions, Inc.*
|
|
|
10.6
|
Security
Agreement entered into by and between Investor and MDwerks,
Inc.*
|
|
|
10.7
|
Security
Agreement entered into by and between Investor and Xeni Medical
Billing,
Corp.*
|
|
|
10.8
|
Security
Agreement entered into by and between Investor and MDwerks Global
Holdings, Inc.*
|
|
|
Security
Agreement entered into by and between Investor and Xeni Medical
Systems,
Inc.*
|
||
|
10.10
|
Security
Agreement entered into by and between Investor and Xeni Financial
Services, Corp.*
|
*
Incorporated by reference to our Current Report on Form 8-K, filed with the
Securities and Exchange Commission on October 2, 2007.
9
AMENDED
AND RESTATED CERTIFICATE
OF DESIGNATIONS
DESIGNATING
SERIES B
CONVERTIBLE PREFERRED STOCK
OF
MDWERKS,
INC.
PURSUANT
TO SECTION 151 OF THE
DELAWARE
GENERAL CORPORATION LAW
MDWERKS,
INC., a corporation organized and existing under the Delaware General
Corporation Law (hereinafter called the “Corporation”),
in
accordance with the provisions of Section 151 thereof, DOES HEREBY
CERTIFY:
The
following is a Certificate of Designations which was adopted by consent of
the
Board of Directors of this Corporation (the “Board”) in the manner prescribed by
Section 151 of the Delaware General Corporation Law (“Certificate”).
Shareholder action was not required.
RESOLVED,
that pursuant to the authority granted to and vested in the Board in accordance
with the provisions of the Certificate of Incorporation and Bylaws of the
Corporation, each as amended and restated through the date hereof, the Board
hereby authorizes a series of the Corporation’s previously authorized Preferred
Stock, par value $.001 per share (the “Preferred
Stock”),
and
hereby states the designation and number of shares, and fixes the preferences
and relative and other rights, and the qualifications, limitations or
restrictions thereof (in addition to those set forth in the Corporation’s
Certificate of Incorporation) as follows:
|
1.
|
Designation.
This series shall be designated as Series B Convertible Preferred
Stock
(the “Series
B Preferred Stock”),
to consist of Three Hundred Twenty-Five (325) shares, par value $.001
per
share, with a mandatory redemption date of September 28,
2008.
|
|
2.
|
Rank.
The Series B Preferred Stock shall rank (i) prior to the Corporation’s
common stock, par value $.001 per share (the “Common
Stock”);
(ii) prior to all other series of the Corporation’s Preferred Stock
outstanding as of the Issuance Date (defined below) of the Series
B
Preferred Stock; (iii) prior to any class or series of capital stock
of
the Corporation hereafter created that does not, by its terms, rank
senior
to or pari passu with the Series B Preferred Stock (each security
described in (i) through (iii), a “Junior
Security”
and collectively, the “Junior
Securities”);
(iii) pari passu with any class or series of capital stock of the
Corporation hereafter created that, by its terms, ranks on parity
with the
Series B Preferred Stock (the “Pari
Passu Securities”);
and (iv) junior to any class or series of capital stock of the Corporation
hereafter created that, by its terms, ranks senior to the Series
B
Preferred Stock (collectively, the “Senior
Securities”),
in each case as to distribution of assets upon liquidation, dissolution
or
winding up of the Corporation, whether voluntary or involuntary and
payment of dividends on shares of equity securities. For purposes
of this
Certificate of Designation, “Issuance
Date”
means, with respect to any share of the Corporation’s capital stock, the
date such share was originally issued by the Corporation. The Issuance
Date shall be deemed to be the date on which the Corporation initially
issues a share regardless of the number of transfers of such share
recorded on the stock records maintained by or for the Corporation
and
regardless of the number of certificates which may be issued to evidence
such share.
|
|
3.
|
Stated
Value.
The stated value of the Series B Preferred Stock shall be Ten Thousand
Dollars ($10,000) per share (the “Stated
Value”).
|
|
4.
|
Cumulative
Preferred Dividends.
Before any dividends shall be paid or set aside for payment on any
Junior
Security of the Corporation, each holder of the Series B Preferred
Stock
(each, a “Holder”
and collectively, the “Holders”)
shall be entitled to receive dividends payable on the Stated Value
of the
Series B Preferred Stock at a rate of 8% per annum, which shall be
cumulative, accrue daily from the Issuance Date and be due and payable
on
the first day of each calendar quarter (each, a “Dividend
Date”).
Such dividends shall accrue whether or not declared, but no dividend
shall
be paid unless there are profits, surplus or other funds of the
Corporation legally available for the payment of dividends. The
accumulation of unpaid dividends shall bear interest at a rate of
8% per
annum. If a Dividend Date is not a business day, then the dividend
shall
be due and payable on the business day immediately following such
Dividend
Date. Dividends shall be payable in cash or shares of the Corporation’s
Series B Preferred Stock, at the Stated Value, at the Corporation’s
option.
|
|
5.
|
Liquidation
Rights.
In the event of any liquidation, dissolution or winding up of the
affairs
of the Corporation, whether voluntary or involuntary (each of which
is
hereinafter referred to as a “Liquidation
Event”),
and before any distribution shall be made to the holders of any shares
of
any Junior Security of the Corporation, the holders of shares of
Series B
Preferred Stock then outstanding shall be entitled to be paid out
of the
assets of the Corporation available for distribution to its stockholders
an amount per share equal to the Stated Value of the Series B Preferred
Stock plus the aggregate amount of accumulated but unpaid dividends
on
each share of Series B Preferred Stock. If,
upon a Liquidation Event, the assets of the Corporation, or proceeds
thereof, to be distributed among the holders of the Series B Preferred
Stock are insufficient to permit payment in full to such Holders
of the
aggregate amount that they are entitled to be paid by their terms,
then
the entire assets, or proceeds thereof, available to be distributed
to the
corporation’s stockholders shall be distributed to the holders of the
Series B Preferred Stock ratably in accordance with the respective
amounts
that would be payable on such shares if all amounts payable thereon
were
paid in full. Prior to the Liquidation Event, the corporation shall
declare for payment all accrued and unpaid dividends with respect
to the
Series B Preferred Stock but only to the extent of funds of the
Corporation legally available for the payment of dividends. For
the purpose of this Section 5, a consolidation or merger of the
Corporation with any other corporation, or the sale, transfer or
lease of
all or substantially all of its assets, shall not constitute or be
deemed
a Liquidation Event.
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2
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6.
|
Voting
Rights.
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|
6.1
|
Except
as otherwise required by law, the Holders of shares of Series B Preferred
Stock shall be entitled to vote on all matters submitted to a vote
of the
shareholders of the Corporation and shall have such number of votes
equal
to the number of shares of Common Stock into which such Holders’ shares of
Series B Preferred Stock are convertible pursuant to the provisions
hereof
and subject to the limitations on conversion contained herein, at
the
record date for the determination of shareholders entitled to vote
on such
matters or, if no such record date is established, at the date such
vote
is taken or any written consent of shareholders is solicited. Except
as
otherwise required by law, the holders of shares of Series B Preferred
Stock and Common Stock shall vote together as a single class, and
not as
separate classes.
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6.2
|
In
the event that the Holders of the Series B Preferred Stock are required
to
vote separately as a class, the affirmative vote of holders of a
majority
of the outstanding shares of Series B Preferred Stock shall be required
to
approve each such matter to be voted upon, and if any matter is approved
by such requisite percentage of holders of Series B Preferred Stock,
such
matter shall bind all Holders of Series B Preferred
Stock.
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|
7.
|
Conversion
Rights.
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|
7.1
|
Conversion
Price.
At any time after the Issuance Date, each share of Series B Preferred
Stock shall
be convertible at the option of the Holder into that number of shares
of
Common Stock of the Corporation equal to (a) the Stated Value of
such
share of Series B Preferred Stock divided by (b) a per share price
of the
Common Stock of $2.25 per share (the “Conversion
Price”).
The Conversion Price is subject
to adjustment as hereinafter provided, at any time or from time to
time
upon the terms and in the manner herein after set forth in Paragraph
7.3.
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|
7.2
|
Conversion
Procedures.
|
|
(a)
|
In
order to convert any share of Series B Preferred Stock into Common
Stock,
the holder thereof shall (i) surrender the certificate or
certificates for such shares of Series B Preferred Stock, duly endorsed
to
the Corporation or in blank, to the Corporation at its principal
office or
at the office of the transfer agent maintained for such purposes,
(ii) give written notice to the Corporation at such office that such
Holder elects to convert such shares of Series B Preferred Stock,
in the
same form as Exhibit
I
(the “Conversion
Notice”)
and (iii) state in writing therein the name or names in which such
holder wishes the certificate or certificates for shares of Common
Stock to be issued. Each conversion shall be deemed to have been
effected
at the close of business on the date on which the Corporation or
such
transfer agent shall have received such surrendered Series B Preferred
Stock certificate(s), and the person or persons in whose name or
names any
certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the record holder
or
holders of the shares represented thereby on such date (the “Conversion
Date”).
No
fractional shares or scrip representing fractional shares will be
issued
upon any conversion, but an adjustment in cash will be made, in respect
of
any fraction of a share which would otherwise be issuable upon the
conversion of the Series B Preferred
Stock.
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3
|
(b)
|
Upon
receipt by the Corporation of a Conversion Notice, the Corporation
shall
(i) as soon as practicable, but in any event within one (1) Trading
Day
after receipt of such Conversion Notice, send, via facsimile, a
confirmation of receipt of such Conversion Notice to such Holder
and the
Corporation’s transfer agent, which confirmation shall constitute an
instruction to the transfer agent to process such Conversion Notice
in
accordance with the terms herein. Not later than three (3) Trading
Days
after any Conversion Date (the “Delivery
Date”),
the Corporation or its designated transfer agent, as applicable,
shall (A)
issue and deliver to the address as specified in the Conversion Notice,
a
certificate, registered in the name of the holder or its designee,
for the
number of shares of Common Stock to which the holder shall be entitled,
or
(B) provided the transfer agent is participating in The Depository
Trust
Corporation (“DTC”)
Fast Automated Securities Transfer Program, upon the request of the
Holder, credit such aggregate number of shares of Common Stock to
which
the Holder shall be entitled to the Holder’s or its designee’s balance
account with DTC through its Deposit Withdrawal Agent Commission
system.
If the number of shares of Series B Preferred Stock represented by
the
Series B Preferred Stock Certificate(s) submitted for conversion,
is
greater than the number of shares of Series B Preferred Stock being
converted, then the Corporation shall, as soon as practicable and
in no
event later than three (3) Trading Days after receipt of the Series
Preferred Stock Certificate(s) (the “Preferred
Stock Delivery Date”)
and at its own expense, issue and deliver to the holder a new Series
B
Preferred Stock Certificate representing the number of shares of
Series B
Preferred Stock not converted. If in the case of any Conversion Notice
such certificate or certificates are not delivered to or as directed
by
the applicable Holder by the Delivery Date, the Holder shall be entitled
by written notice to the Corporation at any time on or before its
receipt
of such certificate or certificates thereafter, to rescind such
conversion, in which event the Corporation shall immediately return
the
Series B Preferred Stock Certificate(s) tendered for conversion,
whereupon
the Corporation and the Holder shall each be restored to their respective
positions immediately prior to the delivery of such notice of revocation,
except that any amounts described in Sections 7.2(c) and (d) shall
be
payable through the date notice of rescission is given to the
Corporation.
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4
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(c)
|
The
Corporation understands that a delay in the delivery of the shares
of
Common Stock upon conversion of Series B Preferred Stock beyond the
Delivery Date could result in economic loss to the Holder. If the
Corporation fails to deliver to the Holder such shares via DWAC or
a
certificate or certificates pursuant to this Section by the Delivery
Date,
the Corporation shall pay to the Holder, in cash,
as partial liquidated damages and not as a penalty, for each $500
of
Series B Preferred Stock to be converted (based on the Stated Value),
$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 Delivery Date until such Common Stock
certificate is delivered.
Notwithstanding the foregoing, the Holder shall not be entitled to
the
damages set forth herein for the delay in the delivery of the shares
of
Common Stock upon conversion of the Series B Preferred stock, if
such
delay is due to causes which are beyond the reasonable control of
the
Corporation, including, but not limited to, acts of God, acts of
civil or
military authority, fire, flood, earthquake, hurricane, riot, war,
terrorism, sabotage and/or governmental action, provided that the
Corporation: (i) gives the Holder prompt notice of each such cause;
and
(ii) uses reasonable efforts to correct such failure or delay in
its
performance. Nothing
herein shall limit a Holder’s right to pursue actual damages for the
Corporation’s
failure
to deliver certificates, and the Holder 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.
Notwithstanding
anything to the contrary contained herein, the Holder shall be entitled
to
withdraw a Conversion Notice, and upon such withdrawal the Corporation
shall only be obligated to pay the liquidated damages accrued in
accordance with this Section through the date the Conversion Notice
is
withdrawn.
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5
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(d)
|
In
addition to any other rights available to the Holder, if the Corporation
fails to cause its transfer agent to transmit to the Holder a certificate
or certificates representing the shares of Common Stock issuable
upon
conversion of the Series B Preferred Stock on or before the Delivery
Date,
and if after such date the Holder is required by its broker to purchase
(in an open market transaction or otherwise) shares of Common Stock
to
deliver in satisfaction of a sale by the Holder of the shares of
Common
Stock issuable upon conversion of the Series B Preferred Stock which
the
Holder anticipated receiving upon such conversion (a “Buy-In”),
then the Corporation shall (1) pay in cash to the Holder the amount
by
which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased
exceeds
(y) the amount obtained by multiplying (A) the number of shares of
Common
Stock issuable upon conversion of the Series B Preferred Stock that
the
Corporation was required to deliver to the Holder in connection with
the
conversion at issue times (B) the price at which the sell order giving
rise to such purchase obligation was executed, and (2) at the option
of
the Holder, either reinstate the portion of the Series B Preferred
Stock
and equivalent number of shares of Common Stock for which such conversion
was not honored or deliver to the Holder the number of shares of
Common
Stock that would have been issued had the Corporation timely complied
with
its conversion and delivery obligations hereunder. For example, if
the
Holder purchases Common Stock having a total purchase price of $11,000
to
cover a Buy-In with respect to an attempted conversion of shares
of Common
Stock with an aggregate sale price giving rise to such purchase obligation
of $10,000, under clause (1) of the immediately preceding sentence
the
Corporation shall be required to pay the Holder $1,000. The Holder
shall
provide the Corporation written notice indicating the amounts payable
to
the Holder in respect of the Buy-In, together with applicable
confirmations and other evidence reasonably requested by the Corporation.
Nothing herein shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief
with
respect to the Corporation’s failure to timely deliver certificates
representing shares of Common Stock upon conversion of Series B Preferred
Stock as required pursuant to the terms
hereof.
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6
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7.3
|
Adjustment
of Conversion Price.
The Conversion Price shall be subject to adjustment from time to
time as
follows:
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|
(a)
|
Adjustment
of Conversion Price upon Issuance of Common Stock.
If the Corporation issues or sells, or in accordance with this
Section 7.3(a) is deemed to have issued or sold, any shares of Common
Stock (including the issuance or sale of shares of Common Stock owned
or
held by or for the account of the Corporation, but excluding shares
of
Common Stock which are an Excluded Security or are deemed to have
been
issued or sold by the Corporation in connection with any Excluded
Security
or are issued upon conversion or exercise of an Excluded Security)
for a
consideration per share (the “New
Issuance Price”)
less than a price (the “Applicable
Price”)
equal to the Conversion Price in effect immediately prior to such
issue or
sale (the foregoing a “Dilutive
Issuance”),
then immediately after such Dilutive Issuance, the Conversion Price
then
in effect shall be reduced to the New Issuance Price. For purposes
of
determining the adjusted Conversion Price under this Section 7(a),
the following shall be applicable:
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|
(i)
|
Issuance
of Options.
If the Corporation in any manner grants or sells any Options and
the
lowest price per share for which one share of Common Stock is issuable
upon the exercise of any such Option or upon conversion or exchange
or
exercise of any Convertible Securities issuable upon exercise of
such
Option is less than the Applicable Price, then all of such shares
of
Common Stock underlying such Option shall be deemed to be outstanding
and
to have been issued and sold by the Corporation at the time of the
granting or sale of such Option for such price per share. For purposes
of
this Section 7.3(a)(i), the “lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Option
or
upon conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of such Option” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by
the
Corporation with respect to any one share of Common Stock upon granting
or
sale of the Option, upon exercise of the Option and upon conversion
or
exchange or exercise of any Convertible Security issuable upon exercise
of
such Option. No further adjustment of the Conversion Price shall
be made
upon the actual issuance of such share of Common Stock or of such
Convertible Securities upon the exercise of such Options or upon
the
actual issuance of such Common Stock upon conversion or exchange
or
exercise of such Convertible
Securities.
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7
|
(ii)
|
Issuance
of Convertible Securities.
If the Corporation in any manner issues or sells any Convertible
Securities and the lowest price per share for which one share of
Common
Stock is issuable upon such conversion or exchange or exercise thereof
is
less than the Applicable Price, then all shares of Common Stock issuable
upon conversion of such Convertible Securities shall be deemed to
be
outstanding and to have been issued and sold by the Corporation at
the
time of the issuance or sale of such Convertible Securities for such
price
per share. For the purposes of this Section 7.3(a)(ii), the “lowest
price per share for which one share of Common Stock is issuable upon
such
conversion or exchange or exercise” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by
the
Corporation with respect to any one share of Common Stock upon the
issuance or sale of the Convertible Security and upon the conversion
or
exchange or exercise of such Convertible Security. No further adjustment
of the Conversion Price shall be made upon the actual issuance of
such
share of Common Stock upon conversion or exchange or exercise of
such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment
of
the Conversion Price had been or are to be made pursuant to other
provisions of this Section 7(a), no further adjustment of the
Conversion Price shall be made by reason of such issue or
sale.
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|
(iii)
|
Change
in Option Price or Rate of Conversion.
If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exchange
or
exercise of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable or exercisable
for Common Stock changes at any time, the Conversion Price in effect
at
the time of such change shall be adjusted to the Conversion Price
which
would have been in effect at such time had such Options or Convertible
Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at
the time
initially granted, issued or sold. For purposes of this
Section 7.3(a)(iii), if the terms of any Option or Convertible
Security that was outstanding as of the Subscription Date are changed
in
the manner described in the immediately preceding sentence, then
such
Option or Convertible Security and the Common Stock deemed issuable
upon
exercise, conversion or exchange thereof shall be deemed to have
been
issued as of the date of such change. No adjustment shall be made
if such
adjustment would result in an increase of the Conversion Price then
in
effect.
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8
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(iv)
|
Calculation
of Consideration Received.
If any Option is issued in connection with the issue or sale of other
securities of the Corporation, together comprising one integrated
transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have
been
issued for a consideration of $0.01. If any Common Stock, Options
or
Convertible Securities are issued or sold or deemed to have been
issued or
sold for cash, the consideration received therefor will be deemed
to be
the gross amount paid by the purchaser of such Common Stock, Options,
or
Convertible Securities, before any commissions, discounts, fees or
expenses. If any Common Stock, Options or Convertible Securities
are
issued to the owners of the non-surviving entity in connection with
any
merger in which the Corporation is the surviving entity, the amount
of
consideration therefor will be deemed to be the fair value of such
portion
of the net assets and business (including goodwill) of the non-surviving
entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. If
any Common Stock, Options or Convertible Securities are issued or
sold or
deemed to have been issued or sold for non-cash consideration, the
consideration received therefore will be deemed to be the fair value
of
such non-cash consideration as determined in good faith by the Board
of
Directors of the Corporation.
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|
(v)
|
Record
Date.
If the Corporation takes a record of the holders of Common Stock
for the
purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed to be
the
date of the issue or sale of the Common Stock deemed to have been
issued
or sold upon the declaration of such dividend or the making of such
other
distribution or the date of the granting of such right of subscription
or
purchase, as the case may be.
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|
(b)
|
Stock
Dividends and Splits.
If the Corporation, at any time while any Series B Preferred Stock
is
outstanding, (i) pays a stock dividend on its Common Stock or otherwise
makes a distribution on any class of capital stock that is payable
in
shares of Common Stock, (ii) subdivides outstanding shares of Common
Stock
into a larger number of shares, or (iii) combines outstanding shares
of
Common Stock into a smaller number of shares, then in each such case
the
Conversion Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding immediately
before such event and of which the denominator shall be the number
of
shares of Common Stock outstanding immediately after such event.
Any
adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and
any
adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become
effective immediately after the effective date of such subdivision
or
combination.
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9
|
(c)
|
Fundamental
Transactions.
If, at any time while Series B Preferred Stock is outstanding there
is a
Fundamental Transaction, then the Holder shall have the right thereafter
to receive, upon conversion of Series B Preferred Stock, the same
amount
and kind of securities, cash or property as it would have been entitled
to
receive upon the occurrence of such Fundamental Transaction if it
had
been, immediately prior to such Fundamental Transaction, the holder
of the
number of shares of Common Stock then issuable upon conversion in
full of
Series B Preferred Stock held by such Holder (the “Alternate
Consideration”).
For purposes of any such conversion, the determination of the Conversion
Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable
in
respect of one share of Common Stock in such Fundamental Transaction,
and
the Corporation shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value
of any
different components of the Alternate Consideration. If holders of
Common
Stock are given any choice as to the securities, cash or property
to be
received in a Fundamental Transaction, then the Holder shall be given
the
same choice as to the Alternate Consideration it receives upon any
conversion of Series B Preferred Stock following such Fundamental
Transaction. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor
or surviving entity to comply with the provisions of this paragraph
(c)
and insuring that the Series B Preferred Stock (or any such replacement
security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental
Transaction.
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|
(d)
|
Other
Events.
If any event occurs of the type contemplated by the provisions of
this
Section 7.3 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation
rights,
phantom stock rights or other rights with equity features), then
the
Corporation’s Board of Directors in good faith will make an appropriate
adjustment in the Conversion Price so as to be equitable under the
circumstances and otherwise protect the rights of the Holders; provided
that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this
Section 7.3.
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10
|
7.4
|
Written
Instrument as to Adjustments.
Whenever the Conversion Price is adjusted as herein provided, an
officer
of the Corporation shall compute the adjusted Conversion Price in
accordance with the foregoing
provisions and shall prepare a written instrument setting forth such
adjusted Conversion Price and showing in detail the facts upon which
such
adjustment is based, and a copy of such written instrument shall
forthwith
be mailed to each Holder of record of the Series B Preferred Stock,
and
made available for inspection by the stockholders of the
Corporation.
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|
7.5
|
Reservation
of Common Stock.
The Corporation shall at all times reserve and keep available, free
from
preemptive rights, out of its authorized but unissued Common Stock,
for
the purpose of effecting the conversion of the shares of Series B
Preferred Stock, an
amount of Common Stock equal to one hundred twenty-five percent (125%)
of
the aggregate number of shares of Common Stock then
deliverable upon the conversion of all shares of Series B Preferred
Stock
then outstanding, and such shares shall be listed, subject to notice
of
issuance, on any stock exchange(s) on which outstanding shares of
Common
Stock may then be listed.
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|
7.6
|
Payment
of Taxes.
The Corporation will pay any and all taxes that may be payable in
respect
of the issuance or delivery of shares of Class A Common Stock on
conversion of shares of Series B Preferred Stock pursuant hereto.
The
Corporation shall not, however, be required to pay any tax which
may be
payable in respect of any transfer involved in the issue and delivery
of
shares of Class A Common Stock in a name other than that in which
the
shares of Series B Preferred Stock so converted were registered,
and no
such issue or delivery shall be made unless and until the person
requesting such issue has paid to the Corporation the amount of any
such
tax, or has established, to the satisfaction of the Corporation,
that such
tax
has been paid or is not payable.
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|
7.7
|
Ownership
Cap and Certain Exercise Restrictions.
|
|
(a)
|
Notwithstanding
anything to the contrary set forth in this Certification of Designations,
at no time may a Holder of this Series B Preferred Stock convert
this
Series B Preferred Stock to the extent that after giving effect to
such
conversion, the Holder (together with the Holder’s affiliates) would
beneficially own (as determined in accordance with Section 13(d)
of the
Securities Exchange Act of 1934, as amended, and the rules thereunder)
in
excess of 4.99% of the number of shares of Common Stock outstanding
immediately after giving effect to such conversion; provided, however,
that upon a Holder of this Series B Preferred Stock providing the
Corporation with sixty-one (61) days notice (the “Waiver
Notice”)
that such Holder would like to waive this Section 7.7(a) with regard
to any or all shares of Common Stock issuable upon conversion of
this
Series B Preferred Stock, this Section 7.7(a) will be of no force
or
effect with regard to all or a portion of the Series B Preferred
Stock
referenced in the Waiver Notice.
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11
|
(b)
|
Notwithstanding
anything to the contrary set forth in this Certificate of Designations,
at
no time may a Holder of this Series B Preferred Stock convert this
Series
B Preferred Stock to the extent that after giving effect to such
conversion, the Holder (together with the Holder’s affiliates) would
beneficially own (as determined in accordance with Section 13(d)
of the
Securities Exchange Act of 1934, as amended, and the rules thereunder)
in
excess of 9.99% of the number of shares of Common Stock outstanding
immediately after giving effect to such conversion; provided, however
that
upon a Holder of this Series B Preferred Stock providing the Corporation
with a Waiver Notice that such Holder would like to waive this
Section 7.7(b) with regard to any or all shares of Common Stock
issuable upon conversion of the Series B Preferred Stock, this
Section 7.7(b) shall be of no force or effect with regard to those
shares of Series B Preferred Stock referenced in the Waiver
Notice.
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|
(c)
|
Notwithstanding
anything to the contrary set forth in this Certificate of Designations,
at
no time may a Holder of this Series B Preferred Stock convert this
Series
B Preferred Stock to the extent that the issuance of shares of Common
Stock upon such conversion would exceed the aggregate number of shares
of
Common Stock which the Corporation may issue upon conversion or exercise
of this Series B Preferred Stock without breaching the Corporation’s
obligations under the rules or regulation of the principal exchange
upon
which shares of the Corporation’s Common Stock are traded. In
such an event, the Corporation covenants to promptly as possible
seek to
obtain the necessary shareholder or other approvals necessary to
effect
complete conversion of all shares of Series
B Preferred Stock outstanding.
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|
7.8
|
No
Impairment.
The Corporation will not, by amendment of its Certificate of Incorporation
or through any reorganization, transfer of assets, consolidation,
merger,
dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the
terms
to be observed or performed hereunder by the Corporation, but will
at all
times in good faith assist in the carrying out of all the provisions
of
Sections 7.1 through 7.7 and in the taking of all such actions as
may be
necessary or appropriate in order to protect the conversion rights
of the
Holders against impairment.
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12
|
8.
|
Other
Rights.
|
|
8.1
|
Redemption
Right.
No sooner than fifteen (15) days nor later than ten (10) days prior
to the
consummation of a Change of Control, but not prior to the public
announcement of such Change of Control, the Corporation shall deliver
written notice thereof via facsimile and overnight courier to the
Holder
(a “Change
in Control Notice”).
At any time during the period beginning after the Holder’s receipt of a
Change of Control Notice and ending ten (10) Trading Days after the
consummation of such Change of Control, the Holder may require the
Corporation to redeem all or any portion of Series B Preferred Stock
held
by such Holder by delivering written notice thereof (“Change
in Control Redemption Notice”)
to the Corporation, which Change of Control Redemption Notice shall
indicate the amount the Holder is electing to be redeemed. Each share
of
Series B Preferred Stock subject to redemption pursuant to this
Section 8.1 shall be redeemed by the Corporation in cash at a price
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.
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|
8.2
|
Purchase
Rights.
If at any time the Corporation grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities
or other property pro rata to the record holders of any class of
Common
Stock (the “Purchase
Rights”),
then the Holder will be entitled to acquire, upon the terms applicable
to
such Purchase Rights, the aggregate Purchase Rights which the Holder
could
have acquired if the Holder had held the number of shares of Common
Stock
acquirable upon complete conversion of Series B Preferred Stock (without
taking into account any limitations or restrictions on the convertibility
of Series B Preferred Stock) immediately before the date on which
a record
is taken for the grant, issuance or sale of such Purchase Rights,
or, if
no such record is taken, the date as of which the record holders
of Common
Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
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|
9.
|
Mandatory
Conversion or Redemption at Maturity.
If
any share of Series B Preferred Stock remains outstanding on September
27,
2008, (the “Maturity
Date”),
then the
Corporation shall either, at the option of the Holder: (y) convert
each
such share at the Conversion Price as of the Maturity Date share
without
the Holder of such share being required to give a Conversion Notice
on
such Maturity Date; or (z) redeem each such share of Series B
Preferred Stock for an amount in cash equal to its Stated Value plus
all
accrued and unpaid dividends
thereon.
|
|
10.
|
Required
Holder Approvals.
So
long as any shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote
or
written consent) of the Holders of a majority of the then outstanding
shares of Series B Preferred Stock: (a) amend the rights, preferences
or
privileges of the Series B Preferred Stock set forth in this Certificate
of Designation, (b), amend or waive any provision of its Certificate
of
Incorporation in a manner that would alter the rights, preferences
or
privileges of the Series B Preferred Stock, (c) create any Senior
Securities, or (d) enter into any agreement with respect to the foregoing
clauses (a) through (c).
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13
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11.
|
Notice
of Corporate Events.
If the Corporation (i) declares a dividend or any other distribution
of
cash, securities or other property in respect of its Common Stock,
including without limitation any granting of rights or warrants to
subscribe for or purchase any capital stock of the Corporation, (ii)
authorizes or approves, enters into any agreement contemplating or
solicits stockholder approval for any transaction or (iii) authorizes
the
voluntary dissolution, liquidation or winding up of the affairs of
the
Corporation, then the Corporation shall deliver to the Holders a
notice
describing the material terms and conditions of such transaction,
at least
10 calendar days prior to the applicable record or effective date
on which
Common Stock would need to be owned in order to participate in or
vote
with respect to such transaction, and the Corporation will take all
steps
reasonably necessary in order to insure that the Holder is given
the
practical opportunity to convert its Series B Preferred Stock prior
to
such time so as to participate in or vote with respect to such
transaction.
|
|
12.
|
Exclusion
of Other Rights.
Except as may otherwise be required by law, the shares of Series
B
Preferred Stock shall not have any preferences or relative, participating,
optional or other special rights other than those specifically set
forth
in this resolution and in the Certificate of Incorporation, as
amended.
|
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13.
|
Status
of Series B Preferred Stock Reacquired.
Shares of Series B Preferred Stock, which have been issued and reacquired
in any manner shall (upon compliance with applicable provisions of
the
laws of the State of Delaware), be deemed to be canceled and have
the
status of authorized and unissued shares of the class of Preferred
Stock
issuable in series undesignated as to series and may be redesignated
and
reissued.
|
|
14.
|
Severability
of Provisions.
If any right, preference or limitation of the Series B Preferred
Stock set
forth in this resolution is invalid, unlawful, or incapable of being
enforced by reason of any rule of law or public policy, all other
rights,
preferences and limitations set forth in this resolution which can
be
given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full force
and
effect, and no right, preference or limitation herein set forth shall
be
deemed dependent upon any other such right, preference or limitation
unless so expressed herein.
|
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15.
|
Headings
of Subdivisions.
The headings of the various subdivisions hereof are for convenience
of
reference only and shall not affect the interpretation of any of
the
provisions hereof.
|
14
|
16.
|
Certain
Definitions.
For
purposes of this Certificate of Designations, the following terms
shall
have the following meanings:
|
“Approved
Stock Plan” means any employee benefit plan which has been approved by the Board
of Directors of the Corporation, pursuant to which the Corporation’s securities
may be issued to any employee, consultant, officer or director for services
provided to the Corporation.
“Change
Of Control” means any Fundamental Transaction other than (i) any
reorganization, recapitalization or reclassification of the Common Stock in
which holders of the Corporation’s voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving entity
or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity
or
entities, or (ii) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Corporation or
(iii) any transaction that might otherwise be a Fundamental Transaction but
which the Holders of a majority of the outstanding shares of Series B Preferred
Stock agree shall not be deemed to be a Fundamental Transaction for purposes
of
this Certificate of Designations.
“Closing
Sale Price” means, for any security as of any date, the last closing bid price
and last closing trade price, respectively, for such security on the Principal
Market, as reported by Bloomberg, or, if the Principal Market begins to operate
on an extended hours basis and does not designate the closing bid price or
the
closing trade price, as the case may be, then the last bid price or last trade
price, respectively, of such security prior to 4:00 p.m., New York Time, as
reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid
price or last trade price, respectively, of such security on the principal
securities exchange or trading market where such security is listed or traded
as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security
as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the
bid
prices, or the ask prices, respectively, of any market makers for such security
as reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Bid Price or the Closing Sale Price, as the case may be,
of
such security on such date shall be the fair market value as mutually determined
by the Corporation and the Holder. If the Corporation and the Holder are unable
to agree upon the fair market value of such security, then such dispute shall
be
resolved pursuant to Section 12 of those certain Series F and Series G
Warrants issued by the Corporation on September 28, 2007. All such
determinations to be appropriately adjusted for any stock dividend, stock split,
stock combination or other similar transaction during the applicable calculation
period.
15
“Convertible
Securities” means any stock or securities (other than Options) directly or
indirectly convertible into or exercisable or exchangeable for Common
Stock.
“Eligible
Market” means, the Principal Market, The New York Stock Exchange, Inc., the
Nasdaq Capital Market, the Nasdaq Global Market or the American Stock
Exchange.
“Excluded
Security” means (i) any Common Stock and/or Options (and the Common Stock
issuable pursuant to such Options) issued or issuable: (A) in connection
with any Approved Stock Plan up to a maximum of ten percent (10%) of the Common
Stock outstanding at the time of issuance of such Common Stock and/or Options
(provided that securities issued in connection with an Approved Stock Plan
that
are outstanding as of the day immediately preceding the date of this Amended
and
Restated Certificate of Designations and shares of Common Stock issuable
pursuant to exercise or conversion of such outstanding securities shall not
be
included for purposes of calculating the maximum of ten percent (10%)) or
(B) upon conversion or exercise of any Options or Convertible Securities
which are outstanding on the day immediately preceding the date of this Amended
and Restated Certificate of Designations, provided that the terms of such
Options or Convertible Securities are not amended, modified or changed on or
after the date of this Amended and Restated Certificate of Designations to
lower
the conversion or exercise price thereof and so long as the number of shares
of
Common Stock underlying such securities is not otherwise increased;
(ii) any shares of Common Stock issued in an underwritten public offering
in which the gross cash proceeds to the Corporation (before underwriting
discounts, commissions and fees) are at least $10,000,000; (iii) Options
(and the Common Stock issuable pursuant thereto) issued to medical practices
that are customers of the Corporation in good standing to acquire up to a
maximum of 250,000 shares of Common Stock per practice with an exercise or
conversion price at or above the Closing Sale Price on the day of issuance;
(iv)
up to 250,000 shares of Common Stock (or securities convertible into up to
250,000 shares of Common Stock with an exercise or conversion price at or above
the Closing Sale price on the day of issuance) as consideration for strategic
acquisitions up to a maximum of 250,000 shares of Common Stock per acquisition;
(v) up to 250,000 shares of Common Stock (or securities convertible into up
to
250,000 shares of Common Stock with an exercise or conversion price at or above
the Closing Sale Price on the day of issuance) per year to third parties in
connection with investor relations and public relations efforts of the
Corporation; (vi) up to 250,000 shares of Common Stock, options, or warrants
to
be issued to Rodman & Renshaw (or their designees) as consideration for
securing a line of credit or similar financing for the Corporation; (vii)
the
Series D Warrant of the Company (and the Common Stock issuable pursuant thereto)
to purchase 500,000 shares of Common Stock of the Company at an exercise price
of $2.25 per share issued to Gottbetter Capital Master, Ltd.;
(viii)
the amendments to those certain Series E Warrants of the Company issued to
Gottbetter Capital Master, Ltd., to reduce the exercise price of such warrant
to
$2.25 per share of Common Stock and increase the number of shares of Common
Stock for which such warrants may be exercised to 541,666 and 2/3
shares;
and (ix)
up to 35,000,000 shares of Common Stock (or securities convertible into up
to
35,000,000 shares of Common Stock) to be issued to Medical Solutions Management
Inc. and or Orthosupply Management, Inc., their respective affiliates or
designees in connection with the acquisition by the Corporation of that certain
Management Agreement, dated April 30, 2007, by and between Orthosupply
Management, Inc. and Deutsche Medical Services, Inc. (the “DMSI Contract
Acquisition”).
16
“Fundamental
Transaction” means that the Corporation shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether
or not the Corporation is the surviving corporation) another Person, or
(ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Corporation to another
Person, or (iii) allow another Person or Persons to make a purchase, tender
or exchange offer that is accepted by the holders of more than the 50% of the
outstanding shares of Voting Stock (not including any shares of Voting Stock
held by the Person or Persons making or party to, or associated or affiliated
with the Person or Persons making or party to, such purchase, tender or exchange
offer), or (iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than the 50% of the outstanding shares of Voting Stock (not
including any shares of Voting Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making
or
party to, such stock purchase agreement or other business combination),
(v) reorganize, recapitalize or reclassify its Common Stock or
(vi) any “person” or “group” (as these terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act) is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 50% of the aggregate Voting Stock of the Corporation. For
purposes of this Certificate of Designations, the issuance by the Corporation
of
up to an aggregate of 35,000,000 shares of Common Stock (or securities
convertible into up to an aggregate of 35,000,000 shares of Common Stock) to
Medical Solutions Management Inc. and/or Orthosupply Management, Inc., their
respective affiliates or designees in connection with the DMSI Contract
Acquisition shall not be deemed to be a Fundamental Transaction, and the
subsequent assignment, sale, transfer or conveyance of such shares of Common
Stock (or securities convertible into shares of Common Stock) by Medical
Solutions Management Inc., Orthosupply Management, Inc., their respective
affiliates, designees, successors, assigns or subsequent transferees shall
not
be deemed to be a Fundamental Transaction.
“Options”
means any rights, warrants or options to subscribe for or purchase Common Stock
or Convertible Securities.
17
“Parent
Entity” of a Person means an entity that, directly or indirectly, controls the
applicable Person and whose common stock or equivalent equity security is quoted
or listed on an Eligible Market, or, if there is more than one such Person
or
Parent Entity, the Person or Parent Entity with the largest public market
capitalization as of the date of consummation of the Fundamental
Transaction
“Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.
“Principal
Market” means the Over-the-Counter Bulletin Board.
“Successor
Entity” means the Person, which may be the Corporation, formed by, resulting
from or surviving any Fundamental Transaction or the Person with which such
Fundamental Transaction shall have been made, provided that if such Person
is
not a publicly traded entity whose common stock or equivalent equity security
is
quoted or listed for trading on an Eligible Market, Successor Entity shall
mean
such Person’s Parent Entity.
“Trading
Day” means any day on which the Common Stock is traded on the principal
securities exchange or securities market on which the Common Stock is then
traded.
“Voting
Stock” of a Person means capital stock of such Person of the class or classes
pursuant to which the holders thereof have the general voting power to elect,
or
the general power to appoint, at least a majority of the board of directors,
managers or trustees of such Person (irrespective of whether or not at the
time
capital stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
18
IN
WITNESS WHEREOF, MDwerks, Inc. has caused this Certificate Designating
Series B Preferred Stock to be signed by its Chief Executive Officer, on
this 17th day of January 2008, and such person hereby affirms under penalty
of
perjury that this Certificate Designating Series B Preferred Stock is the
act and deed of MDwerks, Inc., and that the facts stated herein are true and
correct.
| MDWERKS, INC. | ||
| |
|
|
| By: | /s/ Howard B. Katz | |
|
Howard B. Katz, |
||
| Chief Executive Officer | ||
19
EXHIBIT
I
MDWERKS,
INC.
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:
|
||||
20
SECURITIES
PURCHASE AGREEMENT
By
and Between
MDWERKS,
INC.
and
VICIS
CAPITAL MASTER FUND
DATED
JANUARY 18, 2008
SECURITIES
PURCHASE AGREEMENT
This
SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated this 18th day of January,
2008, is made by and between MDWERKS, INC., a Delaware corporation (the
“Company”), and VICIS CAPITAL MASTER FUND (the “Purchaser”), a series of the
Vicis Capital Master Trust, a trust formed under the laws of the Cayman
Islands.
RECITALS
WHEREAS,
pursuant to the terms and conditions of this Agreement, the Company wishes
to
issue and sell to the Purchaser the following securities (collectively, the
“Securities”): (a) 50 shares (the “Preferred Shares”) of the Company’s
Series B Convertible Preferred Stock, par value $.001 per share (the “Series B
Preferred Stock”), with such terms, rights and preferences as are set forth in
the Amended and Restated Certificate of Designations for the Series B Preferred
Stock set forth on Exhibit
A
attached
hereto; (b) a Series F Warrant to purchase an aggregate of 375,000 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 Series G Warrant to purchase an aggregate of
250,000 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.
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 $500,000 (the “Purchase Price”) in cash, less the sum of documentary
stamp taxes imposed upon the Transaction Documents by the state of Florida
in
the amount of $1,750.
1.2 Closing.
The
Closing shall be deemed to occur at the offices of Quarles & Brady, LLP, 411
East Wisconsin Avenue, Milwaukee, Wisconsin, at 5:00 p.m. CST on January 18,
2008, or at such other place, date or time as mutually agreeable to the parties
(the “Closing Date”).
1.3 Closing
Matters.
On the
Closing Date, subject to the terms and conditions hereof, the following actions
shall be taken:
(a) The
Company, against delivery of payment of the Purchase Price in accordance with
Section 1.3(b), will deliver to the Purchaser the documents set forth in Section
5.4 hereof.
(b) The
Purchaser shall deliver to the Company the Cash Payment by wire transfer of
immediately available funds in accordance with the instructions of the
Company.
1.4 Subsequent
Financings.
(a) Other
than in connection with a Permitted Financing (defined below), for the 12-month
period following the Closing Date, the Purchaser shall have the right to
participate
pro
rata, pari passu
with
Gottbetter Capital Master, Ltd. (“Gottbetter”) based upon Gottbetter’s and
Purchaser’s respective aggregate investment amounts (including initial and
subsequent investments) in the Company’s securities set forth in Schedule 1.4(a)
hereto, collectively, up to 100% of each such subsequent financing that involves
the sale of securities of the Company and results in gross proceeds to the
Company in excess of $250,000 (each such financing, a “Subsequent
Financing”). In the event Gottbetter elects not to participate in a
Subsequent Financing, the Purchaser also shall have the right to participate
in
such Subsequent Financing to the extent and in the amount that Gottbetter does
not participate. At least 15 days prior to the making or accepting an offer
for
a Subsequent Financing, the Company shall deliver to the Purchaser a written
notice of its intention to effect a Subsequent Financing and the details of
such
Subsequent Financing (a “Subsequent Financing Notice”). The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of
such
Subsequent Financing, the amount of proceeds intended to be raised thereunder
and the Person with whom such Subsequent Financing is proposed to be effected,
and shall include, as an attachment thereto, a term sheet or similar document
relating thereto. If the Purchaser elects to participate in
the Subsequent Financing, the closing of such Subsequent Financing shall be
as
mutually agreed between the parties participating in such Subsequent Financing.
If by 6:30 p.m. (Eastern Time) on the fifteenth day after the Purchaser has
received the Subsequent Financing Notice, the Purchaser fails to notify the
Company of its election to participate or elects to participate in an amount
that is less than the total amount of the Subsequent Financing, then the Company
may effect the remaining portion of such Subsequent Financing on the terms
and
with the Persons set forth in the Subsequent Financing Notice. The Company
must provide the Purchaser with a second Subsequent Financing Notice, and the
Purchaser will again have the right of participation set forth above in this
Section 1.4(a), if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 60 days after the date of the initial
Subsequent Financing Notice.
(b) In
the
event that the Purchaser elects to participate in a Subsequent Financing, the
Purchaser may, at its option, on one occasion only, exchange any or all shares
of Series B Preferred Stock held by the Purchaser for securities issued in
the
Subsequent Financing at a rate of 1 Preferred Share for each $11,500 of
securities issued in the Subsequent Financing.
(c) Notwithstanding
the foregoing, Section 1.4(a) shall not apply in respect to the issuance of
the
following (each, a “Permitted Financing”): (i) shares of Common Stock or Common
Stock options, warrants or other rights to purchase Common Stock issued to
employees, officers, directors or consultants of the Company pursuant to any
stock, option, equity incentive or similar plan duly adopted by the Board of
Directors of the Company or shares of Common Stock issued upon exercise of
any
option or warrant or conversion of any convertible security issued pursuant
to
any stock, option, equity incentive or similar plan duly adopted by the Board
of
Directors of the Company, (ii) securities issued upon the exercise of or
conversion of any securities issued pursuant to this Agreement, (iii) Common
Stock issued upon the exercise or conversion of options, warrants, preferred
stock or convertible debt instruments issued and outstanding on the date of
this
Agreement; provided that, (A) such securities have not been amended since the
date of this Agreement to increase the number of such securities or underlying
Common Stock or (B) to decrease the exercise or conversion price of any such
security (except in the case of (A) and (B) pursuant to any anti-dilution or
price reset provisions or otherwise that are in effect as of the date hereof),
(iv) securities issued pursuant to acquisitions or strategic transactions,
provided any such issuance shall only be to a Person which is, itself or through
its subsidiaries, an operating company in a business synergistic with the
business of the Company and in which the Company receives benefits in addition
to the investment of funds, but shall not include an issuance or transaction
in
which the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities,
and
(v) securities issued in connection with loans made to the Company or Xeni
Financial Services, Corp. for the purpose of financing loans from the Company
or
its subsidiaries to healthcare providers as part of the business of Xeni
Financial Services, Corp.
2
ARTICLE
II
SECURITY
DOCUMENTS
2.1 Company
Security Documents.
(a) Security
Agreement.
All of
the obligations of the Company under the Preferred Shares shall be secured
by a
lien on all the personal property and assets of the Company now existing or
hereinafter acquired granted pursuant to that certain Security Agreement dated
September 28, 2007 between the Company and the Purchaser (the “Security
Agreement”). The parties acknowledge and agree that the term “Obligations”
as
defined in the Security Agreement, includes all obligations of the Company
to
the Purchaser, including without limitation, those obligations of the Company
under the Series B Preferred Stock and Transaction Documents (as defined herein
in Section 3.6). Such lien is and shall remain expressly subordinated and junior
to the liens of Gottbetter as is set forth in the Security Agreement.
(b) Guaranty.
All of
the obligations of the Company under the Preferred Shares shall be guaranteed
pursuant to those certain guaranty agreements (each, a “Guaranty Agreement” and
collectively, the “Guaranty Agreements”), each dated September 28, 2007 between
Purchaser and each of the following subsidiaries of the Company (each a
“Subsidiary and collectively, the “Subsidiaries”): MDwerks
Global Holdings, Inc., a corporation, organized under the laws of the State
of
Florida (“MGHI”), Xeni Medical Systems, Inc., a corporation organized under the
laws of the State of Delaware (“XMSI”), Xeni Financial Services Corp., a
corporation organized under the laws of the State of Florida (“XFSC”), Xeni
Medical Billing, Corp., a corporation organized under the laws of the State
of
Delaware (“XMBC”), and Patient Payment Solutions, Inc., a corporation organized
under the laws of the State of Florida (“PPS”).
Each
Subsidiary acknowledges and agrees that the term “Obligations”
as
defined in the applicable Guaranty Agreement, includes all obligations of the
Company to the Purchaser, including without limitation, those obligations of
the
Company under the Series B Preferred Stock and Transaction Documents.
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 those certain guarantor
security agreements (each, a “Guarantor Security Agreement” and collectively,
the “Guarantor Security Agreements”), each dated September 28, 2007 between
Purchaser and each Subsidiary. Each Subsidiary acknowledges and agrees that
the
term “Obligations”
as
defined in the applicable Guarantor Security Agreement, includes all obligations
of the Company to the Purchaser, including without limitation, those obligations
of the Company under the Series B Preferred Stock and Transaction Documents.
The
parties further acknowledge and agree that the lien on the personal property
of
XFSC does not include the accounts receivable of XFSC as is set forth in XFSC’s
security agreement with Purchaser and that liens granted pursuant to the
Guarantor Security Agreements are and shall remain expressly subordinated and
junior to the liens of Gottbetter as further set forth in the Guarantor Security
Agreements.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company hereby represents and warrants to the Purchaser as of the date of this
Agreement as follows:
3.1 Organization
and Qualification.
The
Company is a corporation duly organized and validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated, and
has
all requisite corporate power and authority to carry on its business as now
conducted. The Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which its ownership of property
or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect. As used in this
Agreement, “Material Adverse Effect” means any material adverse effect on the
business, properties, assets, operations, results of operations, or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole,
or on the transactions contemplated hereby or by the agreements and instruments
to be entered into in connection herewith, or on the authority or ability of
the
Company to perform its obligations in all material respects under the
Transaction Documents.
3.2 Subsidiaries.
The
Company has no subsidiaries other than the Subsidiaries. The Company owns,
directly or indirectly, all of the capital stock of each Subsidiary, free and
clear of any and all Liens (as defined in Section 8.3), except Permitted Liens
(as defined in Section 8.3), and all the issued and outstanding shares of
capital stock of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights. Each Subsidiary is
a
corporation duly organized and validly existing and in good standing under
the
laws of the jurisdiction in which it is incorporated, and has all requisite
corporate power and authority to carry on its business as now conducted. Each
Subsidiary is duly qualified as a foreign corporation to do business and is
in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect.
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.
5
3.4 Capitalization.
(a) As
of the
date hereof and without giving effect to the sale of Securities at Closing
as
contemplated hereby, the Company’s authorized capital stock consists of (1)
100,000,000 shares of Common Stock, par value $.001 per share, of which
12,940,065 shares are outstanding and (2) 10,000,000 shares of preferred stock,
par value $.001 per share, of which (x) 1,000 shares have been designated as
Series A Convertible Preferred Stock, par value $0.001 per share, of which
2
shares are outstanding and included in the Common Stock shares reserved above,
and (y) 250 shares have been designated as Series B Convertible Preferred Stock,
par value $0.001, of which 200 shares are outstanding. All of such outstanding
shares have been, or upon issuance will be, validly issued, are fully paid
and
nonassessable. 14,575,095 shares of Common Stock are reserved for issuance
upon
the exercise or conversion of all outstanding warrants, convertible notes,
options, or other securities exchangeable, convertible or exercisable into
shares of Common Stock
(b) Except
for the Securities, or as disclosed in Schedule 3.4(b) attached
hereto:
(i) no
holder
of shares of the Company’s capital stock has any preemptive rights or any other
similar rights or has been granted or holds any Liens or encumbrances suffered
or permitted by the Company;
(ii) there
are
no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any shares of capital
stock of the Company or any Subsidiary, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or
may
become bound to issue additional shares of capital stock of the Company or
any
Subsidiary or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any shares of capital
stock of the Company or any Subsidiary;
(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;
6
(vii) there
are
no securities or instruments containing antidilution or similar provisions
that
will be triggered by the issuance of the Securities; and
(viii) the
Company does not have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement.
3.5 Issuance
of Securities.
(a) The
Securities to be issued hereunder are duly authorized and, upon payment and
issuance in accordance with the terms hereof, shall be free from all taxes,
Liens and charges with respect to the issuance thereof. As of the Closing Date,
the Company has authorized and has reserved free of preemptive rights and other
similar contractual rights of stockholders, a number of its authorized but
unissued shares of Common Stock equal to one hundred 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, that certain First Amendment
to
Registration Rights Agreement to be entered into between the Company and the
Purchaser on even date herewith in the form attached hereto as Exhibit
D
(the
“Registration Rights Agreement Amendment”), which amends that certain
Registration Rights Agreement dated as of September 28, 2007 (the “Registration
Rights Agreement”), which First Amendment to the Registration Rights Agreement
is the Security Agreement, the Certificate of Designations for the Series B
Preferred Stock, 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 defined in Section 3.6),
(iii) application(s) to each Trading Market for the listing of the
Conversion Shares and Warrant Shares for trading thereon in the time and manner
required thereby, and (iv) the filing of Form D with the Commission and
such filings as are required to be made under applicable state securities
laws,
the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental or any regulatory
agency, self-regulatory organization or any other Person (as defined in Section
3.12) in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case, in accordance
with the terms hereof or thereof. The
Company is unaware of any facts or circumstances relating to the Company or
its
Subsidiaries which might prevent the Company from obtaining or effecting any
of
the foregoing.
8
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.
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 or any of its affiliates)
relating to or arising out of the transactions contemplated hereby. The Company
shall pay, and hold the Purchaser harmless against, any liability, loss or
expense (including, without limitation, reasonable attorney’s fees and
out-of-pocket expenses) arising in connection with any claim for any such fees
or commissions.
3.12 Litigation.
Except
as disclosed in Schedule 3.12 or as disclosed in the SEC Documents, there is
no
action, suit, written notice of violation, or written notice of any proceeding
pending or, to the knowledge of the Company, threatened against or affecting
the
Common Stock or the Company, any Subsidiary or any of their respective executive
officers, directors or properties before or by any court, arbitrator,
governmental or administrative agency, regulatory authority (federal, state,
county, local or foreign), self regulatory authority or Trading Market
(collectively, an “Action”) which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or
the
Securities or (ii) would, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. To the Company’s
knowledge, neither the Company nor any Subsidiary, nor any director or executive
officer thereof (in his/her capacity as such), is or, within the last five
years, has been the subject of any Action involving a claim of violation of
or
liability under federal or state securities laws or a claim of breach of
fiduciary duty. To the knowledge of the Company, there has not been, and there
is not pending or threatened in writing, any investigation by the United States
Securities and Commission (the “Commission” or “SEC”) involving the Company or
any current director or executive officer of the Company. The Commission has
not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company under the Exchange Act or the
Securities Act. There is no action, suit, claim, investigation, arbitration,
alternate dispute resolution proceeding or other proceeding pending or, to
the
knowledge of the Company, threatened in writing against or involving the Company
or any of its properties or assets, which individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect. There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or any
executive officers or directors of the Company in their capacities as such,
which individually or in the aggregate, would reasonably be expected to have
a
Material Adverse Effect.
9
3.13 Indebtedness
and Other Contracts.
Except
as disclosed in the SEC Documents (as defined in Section 3.14), neither the
Company nor any Subsidiary (a) has any outstanding Indebtedness (as defined
below in this Section 3.13), (b) is a party to any contract, agreement or
instrument, the violation of which, or default under, by any other party to
such
contract, agreement or instrument would result in a Material Adverse Effect,
(c) is in violation of any term of or in default under any contract,
agreement or instrument relating to any Indebtedness, except where such
violations and defaults would not result, individually or in the aggregate,
in a
Material Adverse Effect, or (d) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the
judgment of the Company’s officers, has or is expected to have a Material
Adverse Effect. For purposes of this Agreement: (x) “Indebtedness” of any
Person means, without duplication (i) all indebtedness for borrowed money,
(ii) all obligations issued, undertaken or assumed as the deferred purchase
price of property or services (other than trade payables entered into in the
ordinary course of business), (iii) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and other similar
instruments, (iv) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses, (v) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect
to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in
the
event of default are limited to repossession or sale of such property),
(vi) all monetary obligations under any leasing or similar arrangement
which, in connection with generally accepted accounting principles, consistently
applied for the periods covered thereby, is classified as a capital lease,
(vii) all indebtedness referred to in clauses (i) through (vi) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, Lien, pledge, change,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable
for
the payment of such indebtedness, and (viii) all Contingent Obligations in
respect of indebtedness or obligations of others of the kinds referred to in
clauses (i) through (vii) above; (y) “Contingent Obligation” means, as
to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) “Person” means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust,
an
unincorporated organization and a government or any department or agency
thereof.
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
September 30, 2007:
(a) there
has
been no Material Adverse Effect, and no event or circumstance has occurred
or
exists with respect to the Company or its businesses, properties, operations
or
financial condition, which, under Exchange Act, Securities Act, or rules or
regulations of any Trading Market, requires public disclosure or announcement
by
the Company but which has not been so publicly announced or disclosed;
(b) the
Company has not:
(i) issued
any stock, bonds or other corporate securities or any right, options or warrants
with respect thereto, except pursuant to the exercise or conversion of
securities outstanding as of such date;
(ii) borrowed
any amount in excess of $250,000 or incurred or become subject to any other
liabilities in excess of $250,000 (absolute or contingent) except current
liabilities incurred in the ordinary course of business which are comparable
in
nature and amount to the current liabilities incurred in the ordinary course
of
business during the comparable portion of its prior fiscal year, as adjusted
to
reflect the current nature and volume of the business of the
Company;
(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;
12
(vii) suffered
any material losses or waived any rights of material value, whether or not
in
the ordinary course of business, or suffered the loss of any material amount
of
prospective business;
(viii) made
any
changes in employee compensation except in the ordinary course of business
and
consistent with past practices;
(ix) made
capital expenditures or commitments therefor that aggregate in excess of
$250,000;
(x) entered
into any material transaction, whether or not in the ordinary course of business
that has not been disclosed in the SEC Documents;
(xi) made
charitable contributions or pledges in excess of $10,000;
(xii) suffered
any material damage, destruction or casualty loss, whether or not covered by
insurance;
(xiii) experienced
any material problems with labor or management in connection with the terms
and
conditions of their employment;
(xiv) altered
its method of accounting, except to the extent required by GAAP;
(xv) issued
any equity securities to any officer, director or affiliate (as such term is
defined in Rule 144 of the Securities Act), except pursuant to existing Company
stock, option, equity incentive or similar incentive plans; or
(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.
13
3.17 Off-Balance
Sheet Arrangements.
There
is no transaction, arrangement, or other relationship between the Company and
an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed
or
that if made or not made would be reasonably likely to have a Material Adverse
Effect.
3.18 Foreign
Corrupt Practices.
None of
the Company, any Subsidiary, nor any of their respective directors, officers,
agents, employees or other Persons acting on behalf of such subsidiaries has,
in
the course of their respective actions for or on behalf of the Company or any
of
its subsidiaries (a) used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity,
(b) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds, (c) violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as
amended or (d) made any unlawful bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
3.19 Transactions
With Affiliates.
Except
as set forth in the SEC Documents or as disclosed in Schedule 3.19 attached
hereto, none of the officers, directors or employees of the Company is presently
a party to any transaction with the Company or any Subsidiary (other than for
ordinary course services as employees, officers or directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or
from,
or otherwise requiring payments to or from any such officer, director or
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any such officer, director, or employee has
a
substantial interest or is an officer, director, trustee or
partner.
3.20 Insurance.
Except
as disclosed in Schedule 3.20, the Company and each Subsidiary are insured
by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and each Subsidiary are
engaged. Neither the Company nor any Subsidiary has been refused any insurance
coverage sought or applied for and neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
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.
14
3.22 Title.
Except
as set forth in the SEC Documents or Schedule 3.22, the Company and each
Subsidiary have good and marketable title to all personal property owned by
them
which is material to their respective business, in each case free and clear
of
all Liens. Any real property and facilities held under lease by the Company
or
any Subsidiary are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use
made
and proposed to be made of such property and buildings by the Company or any
Subsidiary.
3.23 Intellectual
Property Rights.
The
Company and its Subsidiaries own or possess the rights to use all patents,
trademarks, domain names (whether or not registered) and any patentable
improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations which are necessary for the conduct
of
its business as now conducted (collectively, the “Intellectual Property Rights”)
without any conflict with the rights of others, except any failures as,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect. Neither the Company nor any Subsidiary has received a written
notice that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the knowledge
of the Company, all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights. The Company and its Subsidiaries have taken reasonable measures
to protect the value of the Intellectual Property Rights.
3.24 Environmental
Laws.
The
Company and each of its Subsidiaries (a) are in compliance with any and all
Environmental Laws (as hereinafter defined), (b) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws
to conduct their respective businesses and (c) are in compliance with all
terms and conditions of any such permit, license or approval where, in each
of
the foregoing clauses (a), (b) and (c), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term “Environmental Laws” means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
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.
15
3.26 Sarbanes-Oxley
Act;
Internal Accounting and Disclosure Controls.
The
Company is in compliance in all material respects with the requirements of
the
Sarbanes-Oxley 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.
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.
16
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 September 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.
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.
17
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF THE PURCHASER
The
Purchaser hereby represents and warrants to the Company as of the date of this
Agreement as follows:
4.1 Organization;
Authority.
The
Purchaser is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with full right,
corporate or partnership power and authority to enter into and to consummate
the
transactions contemplated by the Transaction Documents and otherwise to carry
out its obligations thereunder. The execution, delivery and performance by
the
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of the
Purchaser. Each Transaction Document to which it is a party has been duly
executed by the Purchaser, and when delivered by the Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding obligation
of the Purchaser, enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.
4.2 Own
Account.
The
Purchaser understands that the Securities are “restricted securities” and have
not been registered under the Securities Act or any applicable state securities
law and is acquiring the Securities as principal for its own account and not
with a view to or for distributing or reselling such Securities or any part
thereof except in compliance with the Securities Act, has no present intention
of distributing any of such Securities and has no arrangement or understanding
with any other persons regarding the distribution of such Securities (this
representation and warranty not limiting the Purchaser’s right to sell the
Securities pursuant to a Registration Statement (defined below) or otherwise
in
compliance with applicable federal and state securities laws), except in
compliance with the Securities Act. The Purchaser is acquiring the Securities
hereunder in the ordinary course of its business. The Purchaser does not have
any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.
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.
18
4.5 General
Solicitation.
The
Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in
any
newspaper, magazine or similar media or broadcast over television or radio
or
presented at any seminar or any other general solicitation or general
advertisement.
4.6 No
Short Position.
Neither
the Purchaser nor any of its affiliates has an open short position in the Common
Stock of the Company. From and after Closing, the Purchaser will not use any
share of Common Stock acquired pursuant to this Agreement to cover any short
position until such time as the Registration Statement covering such share
of
Common Stock has been declared effective by the Commission. For purposes of
this
Agreement a “short sale” or “short position” includes, without limitation, all
“short sales” as defined in Rule 200 promulgated under Regulation SHO under the
1934 Act and all types of direct and indirect stock pledges, forward sale
contracts, options, puts, calls, swaps and similar arrangements (including
on a
total return basis), and sales and other transactions through non-US broker
dealers or foreign regulated brokers.
ARTICLE
V
CONDITIONS
TO CLOSING OF THE PURCHASER
The
obligation of the Purchaser to purchase the Securities at the Closing is subject
to the fulfillment to the Purchaser’s satisfaction on or prior to the Closing
Date of each of the following conditions, any of which may be waived by such
Purchaser:
5.1 Representations
and Warranties Correct.
The
representations and warranties in Article III hereof shall be true and correct
when made, and shall be true and correct on the Closing Date with the same
force
and effect as if they had been made on and as of the Closing Date.
5.2 Performance.
All
covenants, agreements and conditions contained in this Agreement to be performed
or complied with by the Company on or prior to the Closing Date shall have
been
performed or complied with by the Company in all material respects.
5.3 No
Impediments.
Neither
the Company nor the Purchaser shall be subject to any order, decree or
injunction of a court or administrative agency of competent jurisdiction that
prohibits the transactions contemplated hereby or would impose any material
limitation on the ability of such Purchaser to exercise full rights of ownership
of the Securities. At the time of the Closing, the purchase of the Securities
to
be purchased by the Purchaser hereunder shall be legally permitted by all laws
and regulations to which the Purchaser and the Company are subject.
5.4 Other
Agreements and Documents.
The
Company shall have delivered the following agreements and
documents:
(a) Certificates,
registered in the name of the Purchaser, representing the Preferred
Shares;
19
(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
First
Amendment to the Registration Rights Agreement in the form of Exhibit
D
hereto,
executed by the Company;
(e) An
opinion of counsel to the Company, dated the date of the Closing, substantially
in the form of Exhibit
E
hereto,
with such exceptions and limitations as shall be reasonably acceptable to
counsel to the Purchaser;
(f) The
Irrevocable Transfer Agent Instructions, substantially in the form of
Exhibit
F
attached
hereto, shall have been delivered to the Company’s transfer agent.
(g) To
the
extent necessary, Financing Statements on Form UCC-1 with respect to all
personal property and assets of the Company and each Subsidiary;
(h) A
Certificate of Good Standing from the state of incorporation of the Company
and
each Subsidiary;
(i) A
certificate of the Company’s CEO, dated the Closing Date, certifying
(i) the fulfillment of the conditions specified in Sections 5.1 and 5.2 of
this Agreement, (ii) the Board resolutions approving this Agreement and the
transactions contemplated hereby, and (iii) other matters as the Purchaser
shall reasonably request; and
(j) A
completed and duly executed Florida documentary stamp tax return on Form
DR-228.
5.5 Certificate
of Designations.
The
Company shall have filed the Amended and Restated Certificate of Designations
for the Series B Preferred Stock in the form attached hereto as Exhibit
A
with the
Delaware Secretary of State.
5.6 Trading
Markets.
The
listing or trading of the Conversion Shares and Warrant Shares on each Trading
Market shall have been approved by such Trading Market authority.
5.7 Gottbetter
Consent.
The
Company shall have obtained the consent of Gottbetter to the transactions
contemplated hereby.
5.8 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.
20
ARTICLE
VI
CONDITIONS
TO CLOSING OF THE COMPANY
The
Company’s obligation to sell the Securities at the Closing is subject to the
fulfillment to its satisfaction on or prior to the Closing Date of each of
the
following conditions:
6.1 Representations.
The
representations made by the Purchaser pursuant to Article IV hereof shall
be true and correct when made and shall be true and correct on the Closing
Date.
6.2 No
Impediments.
Neither
the Company nor the Purchaser shall be subject to any order, decree or
injunction of a court or administrative agency of competent jurisdiction that
prohibits the transactions contemplated hereby or would impose any material
limitation on the ability of the Purchaser to exercise full rights of ownership
of the Securities. At the time of the Closing, the purchase of the Securities
to
be purchased by the Purchaser hereunder shall be legally permitted by all laws
and regulations to which the Purchaser and the Company are subject.
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.
21
7.4 Payment
of Indebtedness.
The
Company shall, and shall cause its subsidiaries to, pay or cause to be paid
when
due all Indebtedness incident to the operations of the Company or its
subsidiaries (including, without limitation, claims or demands of workmen,
materialmen, vendors, suppliers, mechanics, carriers, warehousemen and
landlords) which, if unpaid might become a Lien (except for Permitted Liens)
upon the assets or property of the Company or its subsidiaries, except where
the
Company (or its subsidiary, as the case may be) disputes the payment of such
Indebtedness in good faith by appropriate proceedings.
7.5 Reservation
of Common Stock.
The
Company shall continue to reserve, free of preemptive rights and other similar
contractual rights of stockholders, a number of its authorized but unissued
shares of Common Stock not less than one hundred 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
22
(d) any
information relating to the Company or any subsidiary which would reasonably
be
expected to result in a material adverse effect on its inability to perform
its
obligations of under any Transaction Document.
Any
notice given under this Section 7.7 shall specify the nature and period of
existence of the condition, event, information, development or circumstance,
the
anticipated effect thereof and what actions the Company has taken and/or
proposes to take with respect thereto.
7.8 Compliance
With Agreements.
The
Company shall and shall cause its subsidiaries to comply in all material
respects, with the terms and conditions of all material agreements, commitments
or instruments to which the Company or any of its subsidiaries is a party or
by
which it or they may be bound.
7.9 Other
Agreements.
The
Company shall not enter into any agreement in which the terms of such agreement
would restrict or impair the right or ability to perform of the Company under
any Transaction Document.
7.10 Compliance
With Laws.
The
Company shall and shall cause each of its subsidiaries to duly comply in all
material respects with any material laws, ordinances, rules and regulations
of
any foreign, federal, state or local government or any agency thereof, or any
writ, order or decree, and conform to all valid requirements of governmental
authorities relating to the conduct of their respective businesses, properties
or assets.
7.11 Protection
of Licenses, etc.
The
Company shall and shall cause its subsidiaries to, maintain, defend and protect
to the best of their ability licenses and sublicenses (and to the extent the
Company or a subsidiary is a licensee or sublicensee under any license or
sublicense, as permitted by the license or sublicense agreement), trademarks,
trade names, service marks, patents and applications therefor and other
proprietary information owned or used by it or them, (except where the failure
to defend and protect such licenses and sublicenses would not (a) result in
a
Material Adverse Effect or (b) materially adversely affect the rights of
Purchaser under any Transaction Document) and shall keep duplicate copies of
any
licenses, trademarks, service marks or patents owned or used by it, if any,
at a
secure place selected by the Company.
7.12 Accounts
and Records; Inspections.
(a) The
Company shall keep true records and books of account in which full, true and
correct entries will be made of all dealings or transactions in relation to
the
business and affairs of the Company and its subsidiaries in accordance with
GAAP
applied on a consistent basis.
(b) The
Company shall permit each holder of any Securities or any of such holder’s
officers, employees or representatives during regular business hours of the
Company, upon reasonable notice and as often as such holder may reasonably
request, to visit and inspect the offices and properties of the Company and
its
subsidiaries and to make extracts or copies of the books, accounts and records
of the Company or its subsidiaries at such holder’s expense.
(c) Nothing
contained in this Section 7.12 shall be construed to limit any rights which
a
holder of any Securities may otherwise have with respect to the books and
records of the Company and its subsidiaries, to inspect its properties or to
discuss its affairs, finances and accounts.
23
7.13 Maintenance
of Office.
The
Company will maintain its principal office at the address of the Company set
forth in Section 12.6 of this Agreement where notices, presentments and demands
in respect of this Agreement and any of the Securities may be made upon the
Company, until such time as the Company shall notify the holders of the
Securities in writing, at least thirty (30) days prior thereto, of any change
of
location of such office.
7.14 Use
of
Proceeds.
The
Company shall use all the proceeds received from the sale of the Securities
pursuant to this Agreement solely for the purpose of working capital; the
Company will not use such proceeds for the purpose of paying Indebtedness for
borrowed money except for principal and interest payments, when due, owed to
Gottbetter pursuant to promissory notes issued on October 19 and November 9,
2006, respectively, in the aggregate principal amount of
$5,000,000.
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 the Purchaser beneficially owns any of the Securities, and until such
time as all the Conversion Shares and Warrant Shares are saleable by the
Purchaser without restriction as to volume or manner of sale under Rule 144
under the Securities Act, the Company shall timely file all reports required
to
be filed with the Commission pursuant to the Exchange Act, and the Company
shall
not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination. As long as the Purchaser owns Securities,
Conversion Shares or Warrant Shares, the Company will prepare and furnish to
the
Purchaser and make publicly available in accordance with Rule 144 or any
successor rule such information as is required for the Purchaser to sell the
Securities under Rule 144 without regard to the volume and manner of sale
limitations. The Company further covenants that it will take such further action
as any holder of Securities, Conversion Shares or Warrant Shares may reasonably
request, all to the extent required from time to time to enable such Person
to
sell such Securities, Conversion Shares or Warrant Shares without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144.
7.17 Listing
Maintenance.
The
Company hereby agrees to use best efforts to maintain the listing or trading
of
the Common Stock on a Trading Market. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Trading Market, it will
include in such application all of the Conversion Shares and Warrant Shares,
and
will take such other action as is necessary to cause all of the Conversion
Shares and Warrant Shares to be listed on such other Trading Market as promptly
as possible. The Company will take all action reasonably necessary to continue
the listing and trading of its Common Stock on, and will comply in all respects
with the Company’s reporting, filing and other obligations under the bylaws or
rules of, each such Trading Market on which the Company’s Common Stock is listed
or trades.
24
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.
For
purposes of Articles VII-IX, the term “subsidiary” shall be deemed to include
each Subsidiary and any subsidiary of the Company acquired or formed after
the
date hereof.
ARTICLE
VIII
NEGATIVE
COVENANTS
The
Company hereby covenants and agrees, so long as more than 12.5% of the aggregate
amount of authorized shares of Series B Preferred Stock remain outstanding
(or
such amount as adjusted for stock splits, recapitalizations and similar
transactions), it will not (and not allow any subsidiary to), without the prior
written consent of the holder(s) of more than 50% of number of shares of Series
B Preferred Stock outstanding (the “Majority Holders”), directly or indirectly:
8.1 Distributions
and Redemptions.
(i) Except with respect to the Series B Preferred Stock, declare or pay any
dividends or make any distributions to any holder(s) of any shares of capital
stock of the Company or (ii) purchase, redeem or otherwise acquire for
value, directly or indirectly, any shares of Common Stock of the Company or
warrants or rights to acquire such Common
Stock, except as may be required by the terms of the Series B Preferred Stock;
or (iii) purchase, redeem or otherwise acquire for value, directly or
indirectly, any shares of preferred stock of the Company or warrants or rights
to acquire such stock, except as may be required by the terms of such preferred
stock.
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;
25
(b) liens
of
workmen, materialmen, vendors, suppliers, mechanics, carriers, warehouseman
and
landlords or other like liens, incurred in the ordinary course of business
for
sums not then due or being contested in good faith, if an adverse decision
in
which contest would not materially affect the business of the
Company;
(c) liens
existing on the date hereof securing Indebtedness of the Company or any
subsidiary that are senior to liens on the same assets held by the Purchaser
and
that are filed prior to the date hereof and disclosed in Schedule 3.22
hereto;
(d) liens
securing Indebtedness of the Company or any subsidiary which is in an aggregate
principal amount not exceeding $250,000 and which liens are subordinate to
liens
on the same assets held by the Purchaser;
(e) statutory
liens of landlords, statutory liens of banks and rights of set-off, and other
liens imposed by law, in each case incurred in the ordinary course of business
(i) for amounts not yet overdue or (ii) for amounts that are overdue
and that are being contested in good faith by appropriate proceedings, so long
as such reserves or other appropriate provisions, if any, as shall be required
by generally accepted accounting principles shall have been made for any such
contested amounts;
(f) liens
incurred or deposits made in the ordinary course of business in connection
with
workers’ compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);
(g) any
attachment or judgment lien not constituting an Event of Default;
(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;
26
(j) liens
in
favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of
goods;
(k) any
zoning or similar law or right reserved to or vested in any governmental office
or agency to control or regulate the use of any real property;
(l) liens
securing obligations (other than obligations representing debt for borrowed
money) under operating, reciprocal easement or similar agreements entered into
in the ordinary course of business of the Company and its subsidiaries;
(m) the
replacement, extension or renewal of any lien permitted by this Section 8.3
upon
or in the same property theretofore subject or the replacement, extension or
renewal (without increase in the amount or change in any direct or contingent
obligor) of the Indebtedness secured thereby; and
(n) Liens
on
accounts receivable, security interests, loan documents, reserve accounts and
the proceeds thereof of the Company and its subsidiaries securing obligations
under any Permitted Financing Indebtedness (defined below); provided that such
Liens are: (i) placed on assets of the Company and its subsidiaries not securing
obligations of the Company to Purchaser under the Transaction Documents; or
(ii)
expressly subordinated to the Liens on the assets of the Company and its
subsidiaries granted to Purchaser under the Transaction Documents.
All
of
the foregoing Liens described in subsections (a) - (n) above shall be referred
to as “Permitted Liens”.
8.4 Indebtedness.
Create,
incur, assume, suffer, permit to exist, or guarantee, directly or indirectly,
any Indebtedness, excluding, however, from the operation of this
covenant:
(a) Indebtedness
to the extent disclosed in the SEC Documents filed prior to the date hereof
and
otherwise existing on the date hereof;
(b) Indebtedness
which may, from time to time be incurred or guaranteed by the Company which
in
the aggregate principal amount does not exceed $250,000 and is subordinate
to
the Indebtedness under this Agreement;
(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;
27
(g) accounts
or notes payable arising out of the purchase of merchandise, supplies,
equipment, software, computer programs or services in the ordinary course of
business;
(h) Indebtedness
of XFSC to Northern Healthcare LLC or its affiliates in connection with a
revolving credit facility not to exceed $2.5 million to be used by XFSC to
provide financing to certain clients of Medical Solutions Management, Inc.;
or
(i) Indebtedness
of the Company and its subsidiaries to a third party relating to a credit
facility or similar financing arrangement not to exceed $25 million between
such
third party and XFSC.
The
foregoing Indebtedness described in subsections (h) - (i) above shall be
referred to as “Permitted Financing Indebtedness”.
Purchaser
hereby agrees that clause (i) of Section 8.4 of that certain Securities Purchase
Agreement, dated September 28, 2007, between Purchaser and the Company is hereby
amended and restated in its entirety to read as is set forth in clause (i)
of
Section 8.4 of this Agreement.
8.5 Capital
Stock.
Except
for issuances to the Purchaser, issue any equity security that is senior to
or
ranks pari
passu
with the
Series B Preferred Stock, whether with respect to right of payment of
redemptions, interest, damages or upon liquidation or dissolution or
otherwise.
8.6 Liquidation
or Sale.
Sell,
transfer, lease or otherwise dispose of 10% or more of its consolidated assets
(as shown on the most recent financial statements of the Company or the
subsidiary, as the case may be) in any single transaction or series of related
transactions (other than the sale of inventory in the ordinary course of
business), or liquidate, dissolve, recapitalize or reorganize in any form of
transaction.
8.7 Change
of Control Transaction.
Enter
into a Change in Control Transaction. For purposes of this Agreement, “Change in
Control Transaction” means the occurrence of (a) an acquisition by an
individual or legal entity or “group” (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act) of effective control (whether through legal
or beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of fifty percent (50%) of the voting securities of
the
Company (except that the acquisition of Securities by the Purchaser, Medical
Solutions Management, Inc., or Purchaser’s or Medical Solutions Mangagment
Inc.’s designees or affiliates, 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).
28
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. Notwithstanding anything
to
the contrary contained herein, Purchaser hereby consents, pursuant to the terms
of this Agreement and that certain Securities Purchase Agreement, dated
September 28, 2007, between Purchaser and the Company to the following loans
made by the Company to Patient Access Solutions, Inc. (“PAS”), each of which is
evidenced by a secured promissory note:
|
Principal
Amount
|
Date
|
|
|
$25,000
|
September
30, 2007
|
|
|
$25,000
|
October
15, 2007
|
|
|
$16,667
|
October
30, 2007
|
|
|
$16,667
|
November
15, 2007
|
|
|
$16,667
|
November
30, 2007
|
|
|
$16,667
|
December
15, 2007
|
|
|
$16,667
|
December
31, 2007
|
8.10 Transactions
with Affiliates.
(a) Make
any
intercompany transfers to XFSC of monies or other assets in any single
transaction or series of transactions, except as otherwise permitted in this
Agreement.
(b) Engage
in
any transaction with any of the officers, directors, employees or affiliates
of
the Company or of its subsidiaries, except on terms no less favorable to the
Company or the subsidiary as could be obtained in an arm’s length
transaction.
(c) Divert
(or permit anyone to divert) any business or opportunity of the Company or
subsidiary to any other corporate or business entity.
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.
29
8.12 Investments.
Make
any investments in excess of $250,000 in a calendar year in the aggregate in,
or
purchase any stock, option, warrant, or other security or evidence of
Indebtedness of, any Person (exclusive of any subsidiary), other than (i)
obligations of the United States Government or certificates of deposit or other
instruments maturing within one year from the date of purchase from financial
institutions with capital in excess of $50 million; (ii) loans made to, and
purchases of accounts receivable of, healthcare providers in the ordinary course
of business of XFSC and (iii) loans in the aggregate amount of $133,335 from
the
Company to PAS.
8.13 Registration
Statements.
Without
the consent of the Purchaser, file any registration statement with the
Commission until the earlier of: (i) 60 Trading Days following the date that
a
registration statement or registration statements registering all the Conversion
Shares and Warrant Shares is declared effective by the Commission; and (ii)
the
date the Conversion Shares and Warrant Shares are saleable by Purchaser under
Rule 144 under the Securities Act without limitation as to volume or manner
of
sale; provided that this Section shall not prohibit the Company from filing
a
registration statement on Form S-4 or other applicable from for securities
to be
issued in connection with acquisitions of businesses by the Company or its
subsidiaries, or post effective amendments to registration statements that
were
declared effective prior to the date hereof or to a registration statement
filed
with the Commission on Forms S-4 or S-8.
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;
30
(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;
(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;
31
(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.
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.
32
(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.
33
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 10.1. Certificates evidencing the Conversion
Shares and Warrant Shares shall not contain any legend (including the legend
set
forth in Section 10.1 hereof), (i) while a registration statement
(including the Registration Statement) covering the resale of such security
is
effective under the Securities Act, or (ii) following any sale of such
Conversion Shares or Warrant Shares pursuant to Rule 144, or (iii) if such
Conversion Shares or Warrant Shares are eligible for sale under Rule 144 by
the
Purchaser without limitation as to volume or manner of sale, or (iv) if
such legend is not required under applicable requirements of the Securities
Act
(including judicial interpretations and pronouncements issued by the Staff
of
the Commission). The Company shall cause its counsel to issue a legal opinion
to
the Company’s transfer agent promptly after the effective date of a registration
statement covering such Conversions Shares or Warrant Shares, if required by
the
Company’s transfer agent, to effect the removal of the legend hereunder. If all
or any portion of the Preferred Shares or a Warrant is exercised at a time
when
there is an effective registration statement to cover the resale of the
Conversion Shares or the Warrant Shares, such Conversions Shares and Warrant
Shares, as the case may be, shall be issued free of all legends. The Company
agrees that following the effective date of the registration statement covering
Conversion Shares or Warrant Shares or at such time as such legend is no longer
required under this Section 10.1, it will, no later than five (5) Trading
Days following the delivery by the Purchaser to the Company or the Company’s
transfer agent of a certificate representing Conversion Shares or Warrant
Shares, as the case may be, issued with a restrictive legend (such date, the
“Delivery Date”), deliver or cause to be delivered to the Purchaser a
certificate representing such Securities that is free from all restrictive
and
other legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section. Whenever a certificate representing
the
Conversion Shares or Warrant Shares is required to be issued to the Purchaser
without a legend, in lieu of delivering physical certificates representing
the
Conversion Shares or Warrant Shares, provided the Company’s transfer agent is
participating in the Depository Trust Company (“DTC”) Fast Automated Securities
Transfer program, the Company shall use its reasonable best efforts to cause
its
transfer agent to electronically transmit the Conversion Shares or Warrant
Shares to the Purchaser by crediting the account of such Purchaser’s Prime
Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system
(to the extent not inconsistent with any provisions of this Agreement).
10.2 Liquidated
Damages.
The
Company understands that a delay in the delivery of unlegended certificates
for
the Conversion Shares or the Warrant Shares as set forth in Section 10.1
hereof beyond the Delivery Date could result in economic loss to the Purchaser.
If the Company fails to deliver to a Purchaser such shares via DWAC or a
certificate or certificates pursuant to this Section hereunder by the
Delivery Date, the Company shall pay to the Purchaser, in cash,
as
partial liquidated damages and not as a penalty, for each $500 of Conversion
Shares or Warrant Shares (based on the closing price of the Common Stock
reported by the principal Trading Market on the date such Securities are
submitted to the Company’s transfer agent) subject to Section 10.1, $10 per
Trading Day (increasing to $15 per Trading Day five (5) Trading Days after
such
damages have begun to accrue and increasing to $20 per Trading Day ten (10)
Trading Days after such damages have begun to accrue) for each Trading Day
after
the Legend Removal Date until such certificate is delivered.
Nothing
herein shall limit the Purchaser’s right to pursue actual damages for the
Company’s failure to deliver certificates representing any Securities as
required by the Transaction Documents, and the Purchaser shall have the right
to
pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
34
10.3 Sales
by the Purchaser.
The
Purchaser agrees that the removal of the restrictive legend from certificates
representing Securities as set forth in Section 10.1 is predicated upon the
Company’s reliance that the Purchaser will sell any Securities pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption
therefrom.
ARTICLE
XI INDEMNIFICATION
11.1 Indemnification
by the Company.
The
Company agrees to defend, indemnify and hold harmless the Purchaser and shall
reimburse the Purchaser for, from and against each claim, loss, liability,
cost
and expense (including without limitation, interest, penalties, costs of
preparation and investigation, and the actual fees, disbursements and expenses
of attorneys, accountants and other professional advisors) (collectively,
“Losses”) directly or indirectly relating to, resulting from or arising out of
(a) any untrue representation, misrepresentation, breach of warranty or
non-fulfillment of any covenant, agreement or other obligation by or of the
Company contained in any Transaction Document or
in any
certificate, document, or instrument delivered
by the
Company
to the
Purchaser pursuant to Section 5.4(i) hereof;
or (b)
any action instituted against the Purchaser or its affiliates, by any
stockholder of the Company who is not an affiliate of the Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of the Purchaser’s representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings the Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by the Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance).
11.2 Indemnification
by the Purchaser.
Purchaser shall defend, indemnify and hold harmless the Company and its
subsidiaries and shall reimburse the Company and its Subsidiaries for, from
and
against each Loss directly or indirectly relating to, resulting from or arising
out of any untrue representation, misrepresentation, breach of warranty or
non-fulfillment of any covenant, agreement or other obligation by or of the
Purchaser contained in any Transaction Document delivered to the Company or
any
of its subsidiaries pursuant thereto.
11.3 Procedure.
(a) The
indemnified party shall promptly notify the indemnifying party of any claim,
demand, action or proceeding for which indemnification will be sought under
this
Agreement; provided, that the failure of any party entitled to indemnification
hereunder to give notice as provided herein shall not relieve the indemnifying
party of its obligations under this Article XI except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice.
35
(b) In
case
any such action, proceeding or claim is brought against an indemnified party
in
respect of which indemnification is sought hereunder, the indemnifying party
shall be entitled to participate in and, unless in the reasonable, good-faith
judgment of the indemnified party a conflict of interest between it and the
indemnifying party exists with respect to such action, proceeding or claim
(in
which case the indemnifying party shall be responsible for the reasonable fees
and expenses of one separate counsel for the indemnified party), to assume
the
defense thereof with counsel reasonably satisfactory to the indemnified party.
If the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense (but not
control) with counsel of its choice at its sole cost and expense (except that
the indemnifying party shall remain responsible for the reasonable fees and
expenses of one separate counsel for the indemnified party in the event in
the
reasonable, good-faith judgment of the indemnified party a conflict of interest
between it and the indemnifying party exists).
(c) In
the
event that the indemnifying party advises an indemnified party that it will
contest such a claim for indemnification hereunder, or fails, within thirty
(30)
days of receipt of any indemnification notice to notify, in writing, such person
of its election to defend, settle or compromise, at its sole cost and expense,
any action, proceeding or claim (or discontinues its defense at any time after
it commences such defense), then the indemnified party may, at its option,
defend, settle or otherwise compromise or pay such action or claim. In any
event, unless and until the indemnifying party elects in writing to assume
and
does so assume the defense of any such claim, proceeding or action, the
indemnified party’s costs and expenses arising out of the defense, settlement or
compromise of any such action, claim or proceeding shall be Losses subject
to
indemnification hereunder.
(d) The
parties shall cooperate fully with each other in connection with any negotiation
or defense of any such action or claim and shall furnish to the other party
all
information reasonably available to such party which relates to such action
or
claim. The each party shall keep the other party fully apprised at all times
as
to the status of the defense or any settlement negotiations with respect
thereto.
(e) Notwithstanding
anything in this Article XI to the contrary, the indemnifying party shall not,
without the indemnified party’s prior written consent, settle or compromise any
claim or consent to entry of any judgment in respect thereof which imposes
any
future obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to
the
indemnified party of a release from all liability in respect of such claim.
The
indemnification obligations to defend the indemnified party required by this
Article XI shall be made by periodic payments of the amount thereof during
the
course of investigation or defense, as and when the Loss is incurred, so long
as
the indemnified party shall refund such moneys if it is ultimately determined
by
a court of competent jurisdiction that such party was not entitled to
indemnification. The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
36
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:
|
||
|
MDwerks,
Inc.
|
||
|
1020
NW 6th
Street
|
||
|
Deerfield
Beach, FL 33442
|
||
|
Telephone:
(954) 389-8300
|
||
|
Facsimile:
(954) 427-5871
|
||
|
Attention:
Howard B. Katz, CEO
|
||
|
with
a copy to:
|
||
|
Stephen
P. Katz, Esq.
|
||
|
Peckar
& Abramson, P.C.
|
||
|
70
Grand Avenue
|
||
|
River
Edge, NJ 07661
|
||
|
Telephone:
(201) 343-3434
|
||
|
Facsimile:
(201) 343-6306
|
37
|
if
to the Purchaser:
|
||
|
Vicis
Capital Master Fund
|
||
|
Tower
56, Suite 700
|
||
|
126
E. 56th Street, 7th Floor
|
||
|
New
York, NY 10022
|
||
|
Phone:
(212) 909-4600
|
||
|
Fax:
(212) 909-4601
|
||
|
Attn:
Shad Stastney
|
||
|
with
a copy to:
|
||
|
Andrew
D. Ketter, Esq.
|
||
|
Quarles
& Brady LLP
|
||
|
411
East Wisconsin Avenue
|
||
|
Milwaukee,
WI 53202
|
||
|
Phone:
(414) 277-5629
|
||
|
Fax:
(414) 978-8972
|
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.
38
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. The Company shall pay all reasonable,
documented third-party fees and expenses incurred by the Purchaser in connection
with the enforcement of this Agreement or any of the other Transaction
Documents, including, without limitation, all actual reasonable attorneys’ fees
and expenses.
12.10 Consent
to Jurisdiction; Waiver of Jury Trial.
EACH
OF
THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS
TO
THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED THE STATE
AND
COUNTY OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT AND THE TRANSACTION DOCUMENTS. EACH OF THE PARTIES
TO
THIS AGREEMENT IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY
OBJECTION WHICH SUCH PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE
OF ANY SUCH PROCEEDING BROUGHT IN ANY SUCH COURTS AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN ANY SUCH COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY RIGHT TO TRIAL BY JURY IN ANY SUCH LEGAL PROCEEDING. EACH OF THE
PARTIES TO THIS AGREEMENT HEREBY CONSENTS TO SERVICE OF PROCESS BY NOTICE IN
THE
MANNER SPECIFIED IN SECTION 12.6 AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION SUCH PARTY MAY NOW OR HEREAFTER HAVE
TO
SERVICE OF PROCESS IN SUCH MANNER.
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.
39
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]
40
IN
WITNESS WHEREOF, the parties hereto have duly executed this Securities Purchase
Agreement, as of the day and year first above written.
|
COMPANY:
|
||
|
MDWERKS,
INC.
|
||
| |
|
|
| By: | /s/ Howard B. Katz | |
|
Name: Howard B. Katz |
||
| Title: Chief Executive Officer | ||
|
PURCHASER:
|
||
|
VICIS
CAPITAL MASTER FUND
|
||
|
By:
Vicis Capital LLC
|
||
| |
|
|
| By: | /s/ Keith W. Hughes | |
|
Name: Keith
W. Hughes
|
||
|
Title: Chief
Financial Officer
|
||
EXHIBIT
A
FORM
OF AMENDED AND RESTATED CERTIFICATE OF DESIGNATIONS OF
SERIES
B CONVERTIBLE PREFERRED STOCK
EXHIBIT
B
FORM
OF SERIES F WARRANT
EXHIBIT
C
FORM
OF SERIES G WARRANT
EXHIBIT
D
FORM
OF FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
EXHIBIT
E
FORM
OF OPINION OF COUNSEL
EXHIBIT
F
FORM
OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
MDWERKS,
INC.
as
of
January __, 2008
[Name
and
address of Transfer Agent]
Attn:
_____________
Ladies
and Gentlemen:
Reference
is made to that certain Securities Purchase Agreement (the “Purchase
Agreement”), dated January __, 2008, by and between MDwerks, Inc., a Delaware
corporation (the “Company”), and the purchaser named therein (the “Purchasers”)
pursuant to which the Company is issuing to the Purchasers shares of its Series
B Preferred Stock, par value $0.001 per share (the “Preferred Shares”),
convertible into shares of the Company’s common stock, par value $0.001 per
share (the “Common Stock”) and warrants (the “Warrants”) to purchase shares of
the Company’s Common Stock. This letter shall serve as our irrevocable
authorization and direction to you (provided that you are the transfer agent
of
the Company at such time) to issue shares of Common Stock upon conversion of
the
Preferred Shares (the “Conversion Shares”) and exercise of the Warrants (the
“Warrant Shares”) to or upon the order of a Purchaser from time to time upon
(i) surrender to you of a properly completed and duly executed Conversion
Notice or Exercise Notice, as the case may be, in the form attached hereto
as
Exhibit I and Exhibit II, respectively, (ii) in the case of the conversion
of Preferred Shares, a copy of the certificate representing the Preferred Shares
(with the original delivered to the Company) representing the Preferred Shares
being converted or, in the case of Warrants being exercised, a copy of the
Warrants (with the original Warrants delivered to the Company) being exercised
(or, in each case, an indemnification undertaking with respect to such Preferred
Shares or the Warrants in the case of their loss, theft or destruction), and
(iii) delivery of a treasury order or other appropriate order duly executed
by a duly authorized officer of the Company. So long as you have previously
received written confirmation from counsel to the Company that a registration
statement covering resales of the Conversion Shares or Warrant Shares, as
applicable, has been declared effective by the Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933
Act”), and you have not received any subsequent notice by the Company or its
counsel of the suspension or termination of the effectiveness of such
registration statement, then certificates representing the Conversion Shares
and
the Warrant Shares, as the case may be, shall not bear any legend restricting
transfer of the Conversion Shares and the Warrant Shares, as the case may be,
thereby and should not be subject to any stop-transfer restriction; provided,
however, that if you have not previously received written confirmation from
counsel to the Company that a registration statement covering resales of the
Conversion Shares or Warrant Shares, as applicable, has been declared effective
by the SEC under the 1933 Act, then the certificates for the Conversion Shares
and the Warrant Shares shall bear the following legend:
NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR
RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
A
form of
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares and the Warrant Shares has been
declared effective by the SEC under the 1933 Act is attached hereto as Exhibit
III.
Please
be
advised that the Purchasers are relying upon this letter as an inducement to
enter into the Purchase Agreement, and, accordingly, each Purchaser is a third
party beneficiary to these instructions.
Please
execute this letter in the space indicated to acknowledge your agreement to
act
in accordance with these instructions. Should you have any questions concerning
this matter, please contact me at ___________.
|
Very
truly yours,
|
||
|
MDWERKS,
INC.
|
||
| |
|
|
| By: | ||
|
Name:
|
|
|
|
Title:
|
|
|
|
|
||
|
ACKNOWLEDGED
AND AGREED:
|
|||
|
[TRANSFER
AGENT]
|
|||
|
By:
|
|||
|
|
|||
|
Name:
|
|||
|
Title:
|
|||
|
Date:
|
|||
|
|
EXHIBIT
I
MDWERKS,
INC.
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 January __, 2008, by and among the Company and the purchasers named
therein (collectively, the “Purchasers”)
pursuant to which the Company issued to the Purchasers secured convertible
promissory notes (the “Notes”)
and
warrants (the “Warrants”)
to
purchase shares of the Company’s common stock, par value $0.001 per share (the
“Common
Stock”).
Pursuant to the Purchase Agreement, the Company has also entered into a
Registration Rights Agreement with the Purchasers (the “Registration
Rights Agreement”),
dated
as of January __, 2008, pursuant to which the Company agreed, among other
things, to register the Registrable Securities (as defined in the Registration
Rights Agreement), including the shares of Common Stock issuable upon conversion
of the Notes and exercise of the Warrants, under the Securities Act of 1933,
as
amended (the “1933
Act”).
In
connection with the Company’s obligations under the Registration Rights
Agreement, on ________________, 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)—Investment Amounts
|
Investor
|
Investment
Amount
|
|||
|
Gottbetter
Capital Master, Ltd.
|
$
|
5,000,000
|
||
|
Vicis
Capital Master Fund
|
$
|
3,075,000
|
||
Securities
Purchase Agreement
By
and
Between MDwerks, Inc. and Vicis Capital Master Fund
January
18, 2008
Schedule
3.4(b)(i)
|
1.
|
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.
|
|
2.
|
Section
4(o)(iii) of the Securities Purchase Agreement, dated November 9,
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.
|
|
3.
|
Securities
Purchase Agreement by and between MDwerks, Inc. and Vicis Capital
Master
Fund dated September 28, 2007.
|
Securities
Purchase Agreement
By
and
Between MDwerks, Inc. and Vicis Capital Master Fund
January
18, 2008
Schedule
3.4(b)(ii)
See
attached
MDwerks,
Inc.
Fully
Diluted Capital Table
As
of 1/15/08
|
Issued
&
|
|||||||||||||
|
Issued
&
|
Issuable
|
||||||||||||
|
Issuable
|
w/
Reserve
|
||||||||||||
|
Common
Stock Issued
|
12,940,065
|
12,940,065
|
|||||||||||
|
Other
Issued and Issuable:
|
|||||||||||||
|
Preferred
Series A Issued (Common Stock Equivalent)
|
40,000
|
40,000
|
|||||||||||
|
9/28/07
Preferred Series B Issued (Common Stock Equivalent)*
|
888,889
|
1,111,111
|
|||||||||||
|
12/28/07
Preferred Series B (Common Stock Equivalent)*
|
|||||||||||||
|
Warrants
Granted**(Pages 2-3)
|
5,566,345
|
6,503,845
|
|||||||||||
|
Options
Granted (Pages 4-5)
|
3,514,250
|
3,514,250
|
|||||||||||
|
Debt
Conversion (Common Stock Equivalent)**
|
2,222,222
|
3,888,889
|
|||||||||||
|
Total
Other Issued and Issuable
|
12,231,706
|
15,058,095
|
|||||||||||
|
Total
Issued and Issuable
|
25,171,771
|
27,998,160
|
|||||||||||
|
*
Preferred Series B Shares reserved at 125% (included
above)
|
|||||||||||||
|
9/28/07
Preferred Series B
|
888,889
|
1,111,111
|
|||||||||||
|
1/18/08
Preferred Series B
|
-
|
||||||||||||
|
**
Warrants and Debt Conversion reserved at 175% (included
above)
|
|||||||||||||
|
Warrants
Issued with Note
|
750,000
|
1,312,500
|
|||||||||||
|
Warrants
Issued for 9/27/07 Note Deferral
|
500,000
|
875,000
|
|||||||||||
|
Warrants
Issued for 1/18/08 Note Deferral
|
0
|
-
|
|||||||||||
|
Debt
Conversions
|
2,222,222
|
3,888,889
|
|||||||||||
MDwerks,
Inc.
Warrants
As
of 1/15/08
|
Warrant
|
||||||||||||||
|
Warrant
Grant
|
Shares
|
Expiration
|
||||||||||||
|
Date
|
Value
|
Granted
|
Date
|
|||||||||||
|
MDwerks,
Inc.
|
||||||||||||||
|
Thomas
Stephens
|
11/16/05
|
$
|
2.50
|
5,000
|
11/16/08
|
|||||||||
|
Roger
Hermes
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
|||||||||
|
Ronald
Hankins
|
11/16/05
|
$
|
2.50
|
8,800
|
11/16/08
|
|||||||||
|
Rosemarie
Manchio
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
|||||||||
|
Alphonse
Tribuiani
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
|||||||||
|
Carlos
A. Jimenez
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
|||||||||
|
Carlos
A. Jimenez/Jason Beccaris
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
|||||||||
|
Constantine
G. Barbounis
|
11/16/05
|
$
|
2.50
|
20,000
|
11/16/08
|
|||||||||
|
Daniel
O'Sullivan
|
11/16/05
|
$
|
2.50
|
40,000
|
11/16/08
|
|||||||||
|
Daniel
R. Brown
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
|||||||||
|
Domenico
Iannucci
|
11/16/05
|
$
|
2.50
|
100,000
|
11/16/08
|
|||||||||
|
Donna
Hachem Rev. Trust
|
11/16/05
|
$
|
2.50
|
20,000
|
11/16/08
|
|||||||||
|
Dr.
Irving Karten
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
|||||||||
|
Eric
W. Penttinen
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
|||||||||
|
Jamie
Toddings
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
|||||||||
|
Jason
Clarke/Tanya Clark
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
|||||||||
|
Jonathan
Rotella
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
|||||||||
|
JTP
Holdings, LLC
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
|||||||||
|
Philip
J. Hempleman
|
11/16/05
|
$
|
2.50
|
40,000
|
11/16/08
|
|||||||||
|
Robert
E. Zimmerman
|
11/16/05
|
$
|
2.50
|
30,000
|
11/16/08
|
|||||||||
|
Roger
Walker
|
11/16/05
|
$
|
2.50
|
10,000
|
11/16/08
|
|||||||||
|
SCG
Capital LLC
|
11/16/05
|
$
|
2.50
|
120,000
|
11/16/08
|
|||||||||
|
Todd
Weisberg
|
11/16/05
|
$
|
2.50
|
20,000
|
11/16/08
|
|||||||||
|
Jon
Zimmerman
|
11/16/05
|
$
|
2.50
|
20,000
|
11/16/08
|
|||||||||
|
Todd
Snyder
|
11/16/05
|
$
|
2.50
|
20,000
|
11/16/08
|
|||||||||
|
RAJ
Inv
|
3/22/06
|
$
|
3.00
|
20,000
|
3/22/09
|
|||||||||
|
Daniel
Sullivan
|
3/22/06
|
$
|
3.00
|
40,000
|
3/22/09
|
|||||||||
|
Kevin
Walker
|
3/22/06
|
$
|
3.00
|
20,000
|
3/22/09
|
|||||||||
|
Rick
Bennett
|
3/22/06
|
$
|
3.00
|
20,000
|
3/22/09
|
|||||||||
|
Brookshire
Placement fee
|
6/28/06
|
$
|
1.50
|
10,000
|
6/27/11
|
|||||||||
|
Frank
Cappo
|
4/20/06
|
$
|
3.00
|
40,000
|
4/20/09
|
|||||||||
|
Rion
Needs
|
4/20/06
|
$
|
3.00
|
20,000
|
4/20/09
|
|||||||||
|
Joseph
Levine
|
5/4/06
|
$
|
3.00
|
20,000
|
5/4/09
|
|||||||||
|
Tim
Johnson
|
5/4/06
|
$
|
3.00
|
20,000
|
5/4/09
|
|||||||||
|
Joe
Sparieino
|
5/4/06
|
$
|
3.00
|
20,000
|
5/4/09
|
|||||||||
|
Gerald
Hueper
|
5/12/06
|
$
|
3.00
|
16,666
|
5/12/09
|
|||||||||
|
Terence
Smith
|
5/12/06
|
$
|
3.00
|
20,000
|
5/12/09
|
|||||||||
|
Kevin
& Brenda Narcomey
|
5/12/06
|
$
|
3.00
|
8,333
|
5/12/09
|
|||||||||
|
PHD
Investements
|
5/15/06
|
$
|
3.00
|
50,000
|
5/15/09
|
|||||||||
|
Louise
Rehling
|
5/15/06
|
$
|
3.00
|
8,334
|
5/15/09
|
|||||||||
|
Scott
Mcnair
|
5/18/06
|
$
|
3.00
|
16,667
|
5/18/09
|
|||||||||
|
Daniel
Craig Sager
|
5/18/06
|
$
|
3.00
|
8,334
|
5/18/09
|
|||||||||
|
Joseph
Lewin
|
5/18/06
|
$
|
3.00
|
20,000
|
5/18/09
|
|||||||||
|
GH
Medical PSP
|
5/22/06
|
$
|
3.00
|
25,000
|
5/22/09
|
|||||||||
MDwerks,
Inc.
Warrants
As
of 1/15/08
|
Warrant
|
||||||||||||||
|
Warrant
Grant
|
Shares
|
Expiration
|
||||||||||||
|
Date
|
Value
|
Granted
|
Date
|
|||||||||||
|
MDwerks,
Inc.
|
||||||||||||||
|
Joe
& Carolyn Hubbard
|
5/22/06
|
$
|
3.00
|
20,000
|
5/22/09
|
|||||||||
|
John
Harrison
|
5/22/06
|
$
|
3.00
|
10,000
|
5/22/09
|
|||||||||
|
Melvin
Sanders
|
6/6/06
|
$
|
3.00
|
20,000
|
6/6/09
|
|||||||||
|
Randy
Bean Revocable
|
6/6/06
|
$
|
3.00
|
10,000
|
6/6/09
|
|||||||||
|
Edward
White/Brenda Fortunate
|
6/6/06
|
$
|
3.00
|
10,000
|
6/6/09
|
|||||||||
|
Kevin
& Brenda Narcomey
|
6/6/06
|
$
|
3.00
|
8,333
|
6/6/09
|
|||||||||
|
James
Lees
|
6/6/06
|
$
|
3.00
|
25,000
|
6/6/09
|
|||||||||
|
Michael
Anderson
|
6/6/06
|
$
|
3.00
|
20,000
|
6/6/09
|
|||||||||
|
Sharon
Sootin
|
6/29/06
|
$
|
3.00
|
30,000
|
6/29/09
|
|||||||||
|
John
Harrison
|
6/29/06
|
$
|
3.00
|
10,000
|
6/29/09
|
|||||||||
|
Edward
White/Brenda Fortunate
|
6/29/06
|
$
|
3.00
|
10,000
|
6/29/09
|
|||||||||
|
Arrowhead
Consultants, Inc
|
11/16/05
|
$
|
2.50
|
59,800
|
11/16/08
|
|||||||||
|
Brookshire
Securities Corp.
|
11/16/05
|
$
|
1.25
|
64,000
|
11/16/10
|
|||||||||
|
Brookshire
Securities Corp.
|
11/16/05
|
$
|
2.50
|
6,800
|
11/16/08
|
|||||||||
|
Brookshire
Placement fee
|
6/28/06
|
$
|
1.50
|
46,667
|
6/27/11
|
|||||||||
|
Noteholders
|
7/5/06
|
$
|
1.25
|
90,000
|
7/4/10
|
|||||||||
|
David
Goldner
|
8/24/06
|
$
|
2.25
|
111,111
|
8/24/09
|
|||||||||
|
Todd
Adler
|
10/18/06
|
$
|
1.25
|
30,000
|
10/18/09
|
|||||||||
|
John
Garrell
|
10/18/06
|
$
|
1.25
|
15,000
|
10/18/09
|
|||||||||
|
Gottbetter
Series D Warrants
|
10/19/06
|
$
|
2.25
|
187,500
|
10/19/11
|
*
|
||||||||
|
Gottbetter
Series E Warrants
|
10/19/06
|
$
|
2.25
|
187,500
|
10/19/11
|
*
|
||||||||
|
Gottbetter
Series D Warrants
|
11/9/06
|
$
|
2.25
|
187,500
|
11/9/11
|
*
|
||||||||
|
Gottbetter
Series E Warrants
|
11/9/06
|
$
|
2.25
|
187,500
|
11/9/11
|
*
|
||||||||
|
Husni
Charara
|
10/18/06
|
$
|
3.76
|
175,000
|
10/18/09
|
|||||||||
|
Alphonse
Tribuiani
|
10/18/06
|
$
|
3.76
|
10,000
|
10/18/09
|
|||||||||
|
Angela
Rosania
|
10/18/06
|
$
|
3.76
|
15,000
|
10/18/09
|
|||||||||
|
Roger
Lallemond
|
10/18/06
|
$
|
3.76
|
25,000
|
10/18/09
|
|||||||||
|
Joseph
Carino
|
10/18/06
|
$
|
4.00
|
2,500
|
10/18/09
|
|||||||||
|
Troy
Goldberg
|
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
|
*
|
||||||||
|
Vicis
Series F Warrants
|
9/28/07
|
$
|
2.25
|
1,500,000
|
9/28/14
|
|||||||||
|
Vicis
Series G Warrants
|
9/28/07
|
$
|
2.50
|
1,000,000
|
9/28/14
|
|||||||||
|
Vicis
Series F Warrants
|
1/18/08
|
$
|
2.25
|
0
|
1/18/15
|
|||||||||
|
Vicis
Series G Warrants
|
1/18/08
|
$
|
2.50
|
0
|
1/18/15
|
|||||||||
|
Total
Warrants
|
5,566,345
|
|||||||||||||
*
To be
reserved at 175%
MDwerks,
Inc.
2005
Incentive Compensation Plan Report - Options
As
of 1/15/08
|
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.
|
|||||||||||||||||||||||||
|
Howard
Katz
|
12/29/05
|
$
|
3.25
|
25,000
|
0
|
25,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
Howard
Katz
|
1/3/06
|
$
|
3.40
|
25,000
|
0
|
25,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
H&D
Katz as TEN ENT
|
1/3/06
|
$
|
3.40
|
0
|
400,000
|
400,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
Howard
Katz
|
6/19/06
|
$
|
4.00
|
3,750
|
0
|
3,750
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
H&D
Katz TEN ENT
|
6/19/06
|
$
|
4.00
|
0
|
246,250
|
246,250
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
H&D
Katz TEN ENT
|
10/11/06
|
$
|
2.25
|
0
|
500,000
|
500,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
H&D
Katz TEN ENT
|
12/27/06
|
$
|
1.39
|
0
|
50,000
|
50,000
|
12/27/06
|
12/27/06
|
12/27/06
|
||||||||||||||||
|
H&D
Katz TEN ENT
|
12/31/07
|
$
|
0.38
|
263,000
|
0
|
263,000
|
12/31/07
|
12/31/07
|
12/31/07
|
||||||||||||||||
|
Solon
Kandel
|
12/29/05
|
$
|
3.25
|
25,000
|
0
|
25,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
Solon
Kandel
|
1/3/06
|
$
|
3.40
|
25,000
|
0
|
25,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
S&V
Kandel TEN ENT
|
1/3/06
|
$
|
3.40
|
0
|
275,000
|
275,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
Solon
Kandel
|
6/19/06
|
$
|
4.00
|
3,750
|
0
|
3,750
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
S&V
Kandel TEN ENT
|
6/19/06
|
$
|
4.00
|
0
|
71,250
|
71,250
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
S&V
Kandel TEN ENT
|
10/11/06
|
$
|
2.25
|
0
|
100,000
|
100,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
Vincent
Colangelo
|
12/29/05
|
$
|
3.25
|
25,000
|
0
|
25,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
Vincent
Colangelo
|
1/3/06
|
$
|
3.40
|
25,000
|
0
|
25,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
V&M
Colangelo TEN ENT
|
1/3/06
|
$
|
3.40
|
0
|
100,000
|
100,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
Vincent
Colangelo
|
6/19/06
|
$
|
4.00
|
3,750
|
0
|
3,750
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
V&M
Colangelo TEN ENT
|
6/19/06
|
$
|
4.00
|
0
|
71,250
|
71,250
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
V&M
Colangelo TEN ENT
|
10/11/06
|
$
|
2.25
|
0
|
75,000
|
75,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
V&M
Colangelo TEN ENT
|
12/27/06
|
$
|
1.39
|
0
|
15,000
|
15,000
|
12/27/06
|
12/27/06
|
12/27/06
|
||||||||||||||||
|
Gerald
Maresca
|
12/29/05
|
$
|
3.25
|
25,000
|
0
|
25,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
Gerald
Maresca
|
1/3/06
|
$
|
3.40
|
5,000
|
0
|
5,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
Gerald
Maresca
|
6/19/06
|
$
|
4.00
|
20,750
|
0
|
20,750
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
Gerald
Maresca
|
6/19/06
|
$
|
4.00
|
0
|
4,250
|
4,250
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
Gerald
Maresca
|
10/11/06
|
$
|
2.25
|
0
|
25,000
|
25,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
Stephen
Weiss
|
12/29/05
|
$
|
3.25
|
25,000
|
0
|
25,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
Stephen
Weiss
|
1/3/06
|
$
|
3.40
|
5,000
|
0
|
5,000
|
1/3/07
|
1/3/08
|
1/3/09
|
||||||||||||||||
|
Stephen
Weiss
|
6/19/06
|
$
|
4.00
|
20,750
|
0
|
20,750
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
Stephen
Weiss
|
6/19/06
|
$
|
4.00
|
0
|
4,250
|
4,250
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
Stephen
Weiss
|
10/11/06
|
$
|
2.25
|
0
|
25,000
|
25,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
Stephen
Weiss
|
12/27/06
|
$
|
1.39
|
0
|
15,000
|
15,000
|
12/27/06
|
12/27/07
|
12/27/08
|
||||||||||||||||
|
Total
|
525,750
|
1,977,250
|
2,503,000
|
||||||||||||||||||||||
|
Xeni
Medical Systems, Inc.
|
|||||||||||||||||||||||||
|
Adam
Friedman
|
6/19/06
|
$
|
4.00
|
25,000
|
0
|
25,000
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
Adam
Friedman
|
6/19/06
|
$
|
4.00
|
0
|
15,000
|
15,000
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
Adam
Friedman
|
12/27/06
|
$
|
1.39
|
0
|
5,000
|
5,000
|
12/27/06
|
12/27/07
|
12/27/08
|
||||||||||||||||
|
Lila
Sobel
|
12/27/06
|
$
|
1.39
|
30,000
|
0
|
30,000
|
12/27/06
|
12/27/07
|
12/27/08
|
||||||||||||||||
|
Lila
Sobel (resigned)
|
5/24/07
|
-20,000
|
0
|
-20,000
|
|||||||||||||||||||||
|
Phil
Margetts
|
12/29/05
|
$
|
3.25
|
20,000
|
0
|
20,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
Phil
Margetts
|
6/19/06
|
$
|
4.00
|
12,500
|
0
|
12,500
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
Phil
Margetts
|
12/27/06
|
$
|
1.39
|
10,000
|
0
|
10,000
|
12/27/06
|
12/27/07
|
12/27/08
|
||||||||||||||||
|
Lyuda
Koukos
|
12/29/05
|
$
|
3.25
|
20,000
|
0
|
20,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
Lyuda
Koukos
|
6/19/06
|
$
|
4.00
|
12,500
|
0
|
12,500
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
Sue
Barton
|
12/29/05
|
$
|
3.25
|
15,000
|
0
|
15,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
Sue
Barton
|
6/19/06
|
$
|
4.00
|
6,250
|
0
|
6,250
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
Betty
Faulk
|
12/29/05
|
$
|
3.25
|
10,000
|
0
|
10,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
Betty
Faulk
|
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
|
||||||||||||||||||||||
MDwerks,
Inc.
2005
Incentive Compensation Plan Report - Options
As
of 1/15/08
|
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 Billing, Corp.
|
|||||||||||||||||||||||||
|
Larry
Robinson
|
12/29/05
|
$
|
3.25
|
10,000
|
0
|
10,000
|
12/29/06
|
12/29/07
|
12/29/08
|
||||||||||||||||
|
Larry
Robinson
|
6/19/06
|
$
|
4.00
|
5,000
|
0
|
5,000
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
Larry
Robinson (resigned)
|
8/25/06
|
-15,000
|
0
|
-15,000
|
|||||||||||||||||||||
|
Total
|
0
|
0
|
0
|
||||||||||||||||||||||
|
Directors,
Vendors and Other
|
|||||||||||||||||||||||||
|
Stephen
Katz
|
10/11/06
|
$
|
2.25
|
44,000
|
0
|
44,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
Stephen
Katz
|
10/11/06
|
$
|
2.25
|
0
|
131,000
|
131,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
David
Barnes
|
10/11/06
|
$
|
2.25
|
44,000
|
0
|
44,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
David
Barnes
|
10/11/06
|
$
|
2.25
|
0
|
31,000
|
31,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
David
Barnes
|
12/31/07
|
$
|
0.38
|
150,000
|
0
|
150,000
|
12/31/07
|
12/31/07
|
12/31/07
|
||||||||||||||||
|
Peter
Dunne
|
6/19/06
|
$
|
4.00
|
25,000
|
0
|
25,000
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
Peter
Dunne
|
6/19/06
|
$
|
4.00
|
0
|
50,000
|
50,000
|
6/19/07
|
6/19/08
|
6/19/09
|
||||||||||||||||
|
Peter
Dunne
|
10/11/06
|
$
|
2.25
|
0
|
25,000
|
25,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
Peter
Dunne
|
12/31/07
|
$
|
0.38
|
35,000
|
0
|
35,000
|
12/31/07
|
12/31/07
|
12/31/07
|
||||||||||||||||
|
Paul
Kushner
|
6/22/06
|
$
|
4.25
|
23,500
|
0
|
23,500
|
6/22/07
|
6/22/08
|
6/22/09
|
||||||||||||||||
|
Paul
Kushner
|
6/22/06
|
$
|
4.25
|
0
|
51,500
|
51,500
|
6/22/07
|
6/22/08
|
6/22/09
|
||||||||||||||||
|
Paul
Kushner
|
10/11/06
|
$
|
2.25
|
0
|
25,000
|
25,000
|
10/11/06
|
10/11/07
|
10/11/08
|
||||||||||||||||
|
Paul
Kushner
|
12/31/07
|
$
|
0.38
|
35,000
|
0
|
35,000
|
12/31/07
|
12/31/07
|
12/31/07
|
||||||||||||||||
|
Bennu
Advisors
|
9/27/07
|
$
|
0.67
|
100,000
|
0
|
100,000
|
9/27/07
|
9/27/08
|
9/27/09
|
||||||||||||||||
|
David
Goldner
|
9/27/07
|
$
|
0.67
|
0
|
75,000
|
75,000
|
9/27/08
|
9/27/09
|
9/27/10
|
||||||||||||||||
|
Total
|
456,500
|
388,500
|
845,000
|
||||||||||||||||||||||
|
Total
Options
|
1,128,500
|
2,385,750
|
3,514,250
|
||||||||||||||||||||||
Expiration
Schedule
All
options expire on the tenth anniversary of the Option Grant
Date
Securities
Purchase Agreement
By
and
Between MDwerks, Inc. and Vicis Capital Master Fund
January
18, 2008
Schedule
3.4(b)(iii)
|
1.
|
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.
|
|
2.
|
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.
|
|
3.
|
Securities
Purchase Agreement by and between MDwerks, Inc. and Vicis Capital
Master
Fund dated September 28, 2007
|
Securities
Purchase Agreement
By
and
Between MDwerks, Inc. and Vicis Capital Master Fund
January
18, 2008
Schedule
3.4(b)(iv)
See
attached
Securities
Purchase Agreement
By
and
Between MDwerks, Inc. and Vicis Capital Master Fund
January
18, 2008
Schedule
3.4(b)(v)
|
1.
|
Registration
rights contained in Registration Rights Agreement, dated October
19, 2006,
between Gottbetter Capital Master, Ltd. and the
Company.
|
|
2.
|
Registration
rights contained in Registration Rights Agreement, dated November
9, 2006,
between Gottbetter Capital Master, Ltd. and the
Company.
|
|
3.
|
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.
|
|
4.
|
Registration
rights contained in Registration Rights Agreement, dated September
28,
2007, between Vicis Capital Master Fund and the Company.
|
Securities
Purchase Agreement
By
and
Between MDwerks, Inc. and Vicis Capital Master Fund
January
18, 2008
Schedule
3.4(b)(vi)
|
1.
|
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.
|
|
2.
|
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.
|
|
3.
|
Series
D Warrants to initially purchase 187,500 shares of Common Stock at
a price
of $2.25 per share, issued by the Company to Gottbetter Capital Master,
Ltd. on October 19, 2006
|
|
4.
|
Series
E Warrants to initially purchase 187,500 shares of Common Stock at
a price
of $3.25 per share reduced to $2.25 per share on September 28, 2007,
issued by the Company to Gottbetter Capital Master, Ltd. on November
9,
2006
|
|
5.
|
Series
F Warrants to initially purchase 1,500,000 shares of Common Stock
at a
price of $2.25 per share, issued by the Company to Vicis Capital
Master
Fund, on September 28, 2007
|
|
6.
|
Series
G Warrants to initially purchase 1,000,000 shares of Common Stock
at a
price of $2.50 per share, issued by the Company to Vicis Capital
Master
Fund, on September 28, 2007
|
|
7.
|
Series
D Warrants to purchase 500,000 shares of Common Stock at a price
of $2.25
per share, issued by the Company to Gottbetter Capital Master, Ltd.
on
September 28, 2007.
|
Securities
Purchase Agreement
By
and
Between MDwerks, Inc. and Vicis Capital Master Fund
January
18, 2008
Schedule
3.4 (b) (vii)
|
1.
|
Series
D Warrants to initially purchase 187,500 shares of Common Stock at
a price
of $2.25 per share, issued by the Company to Gottbetter Capital Master,
Ltd. on October 19, 2006
|
|
2.
|
Series
E Warrants to initially purchase 187,500 shares of Common Stock at
a price
of $3.25 per share, reduced to $2.25 per share on September 28, 2007,
issued by the Company to Gottbetter Capital Master, Ltd. on November
9,
2006
|
|
3.
|
Series
F Warrants to initially purchase 1,500,000 shares of Common Stock
at a
price of $2.25 per share, issued by the Company to Vicis Capital
Master
Fund, on September 28, 2007
|
|
4.
|
Series
G Warrants to initially purchase 1,000,000 shares of Common Stock
at a
price of $2.50 per share, issued by the Company to Vicis Capital
Master
Fund, on September 28, 2007
|
|
5.
|
Series
D Warrants to purchase 500,000 shares of Common Stock at a price
of $2.25
per share, issued by the Company to Gottbetter Capital Master, Ltd.
on
September 28, 2007.
|
Securities
Purchase Agreement
By
and
Between MDwerks, Inc. and Vicis Capital Master Fund
January
18, 2008
Schedule
3.4(b)(viii)
See
attached
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 422, Rule 16b-3 under the Exchange
Act (if 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 Sarbanes-Oxley 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 grant price of the Stock
Appreciation Right as determined by the Committee. The grant price 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, grant 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 grant price “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 Sarbanes-Oxley 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, grant 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 grant price 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 422,
Rule
16b-3 under the Exchange Act (if 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
Securities
Purchase Agreement
By
and
Between MDwerks, Inc. and Vicis Capital Master Fund
January
18, 2008
Schedule
3.11
None
Securities
Purchase Agreement
By
and
Between MDwerks, Inc. and Vicis Capital Master Fund
January
18, 2008
Schedule
3.20
The
Company has not obtained Key Man and other life and disability insurance with
respect to any of its executive officers.
Securities
Purchase Agreement
By
and
Between MDwerks, Inc. and Vicis Capital Master Fund
January
18, 2008
Schedule
7.14
|
1.
|
Interest
and $5,000,000 principal on Senior Secured Convertible Notes issued
by the
Company to Gottbetter Capital Master,
Ltd.
|
|
2.
|
General
working capital and client financing requirements of the
company
|
NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS WARRANT NOR THE
SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE 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 (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), 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.
MDWERKS,
INC.
SERIES
F WARRANT TO PURCHASE COMMON STOCK
Warrant
No.: W-F-2
Number
of
Shares of Common Stock: 375,000
Date
of
Issuance: January 18, 2008 (“ISSUANCE DATE”)
MDwerks,
Inc., a Delaware corporation (the “COMPANY”), hereby certifies that, for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, VICIS CAPITAL MASTER FUND, the registered holder hereof or its
permitted assigns (the “HOLDER”), is entitled, subject to the terms set forth
below, to purchase from the Company, at the Exercise Price (as defined below)
then in effect, upon surrender of this Warrant to Purchase Common Stock
(including any Warrants to purchase Common Stock issued in exchange, transfer
or
replacement hereof, the “WARRANT”), at any time or times on or after the date
hereof, but not after 11:59 p.m., New York Time, on the Expiration Date (as
defined below), Three Hundred Seventy-Five Thousand (375,000) fully paid
nonassessable shares of Common Stock (as defined below) (the “WARRANT SHARES”).
Except as otherwise defined herein, capitalized terms in this Warrant shall
have
the meanings set forth in Section 15. This Warrant is one of the Warrants
to purchase Common Stock (the “WARRANTS”) issued pursuant to that certain
Securities Purchase Agreement, dated January 18, 2008 (the “SUBSCRIPTION DATE”),
between the Company and the Purchaser referred to therein (the “SECURITIES
PURCHASE AGREEMENT”).
1. EXERCISE
OF WARRANT.
(a) Mechanics
of Exercise.
Subject
to the terms and conditions hereof (including, without limitation, the
limitations set forth in Section 1(f)), this Warrant may be exercised by
the Holder on any day on or after the date hereof, in whole or in part, by
(i) delivery of a written notice, in the form attached hereto as
Exhibit
A
(the
“EXERCISE NOTICE”), of the Holder’s election to exercise this Warrant and
(ii) (A) payment to the Company of an amount equal to the applicable
Exercise Price multiplied by the number of Warrant Shares as to which this
Warrant is being exercised (the “AGGREGATE EXERCISE PRICE”) in cash or by wire
transfer of immediately available funds or (B) by notifying the Company
that this Warrant is being exercised pursuant to a Cashless Exercise (as defined
in Section 1(d)). The Holder shall not be required to deliver the original
Warrant in order to affect an exercise hereunder. Execution and delivery of
the
Exercise Notice with respect to less than all of the Warrant Shares shall have
the same effect as cancellation of the original Warrant and issuance of a new
Warrant evidencing the right to purchase the remaining number of Warrant Shares.
On or before the first (1st) Business Day following the date on which the
Company has received each of the Exercise Notice and the Aggregate Exercise
Price (or notice of a Cashless Exercise) (the “EXERCISE DELIVERY DOCUMENTS”),
the Company shall transmit by facsimile an acknowledgment of confirmation of
receipt of the Exercise Delivery Documents to the Holder and the Company’s
transfer agent (the “TRANSFER AGENT”). On or before the third (3rd) Business Day
following the date on which the Company has received all of the Exercise
Delivery Documents (the “SHARE DELIVERY DATE”), the Company shall
(X) provided that the Transfer Agent is participating in The Depository
Trust Company (“DTC”) Fast Automated Securities Transfer Program, credit such
aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company’s
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise. Upon delivery of the Exercise Delivery Documents, the Holder shall
be
deemed for all corporate purposes to have become the holder of record of the
Warrant Shares with respect to which this Warrant has been exercised,
irrespective of the date such Warrant Shares are credited to the Holder’s DTC
account or the date of delivery of the certificates evidencing such Warrant
Shares as the case may be. If this Warrant is submitted in connection with
any
exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number
of
Warrant Shares being acquired upon an exercise, then the Company shall as soon
as practicable and in no event later than three Business Days after any exercise
and at its own expense, issue, a new Warrant (in accordance with
Section 7(d)) representing the right to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant, less
the number of Warrant Shares with respect to which this Warrant is exercised.
No
fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock to be issued shall
be
rounded up to the nearest whole number. The Company shall pay stamp and similar
taxes which may be payable with respect to the issuance and delivery of Warrant
Shares upon exercise of this Warrant. The Company shall not be required,
however, to pay any transfer tax or similar charge imposed in connection with
the issuance and delivery of Warrant shares in any name other than that of
the
Holder.
(b) Exercise
Price.
For
purposes of this Warrant, “EXERCISE PRICE” means $2.25 subject to adjustment as
provided herein.
(c) Company’s
Failure to Timely Deliver Securities.
(i) The
Company understands that a delay in the delivery of the shares of Common Stock
upon exercise of this Warrant beyond the Share Delivery Date could result in
economic loss to the Holder. If the Company fails to deliver to the Holder
such
shares via DWAC or a certificate or certificates pursuant to this Section by
the
Share Delivery Date, the Company shall pay to the Holder, in cash,
as
partial liquidated damages and not as a penalty, for each $500 of Warrant Shares
(based on the closing price of the Common Stock reported by the principal
Trading Market on the date such securities are submitted to the Company’s
transfer agent), $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 Share Delivery Date until such Common Stock
certificate is delivered.
Nothing
herein shall limit a Holder’s right to pursue actual damages for the
Company’s
failure
to deliver certificates, and the Holder 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.
Notwithstanding anything to the contrary contained herein, the Holder shall
be
entitled to withdraw an Exercise Notice, and upon such withdrawal the Company
shall only be obligated to pay the liquidated damages accrued in accordance
with
this Section through the date the Exercise Notice is withdrawn. Notwithstanding
the foregoing, the Holder shall not be entitled to the damages set forth herein
for the delay in the delivery of the shares of Common Stock upon exercise of
this Warrant, if such delay is due to causes which are beyond the reasonable
control of the Company, including, but not limited to, acts of God, acts of
civil or military authority, fire, flood, earthquake, hurricane, riot, war,
terrorism, sabotage and/or governmental action, provided that the Company:
(i)
gives the Holder prompt notice of each such cause; and (ii) uses reasonable
efforts to correct such failure or delay in its performance.
2
(ii) In
addition to any other rights available to the Holder, if the Company fails
to
cause its transfer agent to transmit to the Holder a certificate or certificates
representing the shares of Common Stock issuable upon exercise of the Warrant
on
or before the Share Delivery Date, and if after such date the Holder is required
by its broker to purchase (in an open market transaction or otherwise) shares
of
Common Stock to deliver in satisfaction of a sale by the Holder of the shares
of
Common Stock issuable upon exercise of the Warrant which the Holder anticipated
receiving upon such exercise (a “BUY-IN”),
then
the Company shall (1) pay in cash to the Holder the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of shares of Common Stock issuable upon exercise
of
the Warrant that the Company was required to deliver to the Holder in connection
with the conversion at issue times (B) the price at which the sell order giving
rise to such purchase obligation was executed, and (2) at the option of the
Holder, either reinstate the portion of the Warrant and equivalent number of
shares of Common Stock for which such conversion was not honored or deliver
to
the Holder the number of shares of Common Stock that would have been issued
had
the Company timely complied with its conversion and delivery obligations
hereunder. For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of shares of Common Stock with an aggregate sale price giving rise
to
such purchase obligation of $10,000, under clause (1) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000.
The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In, together with applicable confirmations
and other evidence reasonably requested by the Company. Nothing herein shall
limit a Holder’s right to pursue any other remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company’s failure to
timely deliver certificates representing shares of Common Stock upon exercise
of
the Warrant as required pursuant to the terms hereof.
3
(d) Cashless
Exercise.
Notwithstanding anything contained herein to the contrary, if, at the time
of
exercise of this Warrant, a Registration Statement (as defined in the
Registration Rights Agreement) covering the Warrant Shares that are the subject
of the Exercise Notice (the “UNAVAILABLE WARRANT SHARES”) is not available for
the resale of such Unavailable Warrant Shares, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the “Net Number” of shares of Common Stock determined according to the
following formula (a “CASHLESS EXERCISE”):
|
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.
|
(e) Disputes.
In the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 12.
(f) Limitations
on Exercises.
(i) Notwithstanding
anything to the contrary set forth in this Warrant, at no time may a Holder
of
this Warrant exercise this Warrant to the extent that after giving effect to
such exercise, the Holder (together with the Holder’s affiliates) would
beneficially own (as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess
of 4.99% of the number of shares of Common Stock outstanding immediately after
giving effect to such exercise; provided, however, that upon a Holder of this
Warrant providing the Company with sixty-one (61) days notice (the “WAIVER
NOTICE”) that such Holder would like to waive this Section with regard to any or
all shares of Common Stock issuable upon exercise of this Warrant, this Section
will be of no force or effect with regard to all or a portion of the Warrant
referenced in the Waiver Notice.
(ii) Notwithstanding
anything to the contrary set forth in this Warrant, at no time may a Holder
of
this Warrant exercise this Warrant to the extent that after giving effect to
such exercise, the Holder (together with the Holder’s affiliates) would
beneficially own (as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess
of 9.99% of the number of shares of Common Stock outstanding immediately after
giving effect to such exercise; provided, however, that upon a Holder of this
Warrant providing the Company with a Waiver Notice that such Holder would like
to waive this Section with regard to any or all shares of Common Stock issuable
upon exercise of the Warrant, this Section shall be of no force or effect with
regard to all or a portion of the Warrant referenced in the Waiver
Notice.
4
(iii) Notwithstanding
anything to the contrary set forth in this Warrant, at no time may a Holder
of
this Warrant exercise this Warrant to the extent that the issuance of shares
of
Common Stock upon such exercise would exceed the aggregate number of shares
of
Common Stock which the Company may issue upon exercise of this Warrant without
breaching the Company’s obligations under the rules or regulation of the
principal exchange upon which shares of the Company’s Common Stock are traded.
In such an event, the Company covenants to promptly as possible seek to obtain
the necessary shareholder or other approvals necessary to issue the shares
of
Common Stock upon the exercise of this Warrant.
(g) Insufficient
Authorized Shares.
If at
any time while any of the Warrants remain outstanding the Company does not
have
a sufficient number of authorized and unreserved shares of Common Stock (an
“AUTHORIZED SHARE FAILURE”) to satisfy its obligation to reserve for issuance
upon exercise of the Warrants at least a number of shares of Common Stock equal
to 100% of the number of shares of Common Stock as shall from time to time
be
necessary to effect the exercise of all of the Warrants then outstanding (the
“REQUIRED RESERVE AMOUNT”), then the Company shall immediately take all action
necessary to increase the Company’s authorized shares of Common Stock to an
amount sufficient to allow the Company to reserve the Required Reserve Amount
for the Warrants then outstanding. Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence
of
an Authorized Share Failure, but in no event later than ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock. In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its
reasonable best efforts to solicit its stockholders’ approval of such increase
in authorized shares of Common Stock and to cause its board of directors to
recommend to the stockholders that they approve such proposal.
(h) Redemption.
Except
as otherwise explicitly provided for herein, this Warrant is not redeemable
or
callable by the Company at any time.
2. ADJUSTMENT
OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
The
Exercise Price and the number of Warrant Shares shall be adjusted from time
to
time as follows:
(a) Adjustment
upon Issuance of shares of Common Stock.
If and
whenever on or after the Subscription Date the Company issues or sells, or
in
accordance with this Section 2 is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, but excluding shares of Common
Stock which are Excluded Securities or are deemed to have been issued by the
Company in connection with any Excluded Securities) for a consideration per
share (the “NEW ISSUANCE PRICE”) less than a price (the “APPLICABLE PRICE”)
equal to the Exercise Price in effect immediately prior to such issue or sale
or
deemed issuance or sale (the foregoing a “DILUTIVE ISSUANCE”), then immediately
after such Dilutive Issuance, the Exercise Price then in effect shall be reduced
to an amount equal to the New Issuance Price. Upon each such adjustment of
the
Exercise Price hereunder, the number of Warrant Shares shall be adjusted to
the
number of shares of Common Stock determined by multiplying the Exercise Price
in
effect immediately prior to such adjustment by the number of Warrant Shares
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Exercise Price resulting from such
adjustment. For purposes of determining the adjusted Exercise Price under this
Section 2(a), the following shall be applicable:
(i) Issuance
of Options.
If the
Company in any manner grants any Options and the lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such Option
or upon conversion, exercise or exchange of any Convertible Securities issuable
upon exercise of any such Option is less than the Applicable Price, then such
shares of Common Stock (underlying such Option shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the granting
or
sale of such Option for such price per share. For purposes of this
Section 2(a)(i), the “lowest price per share for which one share of Common
Stock is issuable upon exercise of such Options or upon conversion, exercise
or
exchange of such Convertible Securities” shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option and upon conversion, exercise or exchange
of
any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Exercise Price or number of Warrant Shares shall be made
upon
the actual issuance of such shares of Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of
such
shares of Common Stock upon conversion, exercise or exchange of such Convertible
Securities.
5
(ii) Issuance
of Convertible Securities.
If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof is less than the Applicable Price,
then
such shares of Common Stock issuable upon conversion of such Convertible
Securities shall be deemed to be outstanding and to have been issued and sold
by
the Company at the time of the issuance or sale of such Convertible Securities
for such price per share. For the purposes of this Section 2(a)(ii), the
“lowest price per share for which one share of Common Stock is issuable upon
the
conversion, exercise or exchange” shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to one share of Common Stock upon the issuance or sale of the
Convertible Security and upon conversion, exercise or exchange of such
Convertible Security. No further adjustment of the Exercise Price or number
of
Warrant Shares shall be made upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such Convertible Securities,
and
if any such issue or sale of such Convertible Securities is made upon exercise
of any Options for which adjustment of this Warrant has been or is to be made
pursuant to other provisions of this Section 2(a), no further adjustment of
the Exercise Price or number of Warrant Shares shall be made by reason of such
issue or sale. A change that permits the holder of an Option or Convertible
Security to utilize a cashless exercise feature shall not be deemed to decrease
the consideration payable by the holder solely by reason of the fact that the
cashless exercise feature would result in a reduction in cash consideration
receivable by the Company.
6
(iii) Change
in Option Price or Rate of Conversion.
If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exercise or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible
into
or exercisable or exchangeable for shares of Common Stock increases or decreases
at any time, the Exercise Price and the number of Warrant Shares in effect
at
the time of such increase or decrease shall be adjusted to the Exercise Price
and the number of Warrant Shares which would have been in effect at such time
had such Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased or decreased
conversion rate, as the case may be, at the time initially granted, issued
or
sold. For purposes of this Section 2(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the date of issuance of this
Warrant are increased or decreased in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the shares
of
Common Stock deemed issuable upon exercise, conversion or exchange thereof
shall
be deemed to have been issued as of the date of such increase or decrease.
No
adjustment pursuant to this Section 2(a) shall be made if such adjustment
would result in an increase of the Exercise Price then in effect or a decrease
in the number of Warrant Shares. A change that permits the holder of an Option
or Convertible Security to utilize a cashless exercise feature shall not be
deemed to decrease the consideration payable by the holder solely by reason
of
the fact that the cashless exercise feature would result in a reduction in
cash
consideration receivable by the Company.
(iv) Calculation
of Consideration Received.
If any
Option is issued in connection with the issue or sale of other securities of
the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the gross amount paid by the purchaser of such Common Stock, Options,
or
Convertible Securities, before any commissions, discounts, fees or expenses.
If
any Common Stock, Options or Convertible Securities are issued to the owners
of
the non-surviving entity in connection with any merger in which the Company
is
the surviving entity, the amount of consideration therefor will be deemed to
be
the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or
sold
for non-cash consideration, the consideration received therefore will be deemed
to be the fair value of such non-cash consideration as determined in good faith
by the Board of Directors of the Company.
(v) Record
Date.
If the
Company takes a record of the holders of shares of Common Stock for the purpose
of entitling them (A) to receive a dividend or other distribution payable in
shares of Common Stock, Options or in Convertible Securities or (B) to subscribe
for or purchase shares of Common Stock, Options or Convertible Securities,
then
such record date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.
7
(b) Stock
Dividends and Splits.
If the
Company, at any time while this Warrant is outstanding, (i) pays a stock
dividend on its Common Stock or otherwise makes a distribution on any class
of
capital stock that is payable in shares of Common Stock, (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, or (iii)
combines outstanding shares of Common Stock into a smaller number of shares,
then in each such case the Exercise Price shall be multiplied by a fraction
of
which the numerator shall be the number of shares of Common Stock outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event. Any
adjustment made pursuant to clause (i) of this paragraph shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution, and any adjustment pursuant to clause
(ii) or (iii) of this paragraph shall become effective immediately after the
effective date of such subdivision or combination.
(c) Fundamental
Transactions.
If, at
any time while this Warrant is outstanding there is a Fundamental Transaction,
then the Holder shall have the right thereafter to receive, upon exercise of
this Warrant, the same amount and kind of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of the number of shares of Common Stock then issuable upon exercise
in full of this Warrant (the “ALTERNATE CONSIDERATION”). For purposes of any
such conversion, the determination of the Exercise Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in
such
Fundamental Transaction, and the Company shall apportion the Exercise Price
among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If holders
of
Common Stock are given any choice as to the securities, cash or property to
be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of
Warrant following such Fundamental Transaction. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this paragraph (c) and insuring that the Series B Preferred Stock (or any
such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.
(d) Other
Events.
If any
event occurs of the type contemplated by the provisions of this Section 2
but not expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock rights
or
other rights with equity features), then the Company’s Board of Directors in
good faith will make an appropriate adjustment in the Conversion Price so as
to
be equitable under the circumstances and otherwise protect the rights of the
Holder; provided that no such adjustment will increase the Exercise Price as
otherwise determined pursuant to this Section 7.3.
8
3. RIGHTS
UPON DISTRIBUTION OF ASSETS.
If
the
Company shall declare or make any dividend or other distribution of its assets
(or rights to acquire its assets) to holders of shares of Common Stock, by
way
of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way
of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a “DISTRIBUTION”), at any time after
the issuance of this Warrant, then, in each such case, the Exercise Price in
effect immediately prior to the close of business on the record date fixed
for
the determination of holders of shares of Common Stock entitled to receive
the
Distribution shall be reduced, effective as of the close of business on such
record date, to a price determined by multiplying such Exercise Price by a
fraction of which (i) the numerator shall be the Exercise Price on such record
date minus the value of the Distribution (as determined in good faith by the
Company’s Board of Directors) applicable to one share of Common Stock, and (ii)
the denominator shall be the Exercise Price on such record date.
4. PURCHASE
RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) Purchase
Rights.
In
addition to any adjustments pursuant to Section 2 above, if at any time the
Company grants, issues or sells any Options, Convertible Securities or rights
to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the “PURCHASE RIGHTS”), then the
Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have acquired
if
the Holder had held the proportionate number of shares of Common Stock
acquirable upon complete exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of
such
Purchase Rights.
(b) Redemption
Right.
No
sooner than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Change of Control, but not prior to the public announcement
of
such Change of Control, the Company shall deliver written notice thereof via
facsimile and overnight courier to the Holder (a “CHANGE IN CONTROL NOTICE”). At
any time during the period beginning after the Holder’s receipt of a Change of
Control Notice and ending ten (10) Trading Days after the consummation of such
Change of Control, the Holder may require the Company to redeem all or any
portion of this Warrant by delivering written notice thereof (“CHANGE IN CONTROL
REDEMPTION NOTICE”) to the Company, which Change of Control Redemption Notice
shall indicate the amount the Holder is electing to be redeemed. Any such
redemption shall be in cash in the amount equal to the value of the remaining
unexercised portion of this Warrant on the date of such consummation, which
value shall be determined by use of the Black Scholes Option Pricing Model
reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury
rate
for a period equal to the remaining term of this Warrant as of such date of
request and (B) an expected volatility equal to the greater of 60% and the
100
day volatility obtained from the HVT function on Bloomberg.
9
5. NONCIRCUMVENTION.
The
Company hereby covenants and agrees that the Company will not, by amendment
of
its Certificate of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue
or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at
all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the Holder. Without limiting
the generality of the foregoing, the Company (i) shall not increase the par
value of any shares of Common Stock receivable upon the exercise of this Warrant
above the Exercise Price then in effect, (ii) shall take all such actions as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise
of
this Warrant, and (iii) shall, so long as any of the Warrants are outstanding,
take all action necessary to reserve and keep available out of its authorized
and unissued shares of Common Stock, solely for the purpose of effecting the
exercise of the Warrants, 100% of the number of shares of Common Stock as shall
from time to time be necessary to effect the exercise of the Warrants then
outstanding (without regard to any limitations on exercise).
6. WARRANT
HOLDER NOT DEEMED A STOCKHOLDER.
Except
as
otherwise specifically provided herein, the Holder, solely in such Person’s
capacity as a holder of this Warrant, shall not be entitled to vote or receive
dividends or be deemed the holder of share capital of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the Holder, solely in such Person’s capacity as the Holder of this Warrant,
any of the rights of a stockholder of the Company or any right to vote, give
or
withhold consent to any corporate action (whether any reorganization, issue
of
stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares
which such Person is then entitled to receive upon the due exercise of this
Warrant. In addition, nothing contained in this Warrant shall be construed
as
imposing any liabilities on the Holder to purchase any securities (upon exercise
of this Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with
copies of the same notices and other information given to the stockholders
of
the Company generally, contemporaneously with the giving thereof to the
stockholders.
7. REISSUANCE
OF WARRANTS.
(a) Transfer
of Warrant.
If this
Warrant is to be transferred, the Holder shall surrender this Warrant to the
Company, whereupon the Company will issue promptly following satisfaction of
the
transfer provisions contained in the Securities Purchase Agreement and deliver
upon the order of the Holder a new Warrant (in accordance with
Section 7(d)), in the name of the validly registered assignee or
transferee, representing the right to purchase the number of Warrant Shares
being transferred by the Holder and, if less then the total number of Warrant
Shares then underlying this Warrant is being transferred, a new Warrant (in
accordance with Section 7(d)) to the Holder representing the right to
purchase the number of Warrant Shares not being transferred.
10
(b) Lost,
Stolen or Mutilated Warrant.
Upon
receipt by the Company of evidence reasonably satisfactory to the Company of
the
loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of any indemnification undertaking by the Holder
to
the Company in customary form and, in the case of mutilation, upon surrender
and
cancellation of this Warrant, the Company shall execute and deliver to the
Holder a new Warrant (in accordance with Section 7(d)) representing the
right to purchase the Warrant Shares then underlying this Warrant.
(c) Exchangeable
for Multiple Warrants.
This
Warrant is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Warrant or Warrants (in accordance
with Section 7(d)) representing in the aggregate the right to purchase the
number of Warrant Shares then underlying this Warrant, and each such new Warrant
will represent the right to purchase such portion of such Warrant Shares as
is
designated by the Holder at the time of such surrender; provided, however,
that
no Warrants for fractional shares of Common Stock shall be given.
(d) Issuance
of New Warrants.
Whenever the Company is required to issue a new Warrant pursuant to the terms
of
this Warrant, such new Warrant (i) shall be of like tenor with this Warrant,
(ii) shall represent, as indicated on the face of such new Warrant, the right
to
purchase the Warrant Shares then underlying this Warrant (or in the case of
a
new Warrant being issued pursuant to Section 7(a) or Section 7(c), the
Warrant Shares designated by the Holder which, when added to the number of
shares of Common Stock underlying the other new Warrants issued in connection
with such issuance, does not exceed the number of Warrant Shares then underlying
this Warrant), (iii) shall have an issuance date, as indicated on the face
of
such new Warrant which is the same as the Issuance Date, and (iv) shall have
the
same rights and conditions as this Warrant.
8. NOTICES.
Whenever
notice is required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with Section 12.6 of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt
written notice of all actions taken pursuant to this Warrant, including in
reasonable detail a description of such action and the reason therefore. Without
limiting the generality of the foregoing, the Company will give written notice
to the Holder (i) immediately upon any adjustment of the Exercise Price, setting
forth in reasonable detail, and certifying, the calculation of such adjustment
and (ii) at least fifteen (15) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to holders of shares of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.
9. AMENDMENT
AND WAIVER.
Except
as
otherwise provided herein, the provisions of this Warrant may be amended and
the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the Holder; provided that no such action may increase the exercise
price of any Warrant or decrease the number of shares or class of stock
obtainable upon exercise of any Warrant without the written consent of the
Holder. No such amendment shall be effective to the extent that it applies
to
less than all of the holders of the Warrants then outstanding.
11
10. GOVERNING
LAW.
This
Warrant shall be governed by and construed and enforced in accordance with,
and
all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the
State
of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than
the
State of New York.
11. CONSTRUCTION;
HEADINGS.
This
Warrant shall be deemed to be jointly drafted by the Company and all the Buyers
and shall not be construed against any person as the drafter hereof. The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.
12. DISPUTE
RESOLUTION.
In
the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
Business Days of receipt of the Exercise Notice giving rise to such dispute,
as
the case may be, to the Holder. If the Holder and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days submit via facsimile (a) the disputed determination
of
the Exercise Price to an independent, reputable investment bank selected by
the
Company and approved by the Holder (such approval not to be unreasonably
withheld or delayed) or (b) the disputed arithmetic calculation of the Warrant
Shares to the Company’s independent, outside accountant. The Company shall cause
at its expense the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the Holder
of the results no later than ten Business Days from the time it receives the
disputed determinations or calculations. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.
13. REMEDIES,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder
right
to pursue actual damages for any failure by the Company to comply with the
terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at
law
for any such breach may be inadequate. The Company therefore agrees that, in
the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
12
14. TRANSFER.
This
Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company, except as may otherwise be required by the Securities
Purchase Agreement.
15. CERTAIN
DEFINITIONS.
For
purposes of this Warrant, the following terms shall have the following
meanings:
(a) “APPROVED
STOCK PLAN” means any employee benefit plan which has been approved by the Board
of Directors of the Company, pursuant to which the Company’s securities may be
issued to any employee, consultant, officer or director for services provided
to
the Company.
(b) “BLOOMBERG”
means Bloomberg Financial Markets.
(c) “BUSINESS
DAY” means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain
closed.
(d) “CHANGE
OF CONTROL” means any Fundamental Transaction other than (i) any reorganization,
recapitalization or reclassification of the Common Stock in which holders of
the
Company’s voting power immediately prior to such reorganization,
recapitalization or reclassification continue after such reorganization,
recapitalization or reclassification to hold publicly-traded securities and,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or
their
equivalent if other than a corporation) of such entity or entities, or (ii)
pursuant to a migratory merger effected solely for the purpose of changing
the
jurisdiction of incorporation of the Company or (iii) any transaction that
might
otherwise be a Fundamental Transaction but which the Holder agrees in writing
shall not be deemed to be a Fundamental Transaction for purposes of this
Warrant.
(e) “CLOSING
BID PRICE” and “CLOSING SALE PRICE” means, for any security as of any date, the
last closing bid price and last closing trade price, respectively, for such
security on the Principal Market, as reported by Bloomberg, or, if the Principal
Market begins to operate on an extended hours basis and does not designate
the
closing bid price or the closing trade price, as the case may be, then the
last
bid price or last trade price, respectively, of such security prior to 4:00
p.m., New York Time, as reported by Bloomberg, or, if the Principal Market
is
not the principal securities exchange or trading market for such security,
the
last closing bid price or last trade price, respectively, of such security
on
the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply,
the
last closing bid price or last trade price, respectively, of such security
in
the over-the-counter market on the electronic bulletin board for such security
as reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the
bid
prices, or the ask prices, respectively, of any market makers for such security
as reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Bid Price or the Closing Sale Price, as the case may be,
of
such security on such date shall be the fair market value as mutually determined
by the Company and the Holder. If the Company and the Holder are unable to
agree
upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 12. All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.
13
(f) “COMMON
STOCK” means (i) the Company’s shares of Common Stock, par value $0.001 per
share, and (ii) any share capital into which such Common Stock shall have been
changed or any share capital resulting from a reclassification of such Common
Stock.
(g) “CONVERTIBLE
SECURITIES” means any stock or securities (other than Options) directly or
indirectly convertible into or exercisable or exchangeable for shares of Common
Stock.
(h) “ELIGIBLE
MARKET” means the Principal Market, The New York Stock Exchange, Inc., the
Nasdaq National Market, the Nasdaq Capital Market or the American Stock
Exchange.
(i) “EXCLUDED
SECURITIES” means (i) any Common Stock and/or Options (and the Common Stock
issuable pursuant to such Options) issued or issuable: (A) in connection
with any Approved Stock Plan up to a maximum of ten percent (10%) of the Common
Stock outstanding at the time of issuance of such Common Stock and/or Options
(provided that securities issued in connection with an Approved Stock Plan
that
are outstanding as of the Issuance Date and shares of Common Stock issuable
pursuant to exercise or conversion of such outstanding securities shall not
be
included for purposes of calculating the maximum of ten percent (10%)) or
(B) upon conversion or exercise of any Options or Convertible Securities
which are outstanding on the Issuance Date, provided that the terms of such
Options or Convertible Securities are not amended, modified or changed on or
after the Issuance Date to lower the conversion or exercise price thereof and
so
long as the number of shares of Common Stock underlying such securities is
not
otherwise increased; (ii) any shares of Common Stock issued in an
underwritten public offering in which the gross cash proceeds to the Company
(before underwriting discounts, commissions and fees) are at least $10,000,000;
(iii) Options (and the Common Stock issuable pursuant thereto) issued to
medical practices that are customers of the Company in good standing to acquire
up to a maximum of 250,000 shares of Common Stock per practice with an exercise
or conversion price at or above the Closing Sale Price on the day of issuance;
(iv) up to 250,000 shares of Common Stock (or securities convertible into up
to
250,000 shares of Common Stock with an exercise or conversion price at or above
the Closing Sale price on the day of issuance) as consideration for strategic
acquisitions up to a maximum of 250,000 shares of Common Stock per acquisition;
(v) up to 250,000 shares of Common Stock (or securities convertible into up
to
250,000 shares of Common Stock with an exercise or conversion price at or above
the Closing Sale Price on the day of issuance) per year to third parties in
connection with investor relations and public relations efforts of the Company;
(vi) up to 250,000 shares of Common Stock, options, or warrants to be issued
to
Rodman & Renshaw (or their designees) as consideration for securing a line
of credit or similar financing for the Company; (vii)
the
Series D Warrant of the Company(and the Common Stock issuable pursuant thereto)
to purchase 500,000 shares of Common Stock of the Company at an exercise price
of $2.25 per share issued to Gottbetter Capital Master, Ltd.;
(viii)
the amendments to those certain Series E Warrants of the Company issued to
Gottbetter Capital Master, Ltd., to reduce the exercise price of such warrant
to
$2.25 per share of Common Stock and increase the number of shares of Common
Stock for which such warrants may be exercised to 541,666 and 2/3
shares;
and (ix)
up to 35,000,000 shares of Common Stock (or securities convertible into up
to
35,000,000 shares of Common Stock) to be issued to Medical Solutions Management
Inc. and/or Orthosupply Management, Inc., their respective affiliates or
designees in connection with the acquisition by the Company of that certain
Management Agreement, dated April 30, 2007, by and between Orthosupply
Management, Inc. and Deutsche Medical Services, Inc. (the “DMSI Contract
Acquisition”).
14
(j) “EXPIRATION
DATE” means the date eighty-four months after the Issuance Date or, if such date
falls on a day other than a Business Day or on which trading does not take
place
on the Principal Market (a “HOLIDAY”), the next date that is not a
Holiday.
(k) “FUNDAMENTAL
TRANSACTION” means that the Company shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or
not
the Company is the surviving corporation) another Person, or (ii) sell, assign,
transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company to another Person, or (iii) allow another
Person to make a purchase, tender or exchange offer that is accepted by the
holders of more than the 50% of either the outstanding shares of Common Stock
(not including any shares of Common Stock held by the Person or Persons making
or party to, or associated or affiliated with the Persons making or party to,
such purchase, tender or exchange offer), or (iv) consummate a stock purchase
agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated
or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), (v) reorganize, recapitalize or
reclassify its Common Stock (other than a forward or reverse stock split),
or
(vi) any “person” or “group” (as these terms are used for purposes of Sections
13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner”
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of
50% of the aggregate ordinary voting power represented by issued and outstanding
Common Stock. For purposes of the Warrant, the issuance by the Company of up
to
an aggregate of 35,000,000 shares of Common Stock (or securities convertible
into up to an aggregate of 35,000,000 shares of Common Stock) to Medical
Solutions Management Inc. and/or Orthosupply Management, Inc., their respective
affiliates or designees in connection with the DMSI Contract Acquisition shall
not be deemed to be a Fundamental Transaction, and the subsequent assignment,
sale, transfer or conveyance of such shares of Common Stock (or securities
convertible into shares of Common Stock) by Medical Solutions Management Inc.,
Orthosupply Management, Inc., their respective affiliates, designees,
successors, assigns or subsequent transferees shall not be deemed to be a
Fundamental Transaction.
15
(l) “OPTIONS”
means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities.
(m) “PARENT
ENTITY” of a Person means an entity that, directly or indirectly, controls the
applicable Person and whose common stock or equivalent equity security is quoted
or listed on an Eligible Market, or, if there is more than one such Person
or
Parent Entity, the Person or Parent Entity with the largest public market
capitalization as of the date of consummation of the Fundamental
Transaction.
(n) “PERSON”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.
(o) “PRINCIPAL
MARKET” means the Over-the-Counter Bulletin Board.
(p) “REGISTRATION
RIGHTS AGREEMENT” means that certain registration rights agreement by and among
the Company and the Buyers.
(q) “SUCCESSOR
ENTITY” means the Person (or, if so elected by the Holder, the Parent Entity)
formed by, resulting from or surviving any Fundamental Transaction or the Person
(or, if so elected by the Holder, the Parent Entity) with which such Fundamental
Transaction shall have been entered into.
16
IN
WITNESS WHEREOF, the Company has caused this Series F Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
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MDWERKS,
INC.
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| By: | /s/ Howard B. Katz | |
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Name:
Howard B. Katz
Title:
Chief Executive Officer
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17
EXHIBIT
A
MDWERKS,
INC.
FORM
OF EXERCISE NOTICE
The
undersigned holder hereby exercises the right to purchase _________________
of
the shares of Common Stock (“Warrant
Shares”)
of
MDwerks, Inc., a Delaware corporation (the “Company”),
evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.
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Dated:
_________________
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Signature
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Address
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Number
of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the date of Exercise: _________________________
The
undersigned intends that payment of the Warrant Price shall be made as (check
one or both):
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 _________________.
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Net
Number =
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(A x B) - (A x C) | ||||
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B
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For
purposes of the foregoing formula:
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A
=
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the
total number of shares with respect to which this Warrant is then
being
exercised.
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B
=
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the
Closing Sale Price of the shares of Common Stock (as reported by
Bloomberg) on the date immediately preceding the date of the Exercise
Notice.
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C
=
|
the
Exercise Price then in effect for the applicable Warrant Shares at
the
time of such exercise.
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ASSIGNMENT
FOR
VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and
does
irrevocably constitute and appoint _____________, attorney, to transfer the
said
Warrant on the books of the within named corporation.
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Dated:
_________________
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Signature
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Address
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PARTIAL
ASSIGNMENT
FOR
VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ Warrant Shares evidenced
by
the within Warrant together with all rights therein, and does irrevocably
constitute and appoint ___________________, attorney, to transfer that part
of
the said Warrant on the books of the within named corporation.
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Dated:
_________________
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Signature
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Address
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FOR
USE
BY THE ISSUER ONLY:
This
Warrant No. W-___ canceled (or transferred or exchanged) this _____ day of
___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock
in
the name of _______________.
NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS WARRANT NOR THE
SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE 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 (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), 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.
MDWERKS,
INC.
SERIES
G WARRANT TO PURCHASE COMMON STOCK
Warrant
No.: W-G-2
Number
of
Shares of Common Stock: 250,000
Date
of
Issuance: January 18, 2008 (“ISSUANCE DATE”)
MDwerks,
Inc., a Delaware corporation (the “COMPANY”), hereby certifies that, for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, VICIS CAPITAL MASTER FUND, the registered holder hereof or its
permitted assigns (the “HOLDER”), is entitled, subject to the terms set forth
below, to purchase from the Company, at the Exercise Price (as defined below)
then in effect, upon surrender of this Warrant to Purchase Common Stock
(including any Warrants to purchase Common Stock issued in exchange, transfer
or
replacement hereof, the “WARRANT”), at any time or times on or after the date
hereof, but not after 11:59 p.m., New York Time, on the Expiration Date (as
defined below), Two Hundred Fifty Thousand (250,000) fully paid nonassessable
shares of Common Stock (as defined below) (the “WARRANT SHARES”). Except as
otherwise defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 15. This Warrant is one of the Warrants to
purchase Common Stock (the “WARRANTS”) issued pursuant to that certain
Securities Purchase Agreement, dated January 18, 2008 (the “SUBSCRIPTION DATE”),
by and between the Company and the Purchaser referred to therein (the
“SECURITIES PURCHASE AGREEMENT”).
1. EXERCISE
OF WARRANT.
(a) Mechanics
of Exercise.
Subject
to the terms and conditions hereof (including, without limitation, the
limitations set forth in Section 1(f)), this Warrant may be exercised by
the Holder on any day on or after the date hereof, in whole or in part, by
(i) delivery of a written notice, in the form attached hereto as
Exhibit
A
(the
“EXERCISE NOTICE”), of the Holder’s election to exercise this Warrant and
(ii) (A) payment to the Company of an amount equal to the applicable
Exercise Price multiplied by the number of Warrant Shares as to which this
Warrant is being exercised (the “AGGREGATE EXERCISE PRICE”) in cash or by wire
transfer of immediately available funds or (B) by notifying the Company
that this Warrant is being exercised pursuant to a Cashless Exercise (as defined
in Section 1(d)). The Holder shall not be required to deliver the original
Warrant in order to affect an exercise hereunder. Execution and delivery of
the
Exercise Notice with respect to less than all of the Warrant Shares shall have
the same effect as cancellation of the original Warrant and issuance of a new
Warrant evidencing the right to purchase the remaining number of Warrant Shares.
On or before the first (1st) Business Day following the date on which the
Company has received each of the Exercise Notice and the Aggregate Exercise
Price (or notice of a Cashless Exercise) (the “EXERCISE DELIVERY DOCUMENTS”),
the Company shall transmit by facsimile an acknowledgment of confirmation of
receipt of the Exercise Delivery Documents to the Holder and the Company’s
transfer agent (the “TRANSFER AGENT”). On or before the third (3rd) Business Day
following the date on which the Company has received all of the Exercise
Delivery Documents (the “SHARE DELIVERY DATE”), the Company shall
(X) provided that the Transfer Agent is participating in The Depository
Trust Company (“DTC”) Fast Automated Securities Transfer Program, credit such
aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company’s
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise. Upon delivery of the Exercise Delivery Documents, the Holder shall
be
deemed for all corporate purposes to have become the holder of record of the
Warrant Shares with respect to which this Warrant has been exercised,
irrespective of the date such Warrant Shares are credited to the Holder’s DTC
account or the date of delivery of the certificates evidencing such Warrant
Shares as the case may be. If this Warrant is submitted in connection with
any
exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number
of
Warrant Shares being acquired upon an exercise, then the Company shall as soon
as practicable and in no event later than three Business Days after any exercise
and at its own expense, issue, a new Warrant (in accordance with
Section 7(d)) representing the right to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant, less
the number of Warrant Shares with respect to which this Warrant is exercised.
No
fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock to be issued shall
be
rounded up to the nearest whole number. The Company shall pay stamp and similar
taxes which may be payable with respect to the issuance and delivery of Warrant
Shares upon exercise of this Warrant. The Company shall not be required,
however, to pay any transfer tax or similar charge imposed in connection with
the issuance and delivery of Warrant shares in any name other than that of
the
Holder.
(b) Exercise
Price.
For
purposes of this Warrant, “EXERCISE PRICE” means $2.50 subject to adjustment as
provided herein.
(c) Company’s
Failure to Timely Deliver Securities.
(i) The
Company understands that a delay in the delivery of the shares of Common Stock
upon exercise of this Warrant beyond the Share Delivery Date could result in
economic loss to the Holder. If the Company fails to deliver to the Holder
such
shares via DWAC or a certificate or certificates pursuant to this Section by
the
Share Delivery Date, the Company shall pay to the Holder, in cash,
as
partial liquidated damages and not as a penalty, for each $500 of Warrant Shares
(based on the closing price of the Common Stock reported by the principal
Trading Market on the date such securities are submitted to the Company’s
transfer agent), $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 Share Delivery Date until such Common Stock
certificate is delivered.
Nothing
herein shall limit a Holder’s right to pursue actual damages for the
Company’s
failure
to deliver certificates, and the Holder 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.
Notwithstanding anything to the contrary contained herein, the Holder shall
be
entitled to withdraw an Exercise Notice, and upon such withdrawal the Company
shall only be obligated to pay the liquidated damages accrued in accordance
with
this Section through the date the Exercise Notice is withdrawn. Notwithstanding
the foregoing, the Holder shall not be entitled to the damages set forth herein
for the delay in the delivery of the shares of Common Stock upon exercise of
this Warrant, if such delay is due to causes which are beyond the reasonable
control of the Company, including, but not limited to, acts of God, acts of
civil or military authority, fire, flood, earthquake, hurricane, riot, war,
terrorism, sabotage and/or governmental action, provided that the Company:
(i)
gives the Holder prompt notice of each such cause; and (ii) uses reasonable
efforts to correct such failure or delay in its performance.
2
(ii) In
addition to any other rights available to the Holder, if the Company fails
to
cause its transfer agent to transmit to the Holder a certificate or certificates
representing the shares of Common Stock issuable upon exercise of the Warrant
on
or before the Share Delivery Date, and if after such date the Holder is required
by its broker to purchase (in an open market transaction or otherwise) shares
of
Common Stock to deliver in satisfaction of a sale by the Holder of the shares
of
Common Stock issuable upon exercise of the Warrant which the Holder anticipated
receiving upon such exercise (a “BUY-IN”),
then
the Company shall (1) pay in cash to the Holder the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of shares of Common Stock issuable upon exercise
of
the Warrant that the Company was required to deliver to the Holder in connection
with the conversion at issue times (B) the price at which the sell order giving
rise to such purchase obligation was executed, and (2) at the option of the
Holder, either reinstate the portion of the Warrant and equivalent number of
shares of Common Stock for which such conversion was not honored or deliver
to
the Holder the number of shares of Common Stock that would have been issued
had
the Company timely complied with its conversion and delivery obligations
hereunder. For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of shares of Common Stock with an aggregate sale price giving rise
to
such purchase obligation of $10,000, under clause (1) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000.
The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In, together with applicable confirmations
and other evidence reasonably requested by the Company. Nothing herein shall
limit a Holder’s right to pursue any other remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company’s failure to
timely deliver certificates representing shares of Common Stock upon exercise
of
the Warrant as required pursuant to the terms hereof.
3
(d) Cashless
Exercise.
Notwithstanding anything contained herein to the contrary, if, at the time
of
exercise of this Warrant, a Registration Statement (as defined in the
Registration Rights Agreement) covering the Warrant Shares that are the subject
of the Exercise Notice (the “UNAVAILABLE WARRANT SHARES”) is not available for
the resale of such Unavailable Warrant Shares, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the “Net Number” of shares of Common Stock determined according to the
following formula (a “CASHLESS EXERCISE”):
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.
|
(e) Disputes.
In the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 12.
(f) Limitations
on Exercises.
(i) Notwithstanding
anything to the contrary set forth in this Warrant, at no time may a Holder
of
this Warrant exercise this Warrant to the extent that after giving effect to
such exercise, the Holder (together with the Holder’s affiliates) would
beneficially own (as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess
of 4.99% of the number of shares of Common Stock outstanding immediately after
giving effect to such exercise; provided, however, that upon a Holder of this
Warrant providing the Company with sixty-one (61) days notice (the “WAIVER
NOTICE”) that such Holder would like to waive this Section with regard to any or
all shares of Common Stock issuable upon exercise of this Warrant, this Section
will be of no force or effect with regard to all or a portion of the Warrant
referenced in the Waiver Notice.
(ii) Notwithstanding
anything to the contrary set forth in this Warrant, at no time may a Holder
of
this Warrant exercise this Warrant to the extent that after giving effect to
such exercise, the Holder (together with the Holder’s affiliates) would
beneficially own (as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess
of 9.99% of the number of shares of Common Stock outstanding immediately after
giving effect to such exercise; provided, however, that upon a Holder of this
Warrant providing the Company with a Waiver Notice that such Holder would like
to waive this Section with regard to any or all shares of Common Stock issuable
upon exercise of the Warrant, this Section shall be of no force or effect with
regard to all or a portion of the Warrant referenced in the Waiver
Notice.
4
(iii) Notwithstanding
anything to the contrary set forth in this Warrant, at no time may a Holder
of
this Warrant exercise this Warrant to the extent that the issuance of shares
of
Common Stock upon such exercise would exceed the aggregate number of shares
of
Common Stock which the Company may issue upon exercise of this Warrant without
breaching the Company’s obligations under the rules or regulation of the
principal exchange upon which shares of the Company’s Common Stock are traded.
In such an event, the Company covenants to promptly as possible seek to obtain
the necessary shareholder or other approvals necessary to issue the shares
of
Common Stock upon the exercise of this Warrant.
(g) Insufficient
Authorized Shares.
If at
any time while any of the Warrants remain outstanding the Company does not
have
a sufficient number of authorized and unreserved shares of Common Stock (an
“AUTHORIZED SHARE FAILURE”) to satisfy its obligation to reserve for issuance
upon exercise of the Warrants at least a number of shares of Common Stock equal
to 100% of the number of shares of Common Stock as shall from time to time
be
necessary to effect the exercise of all of the Warrants then outstanding (the
“REQUIRED RESERVE AMOUNT”), then the Company shall immediately take all action
necessary to increase the Company’s authorized shares of Common Stock to an
amount sufficient to allow the Company to reserve the Required Reserve Amount
for the Warrants then outstanding. Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence
of
an Authorized Share Failure, but in no event later than ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock. In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its
reasonable best efforts to solicit its stockholders’ approval of such increase
in authorized shares of Common Stock and to cause its board of directors to
recommend to the stockholders that they approve such proposal.
(h) Redemption.
Except
as otherwise explicitly provided for herein, this Warrant is not redeemable
or
callable by the Company at any time.
2. ADJUSTMENT
OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
The
Exercise Price and the number of Warrant Shares shall be adjusted from time
to
time as follows:
(a) Adjustment
upon Issuance of shares of Common Stock.
If and
whenever on or after the Subscription Date the Company issues or sells, or
in
accordance with this Section 2 is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, but excluding shares of Common
Stock which are Excluded Securities or are deemed to have been issued by the
Company in connection with any Excluded Securities) for a consideration per
share (the “NEW ISSUANCE PRICE”) less than a price (the “APPLICABLE PRICE”)
equal to the Exercise Price in effect immediately prior to such issue or sale
or
deemed issuance or sale (the foregoing a “DILUTIVE ISSUANCE”), then immediately
after such Dilutive Issuance, the Exercise Price then in effect shall be reduced
to an amount equal to the New Issuance Price. Upon each such adjustment of
the
Exercise Price hereunder, the number of Warrant Shares shall be adjusted to
the
number of shares of Common Stock determined by multiplying the Exercise Price
in
effect immediately prior to such adjustment by the number of Warrant Shares
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Exercise Price resulting from such
adjustment. For purposes of determining the adjusted Exercise Price under this
Section 2(a), the following shall be applicable:
(i) Issuance
of Options.
If the
Company in any manner grants any Options and the lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such Option
or upon conversion, exercise or exchange of any Convertible Securities issuable
upon exercise of any such Option is less than the Applicable Price, then such
shares of Common Stock (underlying such Option shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the granting
or
sale of such Option for such price per share. For purposes of this
Section 2(a)(i), the “lowest price per share for which one share of Common
Stock is issuable upon exercise of such Options or upon conversion, exercise
or
exchange of such Convertible Securities” shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option and upon conversion, exercise or exchange
of
any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Exercise Price or number of Warrant Shares shall be made
upon
the actual issuance of such shares of Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of
such
shares of Common Stock upon conversion, exercise or exchange of such Convertible
Securities.
5
(ii) Issuance
of Convertible Securities.
If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof is less than the Applicable Price,
then
such shares of Common Stock issuable upon conversion of such Convertible
Securities shall be deemed to be outstanding and to have been issued and sold
by
the Company at the time of the issuance or sale of such Convertible Securities
for such price per share. For the purposes of this Section 2(a)(ii), the
“lowest price per share for which one share of Common Stock is issuable upon
the
conversion, exercise or exchange” shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to one share of Common Stock upon the issuance or sale of the
Convertible Security and upon conversion, exercise or exchange of such
Convertible Security. No further adjustment of the Exercise Price or number
of
Warrant Shares shall be made upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such Convertible Securities,
and
if any such issue or sale of such Convertible Securities is made upon exercise
of any Options for which adjustment of this Warrant has been or is to be made
pursuant to other provisions of this Section 2(a), no further adjustment of
the Exercise Price or number of Warrant Shares shall be made by reason of such
issue or sale. A change that permits the holder of an Option or Convertible
Security to utilize a cashless exercise feature shall not be deemed to decrease
the consideration payable by the holder solely by reason of the fact that the
cashless exercise feature would result in a reduction in cash consideration
receivable by the Company.
6
(iii) Change
in Option Price or Rate of Conversion.
If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exercise or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible
into
or exercisable or exchangeable for shares of Common Stock increases or decreases
at any time, the Exercise Price and the number of Warrant Shares in effect
at
the time of such increase or decrease shall be adjusted to the Exercise Price
and the number of Warrant Shares which would have been in effect at such time
had such Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased or decreased
conversion rate, as the case may be, at the time initially granted, issued
or
sold. For purposes of this Section 2(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the date of issuance of this
Warrant are increased or decreased in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the shares
of
Common Stock deemed issuable upon exercise, conversion or exchange thereof
shall
be deemed to have been issued as of the date of such increase or decrease.
No
adjustment pursuant to this Section 2(a) shall be made if such adjustment
would result in an increase of the Exercise Price then in effect or a decrease
in the number of Warrant Shares. A change that permits the holder of an Option
or Convertible Security to utilize a cashless exercise feature shall not be
deemed to decrease the consideration payable by the holder solely by reason
of
the fact that the cashless exercise feature would result in a reduction in
cash
consideration receivable by the Company.
(iv) Calculation
of Consideration Received.
If any
Option is issued in connection with the issue or sale of other securities of
the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the gross amount paid by the purchaser of such Common Stock, Options,
or
Convertible Securities, before any commissions, discounts, fees or expenses.
If
any Common Stock, Options or Convertible Securities are issued to the owners
of
the non-surviving entity in connection with any merger in which the Company
is
the surviving entity, the amount of consideration therefor will be deemed to
be
the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or
sold
for non-cash consideration, the consideration received therefore will be deemed
to be the fair value of such non-cash consideration as determined in good faith
by the Board of Directors of the Company.
(v) Record
Date.
If the
Company takes a record of the holders of shares of Common Stock for the purpose
of entitling them (A) to receive a dividend or other distribution payable in
shares of Common Stock, Options or in Convertible Securities or (B) to subscribe
for or purchase shares of Common Stock, Options or Convertible Securities,
then
such record date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.
7
(b) Stock
Dividends and Splits.
If the
Company, at any time while this Warrant is outstanding, (i) pays a stock
dividend on its Common Stock or otherwise makes a distribution on any class
of
capital stock that is payable in shares of Common Stock, (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, or (iii)
combines outstanding shares of Common Stock into a smaller number of shares,
then in each such case the Exercise Price shall be multiplied by a fraction
of
which the numerator shall be the number of shares of Common Stock outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event. Any
adjustment made pursuant to clause (i) of this paragraph shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution, and any adjustment pursuant to clause
(ii) or (iii) of this paragraph shall become effective immediately after the
effective date of such subdivision or combination.
(c) Fundamental
Transactions.
If, at
any time while this Warrant is outstanding there is a Fundamental Transaction,
then the Holder shall have the right thereafter to receive, upon exercise of
this Warrant, the same amount and kind of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of the number of shares of Common Stock then issuable upon exercise
in full of this Warrant (the “ALTERNATE CONSIDERATION”). For purposes of any
such conversion, the determination of the Exercise Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in
such
Fundamental Transaction, and the Company shall apportion the Exercise Price
among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If holders
of
Common Stock are given any choice as to the securities, cash or property to
be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of
Warrant following such Fundamental Transaction. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this paragraph (c) and insuring that the Series B Preferred Stock (or any
such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.
(d) Other
Events.
If any
event occurs of the type contemplated by the provisions of this Section 2
but not expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock rights
or
other rights with equity features), then the Company’s Board of Directors in
good faith will make an appropriate adjustment in the Conversion Price so as
to
be equitable under the circumstances and otherwise protect the rights of the
Holder; provided that no such adjustment will increase the Exercise Price as
otherwise determined pursuant to this Section 7.3.
8
3. RIGHTS
UPON DISTRIBUTION OF ASSETS.
If
the
Company shall declare or make any dividend or other distribution of its assets
(or rights to acquire its assets) to holders of shares of Common Stock, by
way
of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way
of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a “DISTRIBUTION”), at any time after
the issuance of this Warrant, then, in each such case, the Exercise Price in
effect immediately prior to the close of business on the record date fixed
for
the determination of holders of shares of Common Stock entitled to receive
the
Distribution shall be reduced, effective as of the close of business on such
record date, to a price determined by multiplying such Exercise Price by a
fraction of which (i) the numerator shall be the Exercise Price on such record
date minus the value of the Distribution (as determined in good faith by the
Company’s Board of Directors) applicable to one share of Common Stock, and (ii)
the denominator shall be the Exercise Price on such record date.
4. PURCHASE
RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) Purchase
Rights.
In
addition to any adjustments pursuant to Section 2 above, if at any time the
Company grants, issues or sells any Options, Convertible Securities or rights
to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the “PURCHASE RIGHTS”), then the
Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have acquired
if
the Holder had held the proportionate number of shares of Common Stock
acquirable upon complete exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of
such
Purchase Rights.
(b) Redemption
Right.
No
sooner than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Change of Control, but not prior to the public announcement
of
such Change of Control, the Company shall deliver written notice thereof via
facsimile and overnight courier to the Holder (a “CHANGE IN CONTROL NOTICE”). At
any time during the period beginning after the Holder’s receipt of a Change of
Control Notice and ending ten (10) Trading Days after the consummation of such
Change of Control, the Holder may require the Company to redeem all or any
portion of this Warrant by delivering written notice thereof (“CHANGE IN CONTROL
REDEMPTION NOTICE”) to the Company, which Change of Control Redemption Notice
shall indicate the amount the Holder is electing to be redeemed. Any such
redemption shall be in cash in the amount equal to the value of the remaining
unexercised portion of this Warrant on the date of such consummation, which
value shall be determined by use of the Black Scholes Option Pricing Model
reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury
rate
for a period equal to the remaining term of this Warrant as of such date of
request and (B) an expected volatility equal to the greater of 60% and the
100
day volatility obtained from the HVT function on Bloomberg.
9
5. NONCIRCUMVENTION.
The
Company hereby covenants and agrees that the Company will not, by amendment
of
its Certificate of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue
or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at
all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the Holder. Without limiting
the generality of the foregoing, the Company (i) shall not increase the par
value of any shares of Common Stock receivable upon the exercise of this Warrant
above the Exercise Price then in effect, (ii) shall take all such actions as
may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise
of
this Warrant, and (iii) shall, so long as any of the Warrants are outstanding,
take all action necessary to reserve and keep available out of its authorized
and unissued shares of Common Stock, solely for the purpose of effecting the
exercise of the Warrants, 100% of the number of shares of Common Stock as shall
from time to time be necessary to effect the exercise of the Warrants then
outstanding (without regard to any limitations on exercise).
6. WARRANT
HOLDER NOT DEEMED A STOCKHOLDER.
Except
as
otherwise specifically provided herein, the Holder, solely in such Person’s
capacity as a holder of this Warrant, shall not be entitled to vote or receive
dividends or be deemed the holder of share capital of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the Holder, solely in such Person’s capacity as the Holder of this Warrant,
any of the rights of a stockholder of the Company or any right to vote, give
or
withhold consent to any corporate action (whether any reorganization, issue
of
stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares
which such Person is then entitled to receive upon the due exercise of this
Warrant. In addition, nothing contained in this Warrant shall be construed
as
imposing any liabilities on the Holder to purchase any securities (upon exercise
of this Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with
copies of the same notices and other information given to the stockholders
of
the Company generally, contemporaneously with the giving thereof to the
stockholders.
7. REISSUANCE
OF WARRANTS.
(a) Transfer
of Warrant.
If this
Warrant is to be transferred, the Holder shall surrender this Warrant to the
Company, whereupon the Company will issue promptly following satisfaction of
the
transfer provisions contained in the Securities Purchase Agreement and deliver
upon the order of the Holder a new Warrant (in accordance with
Section 7(d)), in the name of the validly registered assignee or
transferee, representing the right to purchase the number of Warrant Shares
being transferred by the Holder and, if less then the total number of Warrant
Shares then underlying this Warrant is being transferred, a new Warrant (in
accordance with Section 7(d)) to the Holder representing the right to
purchase the number of Warrant Shares not being transferred.
10
(b) Lost,
Stolen or Mutilated Warrant.
Upon
receipt by the Company of evidence reasonably satisfactory to the Company of
the
loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of any indemnification undertaking by the Holder
to
the Company in customary form and, in the case of mutilation, upon surrender
and
cancellation of this Warrant, the Company shall execute and deliver to the
Holder a new Warrant (in accordance with Section 7(d)) representing the
right to purchase the Warrant Shares then underlying this Warrant.
(c) Exchangeable
for Multiple Warrants.
This
Warrant is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Warrant or Warrants (in accordance
with Section 7(d)) representing in the aggregate the right to purchase the
number of Warrant Shares then underlying this Warrant, and each such new Warrant
will represent the right to purchase such portion of such Warrant Shares as
is
designated by the Holder at the time of such surrender; provided, however,
that
no Warrants for fractional shares of Common Stock shall be given.
(d) Issuance
of New Warrants.
Whenever the Company is required to issue a new Warrant pursuant to the terms
of
this Warrant, such new Warrant (i) shall be of like tenor with this Warrant,
(ii) shall represent, as indicated on the face of such new Warrant, the right
to
purchase the Warrant Shares then underlying this Warrant (or in the case of
a
new Warrant being issued pursuant to Section 7(a) or Section 7(c), the
Warrant Shares designated by the Holder which, when added to the number of
shares of Common Stock underlying the other new Warrants issued in connection
with such issuance, does not exceed the number of Warrant Shares then underlying
this Warrant), (iii) shall have an issuance date, as indicated on the face
of
such new Warrant which is the same as the Issuance Date, and (iv) shall have
the
same rights and conditions as this Warrant.
8. NOTICES.
Whenever
notice is required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with Section 12.6 of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt
written notice of all actions taken pursuant to this Warrant, including in
reasonable detail a description of such action and the reason therefore. Without
limiting the generality of the foregoing, the Company will give written notice
to the Holder (i) immediately upon any adjustment of the Exercise Price, setting
forth in reasonable detail, and certifying, the calculation of such adjustment
and (ii) at least fifteen (15) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to holders of shares of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.
9. AMENDMENT
AND WAIVER.
Except
as
otherwise provided herein, the provisions of this Warrant may be amended and
the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the Holder; provided that no such action may increase the exercise
price of any Warrant or decrease the number of shares or class of stock
obtainable upon exercise of any Warrant without the written consent of the
Holder. No such amendment shall be effective to the extent that it applies
to
less than all of the holders of the Warrants then outstanding.
11
10. GOVERNING
LAW.
This
Warrant shall be governed by and construed and enforced in accordance with,
and
all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the
State
of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than
the
State of New York.
11. CONSTRUCTION;
HEADINGS.
This
Warrant shall be deemed to be jointly drafted by the Company and all the Buyers
and shall not be construed against any person as the drafter hereof. The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.
12. DISPUTE
RESOLUTION.
In
the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
Business Days of receipt of the Exercise Notice giving rise to such dispute,
as
the case may be, to the Holder. If the Holder and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days submit via facsimile (a) the disputed determination
of
the Exercise Price to an independent, reputable investment bank selected by
the
Company and approved by the Holder (such approval not to be unreasonably
withheld or delayed) or (b) the disputed arithmetic calculation of the Warrant
Shares to the Company’s independent, outside accountant. The Company shall cause
at its expense the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the Holder
of the results no later than ten Business Days from the time it receives the
disputed determinations or calculations. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.
13. REMEDIES,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder
right
to pursue actual damages for any failure by the Company to comply with the
terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at
law
for any such breach may be inadequate. The Company therefore agrees that, in
the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
12
14. TRANSFER.
This
Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company, except as may otherwise be required by the Securities
Purchase Agreement.
15. CERTAIN
DEFINITIONS.
For
purposes of this Warrant, the following terms shall have the following
meanings:
(a) “APPROVED
STOCK PLAN” means any employee benefit plan which has been approved by the Board
of Directors of the Company, pursuant to which the Company’s securities may be
issued to any employee, consultant, officer or director for services provided
to
the Company.
(b) “BLOOMBERG”
means Bloomberg Financial Markets.
(c) “BUSINESS
DAY” means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain
closed.
(d) “CHANGE
OF CONTROL” means any Fundamental Transaction other than (i) any
reorganization, recapitalization or reclassification of the Common Stock in
which holders of the Company’s voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly-traded
securities and, directly or indirectly, the voting power of the surviving entity
or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity
or
entities, or (ii) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Company or (iii)
any transaction that might otherwise be a Fundamental Transaction but which
the
Holder agrees shall not be deemed to be a Fundamental Transaction for purposes
of this Warrant.
(e) “CLOSING
BID PRICE” and “CLOSING SALE PRICE” means, for any security as of any date, the
last closing bid price and last closing trade price, respectively, for such
security on the Principal Market, as reported by Bloomberg, or, if the Principal
Market begins to operate on an extended hours basis and does not designate
the
closing bid price or the closing trade price, as the case may be, then the
last
bid price or last trade price, respectively, of such security prior to 4:00
p.m., New York Time, as reported by Bloomberg, or, if the Principal Market
is
not the principal securities exchange or trading market for such security,
the
last closing bid price or last trade price, respectively, of such security
on
the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply,
the
last closing bid price or last trade price, respectively, of such security
in
the over-the-counter market on the electronic bulletin board for such security
as reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the
bid
prices, or the ask prices, respectively, of any market makers for such security
as reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Bid Price or the Closing Sale Price, as the case may be,
of
such security on such date shall be the fair market value as mutually determined
by the Company and the Holder. If the Company and the Holder are unable to
agree
upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 12. All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.
13
(f) “COMMON
STOCK” means (i) the Company’s shares of Common Stock, par value $0.001 per
share, and (ii) any share capital into which such Common Stock shall have been
changed or any share capital resulting from a reclassification of such Common
Stock.
(g) “CONVERTIBLE
SECURITIES” means any stock or securities (other than Options) directly or
indirectly convertible into or exercisable or exchangeable for shares of Common
Stock.
(h) “ELIGIBLE
MARKET” means the Principal Market, The New York Stock Exchange, Inc., the
Nasdaq National Market, the Nasdaq Capital Market or the American Stock
Exchange.
(i) “EXCLUDED
SECURITIES” means (i) any Common Stock and/or Options (and the Common Stock
issuable pursuant to such Options) issued or issuable: (A) in connection
with any Approved Stock Plan up to a maximum of ten percent (10%) of the Common
Stock outstanding at the time of issuance of such Common Stock and/or Options
(provided that securities issued in connection with an Approved Stock Plan
that
are outstanding as of the Issuance Date and shares of Common Stock issuable
pursuant to exercise or conversion of such outstanding securities shall not
be
included for purposes of calculating the maximum of ten percent (10%)) or
(B) upon conversion or exercise of any Options or Convertible Securities
which are outstanding on the Issuance Date, provided that the terms of such
Options or Convertible Securities are not amended, modified or changed on or
after the Issuance Date to lower the conversion or exercise price thereof and
so
long as the number of shares of Common Stock underlying such securities is
not
otherwise increased; (ii) any shares of Common Stock issued in an
underwritten public offering in which the gross cash proceeds to the Company
(before underwriting discounts, commissions and fees) are at least $10,000,000;
(iii) Options (and the Common Stock issuable pursuant thereto) issued to
medical practices that are customers of the Company in good standing to acquire
up to a maximum of 250,000 shares of Common Stock per practice with an exercise
or conversion price at or above the Closing Sale Price on the day of issuance;
(iv) up to 250,000 shares of Common Stock (or securities convertible into up
to
250,000 shares of Common Stock with an exercise or conversion price at or above
the Closing Sale price on the day of issuance) as consideration for strategic
acquisitions up to a maximum of 250,000 shares of Common Stock per acquisition;
(v) up to 250,000 shares of Common Stock (or securities convertible into up
to
250,000 shares of Common Stock with an exercise or conversion price at or above
the Closing Sale Price on the day of issuance) per year to third parties in
connection with investor relations and public relations efforts of the Company;
(vi) up to 250,000 shares of Common Stock, options, or warrants to be issued
to
Rodman & Renshaw (or their designees) as consideration for securing a line
of credit or similar financing for the Company; (vii)
the
Series D Warrant of the Company (and the Common Stock issuable pursuant thereto)
to purchase 500,000 shares of Common Stock of the Company at an exercise price
of $2.25 per share issued to Gottbetter Capital Master, Ltd.;
(viii)
the amendments to those certain Series E Warrants of the Company issued to
Gottbetter Capital Master, Ltd., to reduce the exercise price of such warrant
to
$2.25 per share of Common Stock and increase the number of shares of Common
Stock for which such warrants may be exercised to 541,666 and 2/3
shares;
and (ix)
up to 35,000,000 shares of Common Stock (or securities convertible into up
to
35,000,000 shares of Common Stock) to be issued to Medical Solutions Management
Inc. and/or Orthosupply Management, Inc., their respective affiliates or
designees in connection with the acquisition by the Company of that certain
Management Agreement, dated April 30, 2007, by and between Orthosupply
Management, Inc. and Deutsche Medical Services, Inc. (the “DMSI Contract
Acquisition”).
14
(j) “EXPIRATION
DATE” means the date eighty-four months after the Issuance Date or, if such date
falls on a day other than a Business Day or on which trading does not take
place
on the Principal Market (a “HOLIDAY”), the next date that is not a
Holiday.
(k) “FUNDAMENTAL
TRANSACTION” means that the Company shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or
not
the Company is the surviving corporation) another Person, or (ii) sell, assign,
transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company to another Person, or (iii) allow another
Person to make a purchase, tender or exchange offer that is accepted by the
holders of more than the 50% of either the outstanding shares of Common Stock
(not including any shares of Common Stock held by the Person or Persons making
or party to, or associated or affiliated with the Persons making or party to,
such purchase, tender or exchange offer), or (iv) consummate a stock purchase
agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated
or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), (v) reorganize, recapitalize or
reclassify its Common Stock (other than a forward or reverse stock split),
or
(vi) any “person” or “group” (as these terms are used for purposes of Sections
13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner”
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of
50% of the aggregate ordinary voting power represented by issued and outstanding
Common Stock. For purposes of the Warrant, the issuance by the Company of up
to
an aggregate of 35,000,000 shares of Common Stock (or securities convertible
into up to an aggregate of 35,000,000 shares of Common Stock) to Medical
Solutions Management Inc. and/or Orthosupply Management, Inc., their respective
affiliates or designees in connection with the DMSI Contract Acquisition shall
not be deemed to be a Fundamental Transaction, and the subsequent assignment,
sale, transfer or conveyance of such shares of Common Stock (or securities
convertible into shares of Common Stock) by Medical Solutions Management Inc.,
Orthosupply Management, Inc., their respective affiliates, designees,
successors, assigns or subsequent transferees shall not be deemed to be a
Fundamental Transaction.
15
(l) “OPTIONS”
means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities.
(m) “PARENT
ENTITY” of a Person means an entity that, directly or indirectly, controls the
applicable Person and whose common stock or equivalent equity security is quoted
or listed on an Eligible Market, or, if there is more than one such Person
or
Parent Entity, the Person or Parent Entity with the largest public market
capitalization as of the date of consummation of the Fundamental
Transaction.
(n) “PERSON”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.
(o) “PRINCIPAL
MARKET” means the Over-the-Counter Bulletin Board.
(p) “REGISTRATION
RIGHTS AGREEMENT” means that certain registration rights agreement by and among
the Company and the Buyers.
(q) “SUCCESSOR
ENTITY” means the Person (or, if so elected by the Holder, the Parent Entity)
formed by, resulting from or surviving any Fundamental Transaction or the Person
(or, if so elected by the Holder, the Parent Entity) with which such Fundamental
Transaction shall have been entered into.
16
IN
WITNESS WHEREOF, the Company has caused this Series G Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
|
MDWERKS,
INC.
|
||
| |
|
|
| By: | /s/ Howard B. Katz | |
|
Name:
Howard B. Katz
|
||
| Title: Chief Executive Officer | ||
17
EXHIBIT
A
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
|
|
|||
|
|
||||
|
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||||
FOR
USE
BY THE ISSUER ONLY:
This
Warrant No. W-___ canceled (or transferred or exchanged) this _____ day of
___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock
in
the name of _______________.
FIRST
AMENDMENT TO
REGISTRATION
RIGHTS AGREEMENT
This
First Amendment to Registration Rights Agreement (this “Amendment”),
dated
January 18, 2008, amends that certain Registration Rights Agreement, dated
September 28, 2007 (the “Rights
Agreement”),
by
and between MDwerks, Inc., a Delaware corporation (the “Company”),
and
Vicis Capital Master Fund,
a
series of the Vicis Capital Master Trust, a trust formed under the laws of
the
Cayman Islands
(the
“Purchaser”).
R
E C
I T A L S
WHEREAS,
the Company and the Purchaser have entered into a Securities Purchase Agreement
dated the date hereof (the “Purchase
Agreement”).
WHEREAS,
as
an
inducement for the Purchaser’s acquisition of the securities under the Purchase
Agreement, the Company has agreed to amend the Rights Agreement to include
as
registrable securities under the Rights Agreement the shares of Common Stock
of
the Company issuable upon conversion or exercise of the securities acquired
by
the Purchaser under the Purchase Agreement.
NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby amend the
Rights Agreement and otherwise agree as follows:
1. Amendments.
(a)
The
first recital in the Rights Agreement is hereby amended and restated in it
entirety to read as follows:
“WHEREAS,
in connection with the Securities Purchase Agreement, dated September 28, 2007,
by and between the Company and Purchaser (the “September Purchase Agreement”),
and the Securities Purchase Agreement, dated January 18, 2008, by and between
the Company and the Purchaser (the “January Purchase Agreement”), the Company
has agreed, upon the terms and subject to the conditions set forth in the
September Purchase Agreement and the January Purchase Agreement, to issue and
sell to the Purchaser (i) shares of the Company’s Series B Convertible Preferred
Stock, par value $0.001 per share (the “Preferred Shares”), which will, among
other things, be convertible into shares of the Company’s common stock , par
value $0.001 per share (the “Common Stock”) (as converted, the “Conversion
Shares”) in accordance with the terms of the Preferred Shares, and (ii) warrants
(the “Warrants”) which will be exercisable to purchase a number of shares of
Common Stock in accordance with the terms of the Warrants (as exercised
collectively, the “Warrant Shares”).”
(b)
The
following definitions contained in the Rights Agreement are hereby added or
amended as follows (deletions
have been stricken and additions are in bold):
.
. .
.
“Preferred
Shares”
shall have the meaning ascribed to it in the Preamble and shall include all
shares of Series B Convertible Preferred Stock of the Company hereafter acquired
by the Purchaser.
.
. . .
“Registrable
Securities”
means
(i) all
shares
of Common Stock issuable upon conversion of the Series
B Convertible
Preferred
Stock of the Company held
by a Holder,
including any dividends paid thereon, and (ii) all
shares
of Common Stock issuable upon exercise of the Series
F and Series G
Warrants
held
by a Holder.
.
. .
.
“Warrants”
means
the Series
F and Series G Warrants
to
purchase shares of Common Stock issued to the Purchaser pursuant to either
the
September
Purchase
Agreement,
the January Purchase Agreement and
all
Series F and Series G Warrants hereafter acquired by the Purchaser.
.
. . .
2. Ratification.
Except
as expressly amended by this Amendment, the terms and conditions of the Rights
Agreement are hereby confirmed and shall remain in full force and effect without
impairment or modification.
3. Conflict.
In the
event of any conflict between the Rights Agreement and this Amendment, the
terms
of this Amendment shall govern.
4. Certain
Defined Terms.
Capitalized terms used but not defined herein shall have the meanings given
to
such terms in the Rights Agreement.
5. Binding
Effect.
The
parties acknowledge and agree that this Amendment complies with all of the
applicable terms and conditions set forth in Section 7(f) of the Rights
Agreement that are necessary to effect an amendment to the Rights Agreement
that
binds the parties and therefore, upon the execution and delivery hereof by
the
parties, this Amendment shall have such binding effect.
6. Governing
Law.
This
Amendment shall be governed by, and construed in accordance with, the laws
of
the State of New York, without giving effect to applicable principles of
conflicts of law that would require the application of the laws of any other
jurisdiction.
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7. Counterparts.
This
Amendment may be executed in any number of counterparts, each of which shall
be
deemed to be an original, and all of which taken together shall constitute
one
and the same instrument.
IN
WITNESS WHEREOF, the parties have caused this Amendment to be duly executed
by
their respective authorized representatives as of the day and year first above
written.
| MDWERKS, INC. | ||
| |
|
|
| By: | /s/ Howard B. Katz | |
|
Name: Howard B. Katz |
||
| Title: Chief Executive Officer | ||
| PURCHASER: | ||
| VICIS CAPITAL MASTER FUND | ||
| By: Vicis Capital LLC | ||
| |
|
|
| By: | /s/ Keith W. Hughes | |
|
Name: Keith W. Hughes |
||
| Title: Chief Financial Officer | ||
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