SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of October 19,
2006, by and among MDwerks, Inc., a Delaware corporation, with headquarters
located at 0000 XX 0xx Xx., Xxxxx X, Xxxxxxxxx Xxxxx, XX 00000 (the "COMPANY"),
and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and Rule 506 of
Regulation D ("REGULATION D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized a new series of senior secured convertible
notes of the Company which notes shall be convertible into the Company's common
stock, par value $0.001 per share (the "COMMON STOCK"), in accordance with the
terms of the Notes (as defined below).
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, (i) that aggregate principal
amount of the Notes, in substantially the form attached hereto as Exhibit A (the
"INITIAL NOTES"), set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers attached hereto (which aggregate amount for all Buyers shall
be $2,500,000) (as converted, collectively, the "INITIAL CONVERSION SHARES"),
(ii) warrants, in substantially the form attached hereto as Exhibit B-1 (the
"SERIES D WARRANTS"), to acquire one half that number of shares of Common Stock
set forth opposite such Buyer's name in column (5) on the Schedule of Buyers and
(iii) warrants in substantially the form attached hereto as Exhibit B-2 (the
"SERIES E WARRANTS") to acquire one half of that number of shares of Common
Stock set forth opposite such Buyer's name in column (6) on the Schedule of
Buyers (collectively with the Series D Warrants, the "WARRANTS"). Any shares of
the Common Stock issued or issuable upon the exercise of the Warrants are
hereinafter referred to as the "WARRANT SHARES."
D. Subject to the terms and conditions set forth in this Agreement, the
Buyers shall purchase in an Additional Closing (as defined in Section 1(a)(ii)
below), (i) that aggregate principal amount of Notes, in substantially the form
attached hereto as Exhibit A (collectively, the "ADDITIONAL NOTES" and,
collectively with the Initial Notes, the "NOTES"), set forth opposite such
Buyer's name in column (4) on the Schedule of Buyers (which aggregate amount for
all Buyers shall be $2,500,000) (as converted, collectively, the "ADDITIONAL
CONVERSION SHARES" and, collectively with the Initial Conversion Shares, the
"CONVERSION SHARES"); (ii) Series D Warrants to acquire one half of that number
of shares of Common Stock set forth opposite such Buyer's name in column (5) on
the Schedule of Buyers ("ADDITIONAL SERIES D WARRANTS") and (iii) Series E
Warrants to acquire one half of that number of shares of Common Stock set forth
opposite such Buyer's name in column (6) on the Schedule of Buyers ("ADDITIONAL
SERIES E
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WARRANTS" AND, COLLECTIVELY WITH THE ADDITIONAL SERIES D WARRANTS, "ADDITIONAL
WARRANTS").
E. At the Closing (as defined below), the parties hereto shall execute and
deliver a Registration Rights Agreement, substantially in the form attached
hereto as Exhibit C (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the
Company has agreed to provide certain registration rights with respect to the
Conversion Shares and the Warrant Shares under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
F. The Notes, the Conversion Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the "SECURITIES".
G. Except as may be otherwise provided herein, the Notes will rank senior
to all outstanding and future indebtedness of the Company, subject to Permitted
Senior Indebtedness (as defined in the Notes), and except as may be otherwise
provided herein, will be secured by a perfected security interest in all of the
assets of the Company and each of the Company's subsidiaries, as evidenced by
the security agreement attached hereto as Exhibit D (the "SECURITY AGREEMENT")
and together with the Guaranty, and any ancillary documents related thereto,
collectively the "SECURITY DOCUMENTS").
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
(a) Purchase of Notes and Warrants.
(i) Initial Notes and Warrants. Subject to the satisfaction (or waiver) of
the conditions set forth in Sections 6(a) and 7(a) below, the Company shall
issue and sell to each Buyer, and each Buyer severally, but not jointly, will
purchase from the Company on the Initial Closing Date (as defined below), (x) a
principal amount of Initial Notes as is set forth opposite such Buyer's name in
column (3) on the Schedule of Buyers and (y) Warrants to acquire one half of
that number of Warrant Shares as is set forth opposite such Buyer's name in
columns (5&6) on the Schedule of Buyers (the "INITIAL CLOSING").
(ii) Additional Notes and Warrants. Subject to the satisfaction (or waiver)
of the conditions set forth in Sections 1(c), 6(b) and 7(b) below, the Company
shall issue and sell to each Buyer, and each Buyer severally, but not jointly,
will purchase from the Company on the Additional Closing Date (as defined
below), a principal amount of Additional Notes as is set forth opposite such
Buyer's name in column (4) on the Schedule of Buyers and Additional Warrants to
acquire one half of that number of Warrant Shares as is set forth opposite such
Buyer's name in columns (5&6) (the "ADDITIONAL CLOSING").
(iii) Closing. The Initial Closing and the Additional Closing are referred
to in this Agreement as a "CLOSING". Each Closing shall occur on the applicable
Closing Date at the offices of Gottbetter & Partners, LLP, 000 Xxxxxxx Xxxxxx,
Xxx Xxxx, XX 00000.
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(iv) Purchase Price. The aggregate purchase price for the Initial Notes and
the Warrants to be purchased by each Buyer at the Initial Closing (the "INITIAL
PURCHASE PRICE") shall be the amount set forth opposite such Buyer's name in
column (7) of the Schedule of Buyers. Each Buyer shall pay $.95 for each $1.00
of principal amount of Initial Notes and related Warrants to be purchased by
such Buyer at the Closing. The aggregate purchase price for the Initial Notes
and the Warrants to be purchased by each Buyer at the Additional Closing shall
be the amount set forth opposite such Buyer's name in column (7) of the Schedule
of Buyers (the "ADDITIONAL PURCHASE PRICE", and together with the Initial
Purchase Price, the "PURCHASE PRICE"). Each Buyer shall pay $.95 for each $1.00
of principal amount of Additional Notes to be purchased at each Additional
Closing.
(b) Initial Closing Date. The date and time of the Initial Closing (the
"INITIAL CLOSING DATE") shall be 10:00 a.m., New York City Time, on the date
hereof after notification of satisfaction (or waiver) of the conditions to the
Initial Closing set forth in Sections 6(a) and 7(a) below (or such later date as
is mutually agreed to by the Company and each Buyer).
(c) Additional Closing Dates. The date and time of the Additional Closing
(the "ADDITIONAL CLOSING DATE," and together with the Initial Closing Date, each
or "CLOSING DATE" and collectively, the "CLOSING DATES") shall be 10:00 a.m.,
New York City Time, on the date specified in the applicable Additional Closing
Notice (as defined below), subject to satisfaction (or waiver) of the conditions
to the Additional Closing set forth in Sections 6(b) and 7(b) and the conditions
contained in this Section 1(c) (or such later date as is mutually agreed to by
the Company and the applicable Buyer). Subject to the requirements of Sections
6(b) and 7(b) and the conditions contained in this Section 1(c), each Buyer
shall purchase the Additional Notes upon receipt of a notice of the filing of
the Registration Statement (the "ADDITIONAL CLOSING NOTICE"). The Additional
Closing Notice shall be delivered at least one Business Day prior to the
Additional Closing Date set forth in such Additional Closing Notice. As used
herein, "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) Form of Payment. On the Initial Closing Date, (i) each Buyer shall pay
its Initial Purchase Price to the Company for the Initial Notes and the Warrants
to be issued and sold to such Buyer at the Closing by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions and (ii) the Company shall deliver to each Buyer (A) the Initial
Notes (in the principal amounts as such Buyer shall have requested prior to the
Closing) which such Buyer is then purchasing and (B) the Warrants (in the
amounts as such Buyer shall have requested prior to the Closing) which such
Buyer is purchasing, in each case duly executed on behalf of the Company and
registered in the name of such Buyer or its designee. On the Additional Closing
Date, each Buyer shall pay the Additional Purchase Price to the Company for the
Additional Notes and Additional Warrants to be issued and sold to such Buyer at
the Additional Closing by wire transfer of immediately available funds for such
Additional Purchase Price in accordance with the Company's written wire
instructions. At each Closing, the Company shall deliver to each Buyer the Notes
(in the principal amounts as such Buyer shall request) and the Warrants which
such Buyer is then purchasing duly executed on behalf of the Company and
registered in the name of such Buyer or its designee.
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2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) No Public Sale or Distribution. Such Buyer is (i) acquiring the Notes
and the Warrants and (ii) upon conversion of the Notes and exercise of the
Warrants will acquire the Conversion Shares issuable upon conversion of the
Notes and the Warrant Shares issuable upon exercise of the Warrants, for its own
account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales registered or
exempt from registration under the 1933 Act; provided, however, that by making
the representations herein, such Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exempt from registration under the 1933 Act. Such
Buyer is acquiring the Securities hereunder in the ordinary course of its
business. Such Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities.
Further, there are no contracts, arrangements, understandings or relationships
(legal or otherwise) among such Buyer and any other Person with respect to any
securities of the Company, including but not limited to transfer or voting of
any of the Securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, division of profits or loss,
or the giving or withholding of proxies.
(b) Accredited Investor Status. Such Buyer is an "accredited investor" as
that term is defined in Rule 501(a) under the 1933 Act. Such Buyer is not a
registered broker-dealer under Section 15 of the 1934 Act.
(c) Reliance on Exemptions. Such Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
(d) Information. Such Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been requested by such Buyer. Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company and have had such
questions answered to its satisfaction. Such Buyer understands that its
investment in the Securities involves a high degree of risk. Such Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.
(e) No Governmental Review. Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment
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in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.
(f) Transfer or Resale. Such Buyer understands that except as provided in
the Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a form reasonably acceptable to the Company, to the
effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C)
such Buyer provides the Company with reasonable assurance (including an opinion
of counsel) that such Securities can be sold, assigned or transferred pursuant
to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended, (or a
successor rule thereto) (collectively, "RULE 144"); (ii) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the Person (as defined in
Section 3(s)) through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 0000 Xxx) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other Person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder. The Securities
may be pledged in connection with a bona fide margin account or other loan or
financing arrangement secured by the Securities and such pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Buyer effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document (as
defined in Section 3(b)), including, without limitation, this Section 2(f).
(g) Legends. Such Buyer understands that the certificates or other
instruments representing the Notes and the Warrants and, until such time as the
resale of the Conversion Shares and the Warrant Shares have been registered
under the 1933 Act as contemplated by each of the Registration Rights Agreement,
the stock certificates representing the Conversion Shares and the Warrant
Shares, except as set forth below, shall bear any legend as required by the
"blue sky" laws of any state and a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[CONVERTIBLE] [EXERCISABLE] HAVE BEEN] [THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT 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,
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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.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, or issue to such holder by electronic delivery at the applicable
balance account at DTC (as defined below) unless otherwise required by state
securities laws, if (i) such Securities are registered for resale under the 1933
Act, (ii) in connection with a sale, assignment or other transfer, such holder
provides the Company with an opinion of counsel, in a form reasonably acceptable
to the Company, to the effect that such sale, assignment or transfer of the
Securities may be made without registration under the applicable requirements of
the 1933 Act, or (iii) such holder provides the Company with reasonable
assurance that the Securities can be sold, assigned or transferred pursuant to
Rule 144 or Rule 144A.
(h) Validity; Enforcement. The Transaction Documents (as defined below) to
which such Buyer is a party have been duly and validly authorized, executed and
delivered on behalf of such Buyer and shall constitute the legal, valid and
binding obligations of such Buyer enforceable against such Buyer in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.
(i) No Conflicts. The execution, delivery and performance by such Buyer of
the Transaction Documents to which such Buyer is a party and the consummation by
such Buyer of the transactions contemplated hereby and thereby will not (i)
result in a violation of the organizational documents of such Buyer 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 agreement,
indenture or instrument to which such Buyer is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws) applicable to such Buyer, except in the case
of clauses (ii) and (iii) above, for such conflicts, defaults, rights or
violations which would not, individually or in the aggregate, have or reasonably
be expected to have a material adverse effect on the ability of such Buyer to
perform its obligations hereunder.
(j) Residency. Such Buyer is a resident of that jurisdiction specified
below its address on the Schedule of Buyers.
(k) Independent Investment Decision. Such Buyer has independently evaluated
the merits of its decision to purchase the Securities pursuant to the
Transaction Documents, and such Buyer confirms that it has (i) not relied on the
advice of any other Buyer's business and/or legal
6
counsel in making such decision and (ii) not received or relied on any advice of
the Company or its business and/or legal counsel in making such decision. Such
Buyer acknowledges that it had the opportunity to review this Agreement, the
other Transaction Documents and the transactions contemplated hereby and thereby
with its own legal counsel and investment and tax advisors, if any. Such Buyer
is relying solely on such counsel and advisors and not on any statements or
representations of the Company or any of its representatives or agents for
legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement and the other Transaction Documents.
(l) Certain Trading Activities. Such Buyer has not directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with
such Buyer, engaged in any transactions in the securities of the Company
(including, without limitations, any Short Sales involving the Company's
securities) since the time that such Buyer was first contacted by the Company
regarding the transactions contemplated hereby. Such Buyer covenants that
neither it nor any Person acting on its behalf or pursuant to any understanding
with it will engage in any transactions in the securities of the Company
(including Short Sales) prior to the time that the transactions contemplated by
this Agreement are publicly disclosed. For the purpose of this Agreement, "SHORT
SALES" include, 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.
(m) Limited Ownership. The purchase by such Buyer of the Securities
issuable to it at the Closing will not result in such Buyer or in the aggregate
with other Buyers (individually or together with other Persons with whom such
Buyer has identified, or will have identified, itself as part of a "group" in a
public filing made with the SEC involving the Company's securities) acquiring,
or obtaining the right to acquire, in excess of 19.999% of the outstanding
shares of Common Stock or the voting power of the Company on a post transaction
basis that assumes that the Closing shall have occurred. Such Buyer does not
presently intend to, alone or together with others, make a public filing with
the SEC to disclose that it has (or that it together with such other Persons
have) acquired, or obtained the right to acquire, as a result of the Closing
(when added to any other securities of the Company that it or they then own or
have the right to acquire), in excess of 19.999% of the outstanding shares of
Common Stock or the voting power of the Company on a post transaction basis that
assumes that the Closing shall have occurred.
(n) General Solicitation. Such Buyer 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.
(o) Organization; Authority. Such Buyer is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership or other entity power
and authority to enter into and to consummate the transactions contemplated by
the applicable Transaction Documents to which it is a party and otherwise to
carry out its obligations thereunder.
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(p) Prohibited Transactions. During the last ten (10) days prior to the
date hereof, neither such Buyer nor any Person acting on behalf of or pursuant
to any understanding with such Buyer has, directly or indirectly, effected or
agreed to effect any short sale, whether or not against the box, established any
"put equivalent position" (as defined in Rule 16a-1(h) under the Exchange Act)
with respect to the Common Stock, granted any other right (including, without
limitation, any put or call option) with respect to the Common Stock or with
respect to any security that includes, relates to or derived any significant
part of its value from the Common Stock or otherwise sought to hedge its
position in the Securities (but not including any actions to secure available
shares to borrow in order to effect short sales or similar transactions in the
future) (each, a "PROHIBITED TRANSACTION"). Prior to the earliest to occur of
(i) the termination of this Agreement or (ii) the date of the 8-K Filing as
described in Section 4(i), such Buyer shall not, and shall cause any Person
acting on behalf of or pursuant to any understanding with such Buyer not to,
engage, directly or indirectly, in a Prohibited Transaction. Such Buyer
acknowledges that the representations, warranties and covenants contained in
this Section 2(p) are being made for the benefit of the Buyers as well as the
Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
(a) Organization and Qualification. The Company and its "SUBSIDIARIES"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns a majority of the capital stock, equity or similar
interest) are entities duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are formed, and have the
requisite power and authority to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign entity 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 and the other Transaction Documents or by the agreements and
instruments to be entered into in connection herewith or therewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). The Company has no Subsidiaries except
as set forth on Schedule 3(a). The Company owns, directly or indirectly, all of
the capital stock or other equity interests of each Subsidiary free and clear of
any liens, except those liens and security interests which may have been created
or will be created in connection with the Company's acquisition of each
Subsidiary as detailed on Schedule 3(a) attached hereto and as otherwise set
forth in Schedule 3(a) attached hereto (the "PERMITTED LIENS" hereinafter
defined), 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 to subscribe for or purchase securities.
(b) Authorization; Enforcement; Validity. The Company has the requisite
power and
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authority to enter into and perform its obligations under this Agreement, the
Notes, the Warrants, the Registration Rights Agreement, the Security Documents,
the Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), and
each of the other agreements entered into by the Company hereto in connection
with the transactions contemplated by this Agreement (collectively, the
"TRANSACTION DOCUMENTS") and to issue the Securities in accordance with the
terms hereof and thereof. The execution and delivery of this Agreement and the
other Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby, including, without
limitation, the issuance of the Notes and the Warrants, the reservation for
issuance and the issuance of the Conversion Shares issuable upon conversion of
the Notes, the reservation for issuance and issuance of Warrant Shares issuable
upon exercise of the Warrants, and the granting of a security interest in the
Collateral (as defined in the Security Documents) have been duly authorized by
the Company's board of directors and (other than (i) the filing of appropriate
UCC financing statements with the appropriate states and other authorities
pursuant to the Security Agreement, (ii) the filing of a Form D under Regulation
D of the 1933 Act and (iii) the filing with the SEC of one or more Registration
Statements and any other filings as may be required by any state securities
agency in accordance with the requirements of the Registration Rights Agreement)
no further filing, consent, or authorization is required by the Company, its
board of directors or its stockholders. This Agreement and the other Transaction
Documents to which the Company and/or any Subsidiary is a party have been duly
executed and delivered by the Company and/or such Subsidiary, as applicable, and
constitute the legal, valid and binding obligations of the Company and/or such
Subsidiary, as applicable, enforceable against the Company and/or such
Subsidiary, as applicable, in accordance with their respective terms, except as
such enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.
(c) Issuance of Securities. The issuance of the Notes and the Warrants are
duly authorized and are free from all liens and charges with respect to the
issue thereof. As of the Closing, a number of shares of Common Stock shall have
been duly authorized and reserved for issuance which equals 175% of the maximum
number of shares Common Stock initially issuable upon conversion of the Notes
and upon exercise of the Warrants. Upon conversion in accordance with the Notes
or exercise in accordance with the Warrants, as the case may be, the Conversion
Shares and the Warrant Shares, respectively, will be validly issued, fully paid
and nonassessable and free from all preemptive or similar rights, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock. The offer and issuance by the
Company of the Securities is exempt from registration under the 1933 Act.
(d) No Conflicts. The execution, delivery and performance of this Agreement
and the other Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Notes and the Warrants, the granting of a
security interest in the Collateral and reservation for issuance and issuance of
the Conversion Shares and the Warrant Shares) will not (i) result in a violation
of the Articles of Incorporation (as defined in Section 3(r)) of the
9
Company or any of its Subsidiaries, any capital stock of the Company or Bylaws
(as defined in Section 3(r)) of the Company or any of its Subsidiaries 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 agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and the rules and regulations of the Over-The-Counter Bulletin Board (the
"PRINCIPAL MARKET") applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected except where such violation would not result in a Material Adverse
Affect.
(e) Consents. Other than as set forth on Schedule 3(e), the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence shall have been obtained
or effected on or prior to the Closing Date, and the Company and its
Subsidiaries are unaware of any facts or circumstances which might prevent the
Company from obtaining or effecting any of the registrations, applications or
filings pursuant to the preceding sentence. The Company is not in violation of
the applicable listing requirements of the Principal Market. The issuance by the
Company of the Securities shall not have the effect of delisting or suspending
the Common Stock from the Principal Market.
(f) Acknowledgment Regarding Buyer's Purchase of Securities. The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of an
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) to the knowledge of the Company, an "affiliate"
of the Company (as defined in Rule 144) or (iii) to the knowledge of the
Company, a "beneficial owner" of more than 10% of the shares of Common Stock (as
defined for purposes of Rule 13d-3 of the 1934 Act. The Company further
acknowledges that no Buyer is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and the
other Transaction Documents and the transactions contemplated hereby and
thereby, and any advice given by a Buyer or any of its representatives or agents
in connection with this Agreement and the other Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such
Buyer's purchase of the Securities. The Company further represents to each Buyer
that the Company's decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its
representatives.
(g) No General Solicitation. Neither the Company, nor any of its
Subsidiaries or Affiliates, nor, to the Company's knowledge, any Person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D) in connection with the
offer or sale of the Securities. The Company shall be responsible for the
payment of any placement agent's fees, financial advisory fees, or brokers'
commissions (other than for persons engaged by any Buyer or its investment
advisor) relating to
10
or arising out of the transactions contemplated hereby.
(h) No Integrated Offering. None of the Company, its Subsidiaries, any of
their Affiliates, or any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act. None of the Company, its Subsidiaries, their
Affiliates or any Person acting on its or their behalf will take any action or
steps referred to in the preceding sentence that would require registration of
any of the Securities under the 1933 Act.
(i) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and the Notes and its obligation to issue the Warrant Shares upon exercise of
the Warrants in accordance with this Agreement and the Warrant is, in each case,
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
(j) Application of Takeover Protections; Rights Agreement. 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 Articles of Incorporation or the laws of the
jurisdiction of its formation which is or could become applicable to any Buyer
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and any Buyer's
ownership of the Securities. The Company has not adopted a stockholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.
(k) SEC Documents; Financial Statements. Except as disclosed in the SEC
Documents or on Schedule 3(k), during the two (2) years prior to the date
hereof, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the 1934 Act (all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial statements, notes
and schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC DOCUMENTS"). The Company has delivered to
the Buyers or their respective representatives true, correct and complete copies
of the SEC Documents not available on the XXXXX system if such SEC Documents
have been requested in writing by Buyers. As of their respective filing dates,
the SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and except as subsequently amended, none of the
SEC Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective filing dates, except as subsequently amended, the financial
statements of the Company included in the SEC Documents complied as to form in
all material
11
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(l) Absence of Certain Changes. Except as disclosed in the SEC Documents or
on Schedule 3(l), since the date of the Company's most recent audited financial
statements contained in a Form 10-KSB, there has been no material adverse change
and no material adverse development in the business, assets, properties,
operations, condition (financial or otherwise) or results of operations of the
Company. Except as disclosed in the SEC Documents or on Schedule 3(l), since the
date of the Company's most recent audited financial statements contained in a
Form 10-KSB, neither the Company nor any of its Subsidiaries has (i) declared or
paid any dividends, (ii) sold any assets, individually or in the aggregate, in
excess of $100,000 outside of the ordinary course of business or (iii) had
capital expenditures, individually or in the aggregate, in excess of $100,000.
Neither the Company nor any of its Subsidiaries has taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so. The Company and its Subsidiaries,
individually and on a consolidated basis, are not as of the date hereof, after
giving effect to the transactions contemplated hereby to occur at the Closing,
will not be Insolvent (as defined below). For purposes of this Section 3(l),
"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 (as
defined in Section 3(s)), (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.
(m) No Undisclosed Events, Liabilities, Developments or Circumstances.
Except for the transactions contemplated hereunder, no event, liability,
development or circumstance has occurred or exists, with respect to the Company,
its Subsidiaries or their respective business, properties, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form SB-2 or any other
appropriate form filed with the SEC relating to an issuance and sale by the
Company of its Common Stock and which has not been publicly announced.
(n) Conduct of Business; Regulatory Permits. Neither the Company nor any of
its Subsidiaries is in violation of any term of or in default under its Articles
of Incorporation or Bylaws or their organizational charter or certificate of
incorporation or bylaws, respectively. Neither the Company nor any of its
Subsidiaries is in violation of any judgment, decree or order
12
or any law, statute, ordinance, rule or regulation applicable to the Company or
its Subsidiaries, and neither the Company nor any of its Subsidiaries is or will
conduct its business in violation of any of the foregoing, except for violations
which would not, individually or in the aggregate, have a Material Adverse
Effect. Without limiting the generality of the foregoing, the Company is not in
violation of any of the rules, regulations or requirements of the Principal
Market and has no knowledge of any facts or circumstances which would reasonably
lead to delisting or suspension of the Common Stock by the Principal Market in
the foreseeable future. During the one (1) year prior to the date hereof, (i)
the Common Stock has been designated for quotation on the Principal Market, (ii)
trading in the Common Stock has not been suspended by the SEC or the Principal
Market and (iii) the Company has received no communication, written or oral,
from the SEC or the Principal Market regarding the suspension or delisting of
the Common Stock from the Principal Market. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
regulatory authorities necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any written notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
(o) Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
(p) Xxxxxxxx-Xxxxx Act. The Company is in compliance with any and all
applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof.
(q) Transactions With Affiliates. Except as set forth in the SEC Documents
filed at least ten days prior to the date hereof and other than the grant of
stock options disclosed on the SEC Documents or on Schedule 3(q), none of the
officers, directors or employees of the Company or any of its Subsidiaries is
presently a party to any transaction with the Company or any of its Subsidiaries
(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 or any of its
Subsidiaries, 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.
(r) Equity Capitalization. As of the date hereof, the authorized capital
stock of the
13
Company consists of (i) 100,000,000 shares of Common Stock, par value $0.001 per
share, of which as of the date hereof, 12,373,398 are issued and outstanding, up
to 2,751,250 shares will be reserved for issuance pursuant to the Company's
stock option and purchase plans and 1,759,678 shares are reserved for issuance
pursuant to securities (other than the Notes and the Warrants) exercisable or
exchangeable for, or convertible into, shares of Common Stock and (ii),
10,000,000 shares of Preferred stock, par value $0.001 per share, of which 1,000
shares have been designated as Series A Convertible Preferred stock, par value
$0.001 per share, of which as the date hereof, 14.333 shares are issued and
outstanding. All of such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. Except as disclosed on
Schedule 3(r): (i) none of the Company's capital stock is subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company; (ii) or in the SEC Documents, 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 capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional capital stock of the Company or any of its Subsidiaries 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 capital stock of the Company or any of its
Subsidiaries; (iii) or in the SEC Documents there are no outstanding debt
securities, notes, credit or loan agreements, credit facilities or other
agreements, documents or instruments evidencing Indebtedness (as defined below)
of the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (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 any of its Subsidiaries; (v) or in the
SEC Documents, there are no agreements or arrangements under which the Company
or any of its Subsidiaries is obligated to register the sale of any of their
securities under the 1933 Act (except pursuant to the Registration Rights
Agreement); (vi) or in the SEC Documents, there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to purchase, repurchase, retire or redeem a security of
the Company or any of its Subsidiaries; (vii) or in the SEC Documents, there are
no securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities; (viii) or in the SEC
Documents, the Company does not have any stock appreciation rights or "phantom
stock" plans or agreements or any similar plan or agreement; and (ix) the
Company and its Subsidiaries have no liabilities or obligations required to be
disclosed in the SEC Documents but not so disclosed in the SEC Documents, other
than those incurred in the ordinary course of the Company's or its Subsidiaries'
respective businesses and which, individually or in the aggregate, do not or
would not have a Material Adverse Effect. The Company has furnished to the
Buyers true, correct and complete copies of the Company's Articles of
Incorporation, as amended and as in effect on the date hereof (the "ARTICLES OF
INCORPORATION"), and the Company's Bylaws, as amended and as in effect on the
date hereof (the "BYLAWS"). The terms of all securities convertible into, or
exercisable or exchangeable for, shares of Common Stock and the material rights
of the holders thereof in respect thereto are disclosed in the SEC Documents or
on Schedule 3(r).
14
(s) Indebtedness and Other Contracts. Except as disclosed in Schedule 3(s)
or in the SEC Documents, neither the Company nor any of its Subsidiaries (i) has
any outstanding Indebtedness (as defined below), (ii) is a party to any
contract, agreement or instrument, the violation of which, or default under
which, by the other party(ies) to such contract, agreement or instrument would
result in a Material Adverse Effect or (iii) 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. The Company's
SEC Documents and Schedule 3(s) provide a detailed description of the material
terms of any such outstanding Indebtedness. For purposes of this Agreement: (x)
"INDEBTEDNESS" of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services including (without limitation)
"Capital Leases" in accordance with generally accepted accounting principles
(other than trade payables entered into in the ordinary course of business), (C)
all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) 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, (E) 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), (F) 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, (G) all indebtedness referred to in clauses (A) through (F) 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, charge,
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 (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) 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.
(t) Absence of Litigation. There is no action, suit, proceeding or written
inquiry before or by the Principal Market, any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
its Subsidiaries' officers or directors, which is in the aggregate material to
the Company, except as set forth in the SEC Documents or on Schedule 3(t).
15
(u) Insurance. The Company and each of its Subsidiaries 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 its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
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.
(v) Employee Relations.
(i) Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or employs any member of a union. The Company
and its Subsidiaries believe that their relations with their employees are good.
No executive officer of the Company or any of its Subsidiaries (as defined in
Rule 501(f) of the 0000 Xxx) has notified the Company or any such Subsidiary
that such officer intends to leave the Company or any such Subsidiary or
otherwise terminate such officer's employment with the Company or any such
Subsidiary. No executive officer of the Company or any of its Subsidiaries, to
the knowledge of the Company or any such Subsidiary, is, or is now expected to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.
(ii) To the knowledge of the Company, the Company and its Subsidiaries
are in compliance with all federal, state and local laws and regulations
respecting labor, employment and employment practices and benefits, 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.
(w) Title. The Company and its Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case, except as set forth in Schedule 3(w), free and clear
of all liens, encumbrances and defects except such as do not materially affect
the value of such property and do not interfere with the use made and proposed
to be made of such property by the Company and any of its Subsidiaries. Any real
property and facilities held under lease by the Company and any of its
Subsidiaries 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 facilities by the Company and its
Subsidiaries.
(x) Intellectual Property Rights. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service xxxx registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals,
16
governmental authorizations, trade secrets and other intellectual property
rights ("INTELLECTUAL PROPERTY RIGHTS") necessary to conduct their respective
businesses as now conducted. Except as set forth in Schedule 3(x), none of the
Company's Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate, within three years from the date of this
Agreement. The Company does not have any knowledge of any infringement by the
Company or its Subsidiaries of Intellectual Property Rights of others. There is
no claim, action or proceeding being made or brought, or to the knowledge of the
Company, being threatened, against the Company or any of its Subsidiaries
regarding its Intellectual Property Rights. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their Intellectual Property Rights.
(y) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), 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.
(z) Subsidiary Rights. Except as set forth in Schedule 3(z), the Company
and its Subsidiaries have the unrestricted right to vote, and (subject to
limitations imposed by applicable law) to receive dividends and distributions
on, all capital securities of its Subsidiaries as owned by the Company or such
Subsidiary.
(aa) Investment Company. The Company is not, and is not an affiliate of, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(bb) Tax Status. Except as set forth in Schedule (bb), the Company and each
of its Subsidiaries (i) has made or filed all foreign, federal and state income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject, (ii) has 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 (iii) has set aside on its books provision reasonably adequate
for the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. 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. No liens
have been filed and no claims are being asserted by or against the Company or
17
any of its Subsidiaries with respect to any taxes (other than liens for taxes
not yet due and payable). Neither the Company nor it Subsidiaries has received
notice of assessment or proposed assessment of any taxes claimed to be owed by
it or any other Person on its behalf. Except as disclosed on Schedule 3(bb),
neither the Company nor any Subsidiary is a party to any tax sharing or tax
indemnity agreement or any other agreement of a similar nature that remains in
effect. Each of the Company and its Subsidiaries has complied in all material
respects with all applicable legal requirements relating to the payment and
withholding of taxes and, within the time and in the manner prescribed by law,
has withheld from wages, fees and other payments and paid over to the proper
governmental or regulatory authorities all amounts required.
(cc) Internal Accounting and Disclosure Controls. The Company and each of
its Subsidiaries maintain a system of internal accounting controls sufficient 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 generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference (the
"INTERNAL ACCOUNTING CONTROLS"). The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-14 under the 0000 Xxx) that are
effective in ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the
rules and forms of the SEC, including, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company's management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure.
(dd) Off Balance Sheet Arrangements. There is no transaction, arrangement,
or other relationship between the Company or any of its Subsidiaries 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 otherwise would be reasonably likely to have a Material Adverse Effect.
(ee) Ranking of Notes. Except as set forth on Schedule (ee), no
Indebtedness of the Company is senior to or ranks pari passu with the Notes in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise.
(ff) Form SB-2 Eligibility. The Company is eligible to register the
Conversion Shares and the Warrant Shares for resale by the Buyers using Form
SB-2 promulgated under the 1933 Act.
(gg) Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of
18
the Securities to be sold to each Buyer hereunder will be, or will have been,
fully paid or provided for by the Company, and all laws imposing such taxes will
be or will have been complied with except where the failure to do so would not
be reasonably likely to result in a Material Adverse Effect.
(hh) Manipulation of Price. The Company and its Subsidiaries have not, and
to its knowledge no one acting on its behalf has, (i) 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, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any person any compensation for soliciting another to purchase any other
securities of the Company.
(ii) U.S. Real Property Holding Corporation. The Company is not, nor has
ever been, a U.S. real property holding corporation within the meaning of
Section 897 of the Internal Revenue Code of 1986, as amended, and the Company
shall so certify upon Buyer's request.
(jj) Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Buyers or their agents or counsel
with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information other than the existence of the
transactions contemplated by this Agreement or the other Transaction Documents.
The Company understands and confirms that each of the Buyers will rely on the
foregoing representations in effecting transactions in the Securities. All
disclosure provided to the Buyers regarding the Company, its business and the
transactions contemplated by this Agreement and the other Transaction Documents,
including the Schedules and Exhibit s hereto and thereto, furnished by or on
behalf of the Company is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made herein or therein, in the light of the
circumstances under which they were made, not misleading. Each press release
issued by the Company or its Subsidiaries during the twelve (12) months
preceding the date of this Agreement did not at the time of release contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. No event
or circumstance has occurred with respect to the Company or any of its
Subsidiaries or its or their business, assets, liabilities, properties,
operations or financial conditions (financial or otherwise), which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.
(kk) Lien Searches. Within six (6) Business Days prior to the date hereof,
the Company shall have delivered or caused to be delivered to each Buyer
certified copies of UCC financing statement search results listing any and all
effective financing statements filed within five years prior to such date in any
applicable jurisdiction that name the Company or any of their Subsidiaries as a
debtor to perfect an interest in any of the assets thereof, together with copies
of such financing statements, none of which financing statements, except for any
financing statements filed with respect to the Senior Indebtedness or Permitted
Liens (as defined in the Notes) and as otherwise agreed to in writing by the
Buyers, shall cover any of the "Collateral"
19
(as defined in the Security Documents), and the results of searches for any
effective tax liens and judgment liens filed against any such Person or its
property in any applicable jurisdiction, which results, except as otherwise
agreed to in writing by the Buyers, shall not show any such effective tax liens
and judgment liens.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to satisfy
each of the conditions to be satisfied by it as provided in Sections 6 and 7 of
this Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing.
(c) Blue Sky. The Company shall, on or before the Closing Date, take such
action as the Company shall reasonably determine is necessary in order to obtain
an exemption for or to qualify the Securities for sale to the Buyers at the
Closing pursuant to this Agreement under applicable securities or "Blue Sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date. The Company shall make all filings and
reports relating to the offer and sale of the Securities required under
applicable securities or "Blue Sky" laws of the states of the United States
following the Closing Date.
(d) Reporting Status. Until the date on which the Investors (as defined in
the Registration Rights Agreement) shall have sold all the Conversion Shares and
Warrant Shares and none of the Notes or Warrants is outstanding (the "REPORTING
PERIOD"), the Company shall file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would otherwise permit such termination.
(e) Use of Proceeds. The Company will use the proceeds from the sale of the
Securities substantially as set forth on Schedule 4(e).
(f) Financial Information. The Company agrees to send the following to each
Investor (as defined in the Registration Rights Agreement) during the Reporting
Period (i) unless the following are filed with the SEC through XXXXX and are
available to the public through the XXXXX system, within one (1) Business Day
after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K
or 10-KSB, any interim reports or any consolidated balance sheets, income
statements, stockholders' equity statements and/or cash flow statements for any
period other than annual, any Current Reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the 1933
Act, and (ii) copies of any notices and other information made available or
given to the stockholders of the Company generally, contemporaneously with the
making available or giving thereof to the stockholders. As used herein "Business
Day" means any other day other than a Saturday, Sunday, or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.
20
(g) Listing. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which the Common Stock is then listed (subject to official notice of issuance)
and shall maintain such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents. The Company shall
maintain the Common Stock's authorization for quotation on the Principal Market.
Neither the Company nor any of its Subsidiaries shall take any action which
would be reasonably expected to result in the delisting or suspension of the
Common Stock on the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(f).
(h) Fees. The Company shall (i) pay Gottbetter & Partners, LLP ("G&P")
$40,000 in legal fees plus reasonable expenses and (ii) pay Gottbetter Capital
Master, Ltd. (a Buyer) ("GCF") or its designee(s) $15,000 for due diligence and
all reasonable expenses incurred in connection with the transactions
contemplated by the Transaction Documents (including all reasonable legal fees
and disbursements in connection therewith, documentation and implementation of
the transactions contemplated by the Transaction Documents and due diligence in
connection therewith), which amounts, to the extent they have not been paid,
shall be withheld by such Buyer from its Purchase Price at the Closing. GCF and
G&P acknowledge receipt of $25,000 delivered prior to the date hereof as an
advance against the fees of G&P and GCF referred to above in this Section 4(g).
The Company shall be responsible for the payment of any placement agent's fees,
financial advisory fees, or broker's commissions (other than for Persons engaged
by any Buyer) relating to or arising out of the transactions contemplated by the
Transaction Documents including, without limitation, any fees or commissions
payable to the Placement Agent. The Company shall pay, and hold each Buyer
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 against a Buyer relating to any such payment. Except as otherwise
set forth in the Transaction Documents, each party to this Agreement shall bear
its own expenses in connection with the sale of the Securities to the Buyers.
(i) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Investor effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document, including, without limitation, Section 2(f) hereof;
provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) hereof in order to effect a sale, transfer or
assignment of Securities to such pledgee. The Company hereby agrees to execute
and deliver such documentation as a pledgee of the Securities may reasonably
request in connection with a pledge of the Securities to such pledgee by an
Investor.
(j) Disclosure of Transactions and Other Material Information. On or before
8:30 a.m., New York Time, on the fourth Business Day following the date of this
Agreement, the Company shall file a Current Report on Form 8-K describing the
terms of the transactions
21
contemplated by the Transaction Documents in the form required by the 1934 Act
and attaching the material Transaction Documents (including, without limitation,
this Agreement, the form of each of the Notes, the form of Warrant, the
Registration Rights Agreement and the Security Documents) as exhibits to such
filing (including all attachments, the "8-K FILING"). From and after the filing
of the 8-K Filing with the SEC, the Company shall have disclosed any material,
nonpublic information delivered to the Buyers by the Company, any of its
Subsidiaries or any of their respective officers, directors, employees,
stockholders, representatives or agents. The Company shall not, and shall cause
each of its Subsidiaries and its and each of their respective officers,
directors, employees and agents, not to, provide any Buyer with any material,
nonpublic information regarding the Company or any of its Subsidiaries from and
after the filing of the 8-K Filing with the SEC without the express written
consent of such Buyer, except to the extent necessary to obtain a consent of
Buyer to a matter requiring Buyer's consent pursuant to the Transaction
Documents. In the event of a breach of the foregoing covenant by the Company,
its Subsidiaries, or any of its respective officers, directors, employees and
agents, in addition to any other remedy provided herein or in the Transaction
Documents, a Buyer shall have the right to make a public disclosure, in the form
of a press release, public advertisement or otherwise, of such material,
nonpublic information without the prior approval by the Company, its
Subsidiaries, or any of their respective officers, directors, employees or
agents. No Buyer shall have any liability to the Company, its Subsidiaries, or
any of its or their respective officers, directors, employees, stockholders or
agents for any such disclosure, except to the extent such disclosure contains
false or misleading information. Subject to the foregoing, none of the Company,
its Subsidiaries or any Buyer shall issue any press releases or any other public
statements with respect to the transactions contemplated hereby without the
approval of all of the Buyers; provided, however, that the Company shall be
entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) the Required Holders (as defined in the Notes) shall be consulted by the
Company in connection with any such press release or other public disclosure
prior to its release). Except as required by applicable law and regulations,
without the prior written consent of any applicable Buyer, the Company shall not
disclose the name of any Buyer in any filing, announcement, release or
otherwise.
(j) Restriction on Redemption and Cash Dividends. So long as any Notes are
outstanding, the Company shall not, directly or indirectly, redeem, or declare
or pay any cash dividend or distribution on, the Common Stock without the prior
express written consent of the Required Holders (as defined in the Notes).
(k) Additional Notes; Variable Securities; Dilutive Issuances. So long as
any Buyer beneficially owns any Securities, the Company will not issue any Notes
(other than to the Buyers as contemplated hereby) and the Company shall not
issue any other securities that would cause a breach or default under the Notes.
For long as any Notes or Warrants remain outstanding, the Company shall not, in
any manner, issue or sell any rights, warrants or options to subscribe for or
purchase Common Stock or directly or indirectly convertible into or exchangeable
or exercisable for Common Stock at a price which varies or may vary with the
market price of the Common Stock, including by way of one or more reset(s) to
any fixed price unless the conversion, exchange or exercise price of any such
security cannot be less than the then applicable
22
Conversion Price (as defined in the Notes) with respect to the Common Stock into
which any Note is convertible or the then applicable Exercise Price (as defined
in the Warrants) with respect to the Common Stock into which any Warrant is
exercisable. For long as any Notes or Warrants remain outstanding, the Company
shall not, in any manner, enter into or affect any Dilutive Issuance (as defined
in the Notes) if the effect of such Dilutive Issuance is to cause the Company to
be required to issue upon conversion of any Note or exercise of any Warrant any
shares of Common Stock in excess of that number of shares of Common Stock which
the Company has authorized for purposes of such conversions or exercises or
which the Company may issue upon conversion of the Notes and exercise of the
Warrants without breaching the Company's obligations under the rules or
regulations of the Principal Market.
(l) Corporate Existence. So long as any Buyer beneficially owns any
Securities, the Company shall not be party to any Fundamental Transaction (as
defined in the Notes) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants.
(m) Reservation of Shares. So long as any Buyer owns any Securities, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 175% of the number of shares
of Common Stock issuable upon conversion of all of the Notes and issuable upon
exercise of the Warrants then outstanding (without taking into account any
limitations on the conversion of the Notes or exercise of the Warrants set forth
in the Notes and Warrants, respectively).
(n) Conduct of Business. Neither the Company nor its Subsidiaries will
conduct its business in violation of any term of or in default under its
Certificate or Articles of Incorporation or Bylaws. The business of the Company
and its Subsidiaries shall not be conducted in violation of any law, ordinance
or regulation of any government, or any department or agency thereof or
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect.
(o) Additional Issuances of Securities.
(i) For purposes of this Section 4(o), the following definitions shall
apply.
(1) "CONVERTIBLE SECURITIES" means any stock or securities (other
than Options) convertible into or exercisable or exchangeable for
shares of Common Stock.
(2) "OPTIONS" means any rights, warrants or options to subscribe
for or purchase shares of Common Stock or Convertible Securities.
(3) "COMMON STOCK EQUIVALENTS" means, collectively, Options and
Convertible Securities.
(ii) Except for Excluded Securities, from the date hereof until the
date that is 30 Trading Days, (as defined in the Note) following the
Effective Date (the "TRIGGER DATE"), the Company will not, directly or
indirectly, offer, sell, grant any option to purchase, or otherwise dispose
of (or announce any offer, sale, grant or any option to
23
purchase or other disposition of) any of its or its Subsidiaries' equity or
equity equivalent securities, including without limitation any debt,
preferred stock or other instrument or security that is, at any time during
its life and under any circumstances, convertible into or exchangeable or
exercisable for shares of Common Stock or Common Stock Equivalents (any
such offer, sale, grant, disposition or announcement being referred to as a
"SUBSEQUENT PLACEMENT")
(iii) Except for Excluded Securities from the Trigger Date until the
date on which none of the Notes is outstanding, the Company will not
directly or indirectly, effect any subsequent Placement unless the Company
shall have first complied with this Section 4(o)(iii).
(1) The Company shall deliver to each Buyer who still holds Notes
a written notice (the "OFFER NOTICE") of any proposed or intended
issuance or sale or exchange (the "OFFER") of the securities being
offered (the "OFFERED SECURITIES") in a Subsequent Placement, which
Offer Notice shall (w) identify and describe the Offered Securities,
(x) describe the price and other terms upon which they are to be
issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (y) identify the persons
or entities (if known) to which or with which the Offered Securities
are to be offered, issued, sold or exchanged and (z) offer to issue
and sell to or exchange with such Buyers all of the Offered
Securities, allocated among such Buyers (a) based on such Buyer's pro
rata portion of the aggregate principal amount of Notes purchased
hereunder (the "BASIC AMOUNT"), and (b) with respect to each Buyer
that elects to purchase its Basic Amount, any additional portion of
the Offered Securities attributable to the Basic Amounts of other
Buyers as such Buyer shall indicate it will purchase or acquire should
the other Buyers subscribe for less than their Basic Amounts (the
"UNDERSUBSCRIPTION AMOUNT").
(2) To accept an Offer, in whole or in part, such Buyer must
deliver a written notice to the Company prior to the end of the fifth
(5th ) Business Day after such Buyer's receipt of the Offer Notice
(the "OFFER PERIOD"), setting forth the portion of such Buyer's Basic
Amount that such Buyer elects to purchase and, if such Buyer shall
elect to purchase all of its Basic Amount, the Undersubscription
Amount, if any, that such Buyer elects to purchase (in either case,
the "NOTICE OF ACCEPTANCE"). If the Basic Amounts subscribed for by
all Buyers are less than the total of all of the Basic Amounts, then
each Buyer who has set forth an Undersubscription Amount in its Notice
of Acceptance shall be entitled to purchase, in addition to the Basic
Amounts subscribed for, the Undersubscription Amount it has subscribed
for; provided, however, that if the Undersubscription Amounts
subscribed for exceed the difference between the total of all the
Basic Amounts and the Basic Amounts subscribed for (the "AVAILABLE
UNDERSUBSCRIPTION AMOUNT"), each Buyer who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that
portion of the Available Undersubscription Amount as the Basic Amount
of such Buyer bears to the total Basic Amounts of all Buyers that have
subscribed for
24
Undersubscription Amounts, subject to rounding by the Company to the
extent its deems reasonably necessary.
(3) The Company shall have twenty (20) Business Days from the
expiration of the Offer Period above to offer, issue, sell or exchange
all or any part of such Offered Securities as to which a Notice of
Acceptance has not been given by the Buyers (the "REFUSED
SECURITIES"), but only to the offerees described in the Offer Notice
(if so described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that
are not more favorable to the acquiring person or persons or less
favorable to the Company than those set forth in the Offer Notice.
(4) In the event the Company shall propose to sell less than all
the Refused Securities (any such sale to be in the manner and on the
terms specified in Section 4(o)(iii)(3) above), then each Buyer may,
at its sole option and in its sole discretion, reduce the number or
amount of the Offered Securities specified in its Notice of Acceptance
to an amount that shall be not less than the number or amount of the
Offered Securities that such Buyer elected to purchase pursuant to
Section 4(o)(iii)(2) above multiplied by a fraction, (i) the numerator
of which shall be the number or amount of Offered Securities the
Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Buyers pursuant to Section
4(o)(iii)(3) above prior to such reduction) and (ii) the denominator
of which shall be the original amount of the Offered Securities. In
the event that any Buyer so elects to reduce the number or amount of
Offered Securities specified in its Notice of Acceptance, the Company
may not issue, sell or exchange more than the reduced number or amount
of the Offered Securities unless and until such securities have again
been offered to the Buyers in accordance with Section 4(o)(iii)(1)
above.
(5) Upon the closing of the issuance, sale or exchange of all or
less than all of the Refused Securities, the Buyers shall acquire from
the Company, and the Company shall issue to the Buyers, the number or
amount of Offered Securities specified in the Notices of Acceptance,
as reduced pursuant to Section 4(o)(iii)(3) above if the Buyers have
so elected, upon the terms and conditions specified in the Offer. The
purchase by the Buyers of any Offered Securities is subject in all
cases to the preparation, execution and delivery by the Company and
the Buyers of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Buyers and their
respective counsel and to the Company and its counsel.
(6) Any Offered Securities not acquired by the Buyers or other
persons in accordance with Section 4(o)(ii)(3) above may not be
issued, sold or exchanged until they are again offered to the Buyers
under the procedures specified in this Agreement.
(iv) The restrictions contained in subsections (ii) and (iii) of this
Section 4(o)
25
shall not apply in connection with the issuance of any Excluded Securities
(as defined in the Notes).
(p) Additional Registration Statements. Until the Effective Date, the
Company will not file a registration statement under the 1933 Act relating to
securities that are not the Securities.
(q) No Short Position. Each of the Buyers and any of its Affiliates do not
have an open short position in the Common Stock nor will any of the Buyers or
any of their respective Affiliates establish any open short position in the
Common Stock.
(r) Transactions With Affiliates. So long as any Note or Warrant is
outstanding, the Company shall not, and shall cause each of its Subsidiaries not
to, enter into, amend, modify or supplement, or permit any Subsidiary to enter
into, amend, modify or supplement any agreement, transaction, commitment, or
arrangement with any of its or any Subsidiary's officers, directors, person who
were officers or directors at any time during the previous two (2) years,
stockholders who beneficially own five percent (5%) or more of the Common Stock,
or Affiliates (as defined below) or with any individual related by blood,
marriage, or adoption to any such individual or with any entity in which any
such entity or individual owns a five percent (5%) or more beneficial interest
(each a "RELATED PARTY"), except for (a) customary employment arrangements and
benefit programs on reasonable terms, (b) any investment in an Affiliate of the
Company, (c) any agreement, transaction, commitment, or arrangement on an
arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party or (d) any agreement
transaction, commitment, or arrangement which is approved by a majority of the
disinterested directors of the Company, for purposes hereof, any director who is
also an officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a ten percent (10%) or more equity interest in that person or entity,
(ii) has ten percent (10%) or more common ownership with that person or entity,
(iii) controls that person or entity, or (iv) shares common control with that
person or entity. "Control" or "controls" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
(s) Restriction on Issuance of the Capital Stock. Except for Excluded
Securities (as defined in the Notes), the Company shall not, without the prior
written consent of the Buyers, (i) issue or sell shares of Common Stock or
preferred stock without consideration or for a consideration per share less than
the greater of the Closing Bid Price of the Common Stock determined immediately
prior to its issuance or $.01, if the Common Stock is not traded or quoted on
the Principal Market or any national exchange or market, (ii) issue any warrant,
option, right, contract, call, or other security instrument granting the holder
thereof, the right to acquire Common Stock without consideration or for a
consideration less than the greater of such Common Stock's Closing Bid Price
value determined immediately prior to its issuance or $.01, if the Common Stock
is not traded on the American Stock Exchange or any national exchange, or (iii)
file any registration statement on Form S-8, provided unless (x) such shares are
not issued without consideration or for a consideration less than the greater of
the Common Stock's Closing Bid Price on the date of issuance or $.01, if the
Common Stock is not traded or quoted on the
26
Principal Market or any national exchange or market, and (y) such Form S-8
registration statement is not filed prior to 90 days following the effectiveness
of the registration statement. "Closing Bid Price" on any day shall be the
closing bid price for a share of Common Stock on such date on the American Stock
Exchange (or such other exchange, market, or other system that the Common Stock
is then traded on), as reported on Bloomberg, L.P. (or similar organization or
agency succeeding to its functions of reporting prices).
(t) Removal of Legend. In addition to the Buyer's other available remedies,
the Company shall pay to the Buyer, in cash, as partial liquidated damages and
not as a penalty, for each $1,000 of Warrant Shares and/or Conversion Shares
(based on the closing price of the Common Stock on the date such Warrant Shares
and/or Conversion Shares are submitted to the Company's transfer agent), $5 per
Trading Day (increasing to $10 per trading day five (5) trading days after such
damages have begun to accrue) for each trading day after the third (3rd) trading
day following delivery by a Buyer to the Company or the Company's transfer agent
of a certificate representing Warrant Shares and/or Conversion Shares issued
with a restrictive legend, until such certificate is delivered to the Buyer with
such legend removed. Nothing herein shall limit the Buyer's right to pursue
actual damages for the failure of the Company and its transfer agent to deliver
certificates representing any securities as required hereby or by the
Irrevocable Transfer Agent Instructions, and the Buyer 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.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
each holder of Securities), a register for the Notes and the Warrants in which
the Company shall record the name and address of the Person in whose name the
Notes and the Warrants have been issued (including the name and address of each
transferee), the principal amount of Notes held by such Person, the number of
Conversion Shares issuable upon conversion of the Notes and the number of
Warrant Shares issuable upon exercise of the Warrants held by such Person. The
Company shall keep the register open and available at all times during business
hours for inspection by any Buyer or its legal representatives.
(b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company ("DTC"), registered in the name of each Buyer or its
respective nominee(s), for the Conversion Shares and the Warrant Shares issued
at the Closing or upon conversion of the Notes or exercise of the Warrants in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in the form of Exhibit E
attached hereto (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). The Company
warrants that no instruction with respect to the Securities other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and
stop transfer instructions to give effect to Section 2(g) hereof, will be given
by the Company to its transfer agent, and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the other Transaction Documents. If a Buyer
effects a sale, assignment or transfer of the Securities in accordance with
Section 2(f), the Company shall permit the transfer and shall promptly instruct
27
its transfer agent to issue one or more certificates or credit shares to the
applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment. In the
event that such sale, assignment or transfer involves Conversion Shares or
Warrant Shares sold, assigned or transferred pursuant to an effective
registration statement or pursuant to Rule 144, the transfer agent shall issue
such Securities to the Buyer, assignee or transferee, as the case may be,
without any restrictive legend. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to a Buyer. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5(b) will be inadequate and agrees, in the event of a breach
by the Company of the provisions of this Section 5(b), that a Buyer shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
(a) Initial Closing Date. The obligation of the Company hereunder to issue
and sell the Initial Notes and the related Warrants to each Buyer at the Initial
Closing is subject to the satisfaction, at or before the Initial Closing Date,
of each of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction Documents to
which it is a party and delivered the same to the Company.
(ii) Such Buyer and each other Buyer shall have delivered to the Company
the Initial Purchase Price (less, in the case of GCF, the amounts withheld
pursuant to Section 4(g)) for the Initial Notes and the related Warrants being
purchased by such Buyer at the Initial Closing by wire transfer of immediately
available funds pursuant to the wire instructions provided by the Company.
(iii) The representations and warranties of such Buyer shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to the Initial Closing Date.
(b) Additional Closing Dates. The obligation of the Company hereunder to
issue and sell the Additional Notes to each Buyer at the Additional Closings is
subject to the satisfaction, at or before the Additional Closing Dates, of each
of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer and each other Buyer shall have delivered to the Company the
Additional Purchase Price for the Additional Notes being purchased by such Buyer
at the
28
Additional Closing by wire transfer of immediately available funds pursuant to
the wire instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall be true and
correct in all material respects as of the date when made and as of the
Additional Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Additional Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
(a) Initial Closing Date. The obligation of each Buyer hereunder to
purchase the Initial Notes and the related Warrants at the Initial Closing is
subject to the satisfaction, at or before the Initial Closing Date, of each of
the following conditions, provided that these conditions are for each Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion
by providing the Company with prior written notice thereof:
(i) The Company shall have executed and delivered (or, in the case of any
Transaction Document to which a Subsidiary is a party, caused such Subsidiary to
execute and deliver) to such Buyer (A) each of the Transaction Documents to
which it or any Subsidiary is a party, (B) the Initial Notes (in such principal
amounts as such Buyer shall request) being purchased by such Buyer at the
Initial Closing pursuant to this Agreement, and (C) the Warrants (in such
amounts as such Buyer shall request) being purchased by such Buyer at the
Initial Closing pursuant to this Agreement.
(ii) Such Buyer shall have received the opinion of Peckar & Xxxxxxxx, P.C.,
the Company's outside counsel, dated as of the Initial Closing Date, in
substantially the form of Exhibit F attached hereto and a letter stating that
the Company is in good standing with its attorneys.
(iii) The Company shall have delivered to such Buyer a true copy of the
Irrevocable Transfer Agent Instructions which instructions shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(iv) The Company shall have delivered to such Buyer a true copy of a
certificate evidencing the formation and good standing of the Company and each
of its Subsidiaries in such entity's jurisdiction of formation issued by the
Secretary of State (or comparable office) of such jurisdiction, as of a date
within ten (10) days of the Initial Closing Date.
(v) The Company shall have delivered to such Buyer a true copy of
certificate evidencing the Company's and each Subsidiary's qualification as a
foreign corporation and good standing issued by the Secretary of State (or
comparable office) of each jurisdiction in which the Company or such Subsidiary
conducts business, as of a date within ten (10) days of the Initial Closing
Date.
29
(vi) The Company shall have delivered to such Buyer a certified copy of the
Articles of Incorporation as certified by the Secretary of State of the State of
Delaware within ten (10) days of the Initial Closing Date.
(vii) The Company shall have delivered to such Buyer a certificate,
executed by the Chief Executive Officer of the Company and dated as of the
Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted
by the Company's Board of Directors in a form reasonably acceptable to such
Buyer, (ii) the Articles of Incorporation and (iii) the Bylaws, each as in
effect at the Initial Closing, in the form attached hereto as Exhibit G.
(viii) The representations and warranties of the Company shall be true and
correct in all material respects (other than representations and warranties that
are already qualified by materiality or Material Adverse Effect which shall be
true and correct in all respects) as of the date when made and as of the Initial
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Initial Closing
Date. Such Buyer shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Initial Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
such Buyer in the form attached hereto as Exhibit H.
(ix) The Company shall have delivered to such Buyer a letter from the
Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within two (2) days of the Initial Closing Date.
(x) The Common Stock (I) shall be designated for quotation or listed on the
Principal Market and (II) shall not have been suspended, as of the Initial
Closing Date, by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, as of the Initial Closing Date, either (A) in writing by the SEC or
the Principal Market or (B) by falling below the minimum listing maintenance
requirements of the Principal Market.
(xi) The Company shall have obtained all governmental, regulatory or third
party consents and approvals, if any, necessary for the sale of the Securities
and the grant of the security interest in the assets of the Company and its
Subsidiaries, including the consent of any existing lender or landlord of the
Company or any Subsidiary, as applicable.
(xii) The Company shall have provided to the Buyer an acknowledgement, to
the satisfaction of the Buyer, from the Company's certified public accountant as
to its ability to provide all consents required in order to file a registration
statement in connection with this transaction and that the Company is in good
standing with its auditors.
(xiii) Within six (6) Business Days prior to the Initial Closing, the
Company shall have delivered or caused to be delivered to each Buyer true copies
of UCC search results, listing all effective financing statements which name as
debtor the Company or any of its Subsidiaries filed
30
in the prior five years to perfect an interest in any assets thereof, together
with copies of such financing statements, none of which, except as otherwise
agreed in writing by the Buyers, shall cover any of the Collateral (as defined
in the Security Documents) and the results of searches for any tax lien and
judgment lien filed against such Person or its property, which results, except
as otherwise agreed to in writing by the Buyers shall not show any such Liens
(as defined in the Security Documents).
(xiv) The Company shall have delivered to such Buyer such other documents
relating to the transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.
(b) Additional Closing Dates. The obligation of each Buyer hereunder to
purchase the Additional Notes at an Additional Closings is subject to the
satisfaction, at or before the Additional Closing Dates, of each of the
following conditions, provided that these conditions are for each Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion by
providing the Company with prior written notice thereof:
(i) The Company shall have executed and delivered to such Buyer the
Additional Notes (in such principal amounts as such Buyer shall request) which
are being purchased by such Buyer at the Additional Closing pursuant to this
Agreement.
(ii) Such Buyer shall have received the opinion of Peckar & Xxxxxxxx, P.C.,
the Company's outside counsel, dated as of the Additional Closing Date in form
acceptable to the Buyer and that the Company is in good standing with its
attorneys.
(iii) The Irrevocable Transfer Agent Instructions shall remain in effect as
of the Additional Closing Date and the Company shall cause its transfer agent to
deliver a letter to such Buyer to that effect.
(iv) The Company shall have delivered to such Buyer a certificate, executed
by the Chief Executive Officer of the Company dated as of the Additional Closing
Date, as to (i) the Resolutions, (ii) the Certificate of Incorporation and (iii)
the Bylaws, each as in effect at the Additional Closing, in the form attached
hereto as Exhibit E.
(v) The representations and warranties of the Company shall be true and
correct in all material respects (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects) as of the date when made and as of
the Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the Company
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the
Additional Closing Date. Such Buyer shall have received a certificate, executed
by the Chief Executive Officer of the Company, dated as of the Additional
Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer; Nothing herein shall be deemed a
representation, warranty, covenant or agreement that the representations and
warranties contained herein that are described in the
31
Representation Certificate (as defined below) shall be true and correct as of
the Additional Closing Date.
(vi) The Company shall have delivered to such Buyer a letter from the
Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five days of the Additional Closing Date.
(vii) The Common Stock (I) shall be designated for quotation or listed on
the Principal Market, (II) shall not have been suspended, as of the Additional
Closing Date, by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, as of the Additional Closing Date, in writing by the SEC or the
Principal Market and (III) during any day during the ninety (90) Trading Days
prior to the Additional Closing Date, shall not have fallen below the minimum
listing maintenance requirements of the Principal Market.
(viii) The Company shall have obtained all governmental, regulatory or
third party consents and approvals, if any, necessary for the sale of the
applicable Additional Notes.
(ix) No Event of Default (as defined in the Notes) shall have occurred and
be continuing.
(x) The Company shall have delivered to such Buyer such other documents
relating to the transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.
(xi) The Registration Statement shall have been filed with the SEC or a
pre-effective amendment to a previously filed Registration Statement to include
the Conversion Shares and the Warrant Shares shall have been filed with the SEC.
8. TERMINATION. In the event that the Initial Closing shall not have occurred
with respect to a Buyer on or before five (5) Business Days from the date hereof
due to the Company's or such Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated pursuant to this Section
8, the Company shall remain obligated to reimburse the non-breaching Buyers for
the expenses described in Section 4(g) above that have not previously been paid.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement 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. Each
32
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which 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; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Buyers, the Company, their Affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters. No provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and the
Required Holders, and any amendment to this Agreement made in conformity with
the provisions of this Section 9(e) shall be binding on all Buyers and holders
of Securities, as applicable. No provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the applicable Securities then outstanding. No consideration
shall be offered or paid to any Person
33
to amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration also is offered to all of
the parties to the Transaction Documents, holders of Notes or holders of the
Warrants, as the case may be. The Company has not, directly or indirectly, made
any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.
(f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
MDwerks, Inc.
0000 XX 0xx Xx.
Xxxxx X
Xxxxxxxxx Xxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxx
Copy to (for informational purposes only):
Peckar & Xxxxxxxx, P.C.
00 Xxxxx Xxxxxx
Xxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxx, Esq.
If to the Transfer Agent:
Corporation Stock Transfer
0000 Xxxxxx Xxxxx Xxxxxx Xxxxx - Xxxxx 00
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to a Buyer, to its address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, with a copy (for informational purposes only) to:
Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
34
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxxx, Esq.
or to such other address and/or facsimile number and/or to the attention of
such other Person as the recipient party has specified by written notice given
to each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes or the Warrants. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Required Holders (unless the Company is in compliance
with the applicable provisions governing Fundamental Transactions set forth in
the Notes and the Warrants). A Buyer may assign some or all of its rights
hereunder without the consent of the Company, in which event such assignee shall
be deemed to be a Buyer hereunder with respect to such assigned rights; provided
that such assignee agrees in writing to be bound by all of the provisions
contained herein.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and, except as set forth in Section 9(k) below, is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.
(i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 shall survive for a period of two (2) years following the
Initial Closing Date and the agreements and covenants set forth in Sections 4, 5
and 9 shall survive the Closing for the periods referred to in such sections.
Each Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
(j) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(k) Indemnification. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer (collectively, the "INDEMNITEES") from and
35
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
and including reasonable attorneys' fees and disbursements (the "INDEMNIFIED
LIABILITIES"), incurred by any Indemnitee as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company or any Subsidiary in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company or any
Subsidiary contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby or (c) any cause of
action, suit or claim brought or made against such Indemnitee by a third party
(including for these purposes a derivative action brought on behalf of the
Company) and arising out of or resulting from (i) the execution, delivery,
performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby except in the
case of (i) a claim arising out of the breach by the Indemnitee of any of the
Transaction Documents or certificate or instrument contemplated thereby or by
any of the Transaction Documents, (ii) the willful misconduct of Indemnitee,
(iii) any transaction financed or to be financed in whole or in part, directly
or indirectly, with the proceeds of the issuance of the Securities, or (iv) the
status of such Buyer or holder of the Securities as an investor in the Company
pursuant to the transactions contemplated by the Transaction Documents. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.
(l) Buyer Indemnification. In consideration of the Company's execution and
delivery of the Transaction Documents and its sale of the Securities thereunder
and in addition to all of the Buyers' other obligations under the Transaction
Documents, each Buyer shall defend, protect, indemnify and hold harmless the
Company from and against any and all Indemnified Liabilities, incurred by the
Company as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by such Buyer
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby or (b) any breach of any covenant, agreement or
obligation of such Buyer contained in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby. To the
extent that the foregoing undertaking by a Buyer may be unenforceable for any
reason, such Buyer shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(l)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.
(m) Remedies. Each Buyer and each holder of the Securities shall have all
rights and remedies set forth in the Transaction Documents and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to
36
exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it fails to perform, observe, or discharge any or all of
its obligations under the Transaction Documents, any remedy at law may prove to
be inadequate relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond
or other security.
(n) Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer exercises a right, election, demand or
option under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Buyer may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.
(o) Payment Set Aside. To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
(p) Independent Nature of Buyers' Obligations and Rights. The obligations
of each Buyer under any Transaction Document are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way for
the performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents and the Company
acknowledges that to its knowledge the Buyers are not acting in concert or as a
group, and the Company will not assert any such claim, with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Buyer confirms that it has independently participated in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and advisors.
Each Buyer shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out
of any other Transaction Documents, and it shall not be necessary for any other
Buyer to be joined as an additional party in any proceeding for such purpose.
[SIGNATURE PAGE FOLLOWS]
37
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
COMPANY:
MDWERKS, INC.
By: /s/ Xxxxxx Xxxx
------------------------------------
Name: Xxxxxx Xxxx
Title: Chief Executive Officer
38
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BUYERS:
GOTTBETTER CAPITAL MASTER, LTD.
By: /s/ Xxxx X. Xxxxxxxxxx
------------------------------------
Name: Xxxx X. Xxxxxxxxxx
Title: Director
39
SCHEDULE OF BUYERS
(1) (2) (3) (4) (5) (6) (7) (8)
AGGREGATE AGGREGATE
NUMBER OF NUMBER OF
AGGREGATE AGGREGATE SERIES D SERIES E LEGAL REPRESENTATIVE'S
ADDRESS AND PRINCIPAL OF PRINCIPAL OF WARRANT WARRANT PURCHASE ADDRESS AND
BUYER FACSIMILE NUMBER INITIAL NOTES ADDITIONAL NOTES SHARES SHARES PRICE FACSIMILE NUMBER
----------------------------------------------------------------------------------------------------------------------------------
Gottbetter Capital 000 Xxxxxxx Xxxxxx 2,500,000 2,500,000 375,000 375,000 2,375,010 Xxxxx X. Xxxxxxx, Esq.
Master, Ltd. 00xx Xxxxx Xxxxxxxxxx & Xxxxxxxx, XXX
Xxx Xxxx, XX 00000 000 Xxxxxxx Xxxxxx
Facsimile: 212.400.6999 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: 212.400.6901
----------------------------------------------------------------------------------------------------------------------------------
40
EXHIBITS
Exhibit A Form of Notes
Exhibit B-1 Form of Series D Warrants
Exhibit B-2 Form of Series E Warrants
Exhibit C Registration Rights Agreement
Exhibit D Form of Security Agreement
Exhibit E Irrevocable Transfer Agent Instructions
Exhibit F Form of Opinion Letter
Exhibit G Form of Resolutions, Articles of Incorporation and By-Laws
Exhibit H Form of Officer's Certificate
SCHEDULES
Schedule 3(a) Subsidiaries
Schedule 3(k) SEC Documents; Financial Statements
Schedule 3(l) Absence of Certain Changes
Schedule 3(q) Transactions with Affiliates, Officers, Directors and Employees
Schedule 3(r) Equity Capitalization
Schedule 3(s) Indebtedness and Other Contracts
Schedule 3(t) Absence of Litigation
Schedule 3(w) Title
Schedule 3(x) Intellectual Property Rights
Schedule 3(z) Subsidiary Rights
Schedule 3(bb) Tax Status
Schedule 3(ee) Ranking of Notes
Schedule 4(e) Planned Use of Gross Proceeds
41
