SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of March 12,
2014, between OptimizeRx Corp., a Nevada corporation (the “Company”), and each
purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser” and collectively the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the
“Securities Act”), and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:

ARTICLE I.
DEFINITIONS

1.1              Definitions

. In addition to the terms defined elsewhere in this Agreement, for all purposes
of this Agreement, the following terms have the meanings set forth in this
Section 1.1:

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person as such terms are used in and construed under Rule 405 under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser.

“Board of Directors” means the board of directors of the Company.

“Business Day” means any day except any Saturday, any Sunday, any day which is a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.

“Closing” means the closing of the purchase and sale of the Shares pursuant to
Section 2.1.

“Closing Date” means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchasers’ obligations to pay the Subscription
Amount and (ii) the Company’s obligations to deliver the Shares have been
satisfied or waived.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may
hereafter be reclassified or changed into.

“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

“Company Counsel” means Cane Clark LLP, with offices located at 3273 E. Warm
Springs Rd., Las Vegas, NV 89120.

 

 

“Disclosure Schedules” means the Disclosure Schedules of the Company delivered
concurrently herewith.

“Effective Date” means the date that the initial Registration Statement filed by
the Company pursuant to the Registration Rights Agreement is first declared
effective by the Commission.

“Escrow Agent” shall mean First Republic Bank & Trust.

“Escrow Agreement” shall mean the escrow agreement entered into prior to the
date hereof, by and among the Company, Merriman Capital, Inc. and the Escrow
Agent pursuant to which the Purchasers shall deposit Subscription Amounts with
the Escrow Agent to be applied to the transactions contemplated hereunder.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

 

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

“Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(o).

“Investor Agreement” means the Investor Agreement, dated the date hereof,
between the Company and Radoff.

“Legend Removal Date” shall have the meaning ascribed to such term in Section
4.1(c).

“Liens” means a lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.

“Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).

“Material Permits” shall have the meaning ascribed to such term in Section
3.1(m).

“Per Share Purchase Price” equals $1.20, subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this Agreement.

“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an informal investigation or partial proceeding,
such as a deposition), whether commenced or threatened.

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.8.

“Registration Rights Agreement” means the Registration Rights Agreement, dated
the date hereof, among the Company and the Purchasers, in the form of Exhibit A
attached hereto.

“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the
Purchasers of the Shares.

“Required Approvals” shall have the meaning ascribed to such term in Section
3.1(e).

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“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

“Shares” means the shares of Common Stock issued or issuable to each Purchaser
pursuant to this Agreement.

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock). 

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be
paid for Shares purchased hereunder as specified below such Purchaser’s name on
the signature page of this Agreement and next to the heading “Subscription
Amount,” in United States dollars and in immediately available funds.

“Subsidiary” means any subsidiary of the Company as set forth on Schedule
3.1(a), and shall, where applicable, include any subsidiary of the Company
formed or acquired after the date hereof.

“Trading Day” means a day on which the New York Stock Exchange is open for
trading.

“Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the American
Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq
Global Select Market, the New York Stock Exchange, the OTC Bulletin Board or the
OTCQB.

“Transaction Documents” means this Agreement, the Registration Rights Agreement,
the Escrow Agreement and any other documents or agreements executed in
connection with the transactions contemplated hereunder.

“Transfer Agent” means Empire Stock Transfer, Inc., the current transfer agent
of the Company, with a mailing address of 1859 Whitney Mesa Dr. Henderson, NV
89014 and a facsimile number of (702) 974-1444, and any successor transfer agent
of the Company.

ARTICLE II.
PURCHASE AND SALE

2.1              Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and the Purchasers, severally and not jointly, agree to purchase, a minimum of
$7,500,000 of Shares and up to a maximum of $10,000,000 of Shares. Upon
satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3,
the Closing shall occur at the offices of Company Counsel or such other location
as the parties shall mutually agree.

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2.2              Deliveries

(a)                On or prior to the Closing Date, the Company shall deliver or
cause to be delivered to each Purchaser the following:

(i)                 this Agreement duly executed by the Company;

(ii)               a certificate evidencing a number of Shares equal to such
Purchaser’s Subscription Amount divided by the Per Share Purchase Price,
registered in the name of such Purchaser;

(iii)             the Registration Rights Agreement duly executed by the
Company;

(iv)             a legal opinion of Company Counsel, substantially in the form
of Exhibit B attached hereto;

(v)               an Officer’s Certificate executed by the Company’s Chief
Executive Officer;

(vi)             an irrevocable letter of instruction by the Company to its
transfer agent concerning the Shares; and

(vii)           delivery of the executed Investor Agreement to Radoff

(b)               On or prior to the Closing Date, each Purchaser shall deliver
or cause to be delivered to the Company the following:

(i)                 this Agreement duly executed by such Purchaser;

(ii)               such Purchaser’s Subscription Amount by wire transfer to the
Escrow Account; and

(iii)             the Registration Rights Agreement duly executed by such
Purchaser.

2.3              Closing Conditions.

(a) The obligations of the Company hereunder in connection with the Closing are
subject to the following conditions being met:

(i)                 the accuracy in all respects on the Closing Date of the
representations and warranties of the Purchasers contained herein;

(ii)               all obligations, covenants and agreements of each Purchaser
required to be performed at or prior to the Closing Date shall have been
performed; and

(iii)             the delivery by each Purchaser of the items set forth in
Section 2.2(b) of this Agreement.

(b)               The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being met:

(i)                 the accuracy in all respects on the Closing Date of the
representations and warranties of the Company contained herein;

(ii)               all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have been
performed;

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(iii)             the delivery by the Company of the items set forth in Section
2.2(a) of this Agreement; and

(iv)             there shall have been no Material Adverse Effect with respect
to the Company since the date hereof.

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

3.1              Representations and Warranties of the Company.

Except as set forth under the corresponding section of the disclosure schedules
delivered to the Purchasers concurrently herewith (the “Disclosure Schedules”)
which Disclosure Schedules shall be deemed a part hereof, the Company hereby
makes the representations and warranties set forth below to each PurchaserExcept
as set forth in the Disclosure Schedules, which Disclosure Schedules shall be
deemed a part hereof and shall qualify the specific representations made in a
particular section to the corresponding section of the Disclosure Schedules,
from the date hereof and at Closing, the Company hereby makes the following
representations and warranties to each Purchaser:

(a)                Subsidiaries. All of the direct and indirect subsidiaries of
the Company are set forth on Schedule 3.1(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, and all of 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. If the Company has no subsidiaries, then all other
references to the Subsidiaries or any of them in the Transaction Documents shall
be disregarded.

(b)               Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in violation
or default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company’s ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a “Material Adverse Effect”) and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

(c)                Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by
the Company, the Board of Directors or the Company’s stockholders in connection
therewith other than in connection with the Required Approvals. Each Transaction
Document has been (or upon delivery will have been) duly executed by the Company
and, when delivered in accordance with the terms hereof and thereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

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(d)               No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the Shares and
the consummation by the Company of the other transactions contemplated hereby
and thereby do not and will not (i) conflict with or violate any provision of
the Company’s or any Subsidiary’s certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not have or reasonably be expected to result in a Material Adverse
Effect.

(e)                Filings, Consents and Approvals. The Company is not required
to obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than (i) filings required pursuant to Section 4.4 of this Agreement, (ii)
the filing with the Commission of the Registration Statement, (iii)
application(s) to each applicable Trading Market for the listing of the Shares
for trading thereon in the time and manner required thereby and (iv) the filing
of Form D with the Commission and such filings as are required to be made under
applicable state securities laws (collectively, the “Required Approvals”).

(f)                Issuance of the Shares. The Shares are duly authorized and,
when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens imposed by the Company other than restrictions on
transfer provided for in the Transaction Documents. The Company has reserved
from its duly authorized capital stock the maximum number of shares of Common
Stock issuable pursuant to this Agreement.

(g)               Capitalization. The capitalization of the Company is as set
forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of
shares of Common Stock owned beneficially, and of record, by Affiliates of the
Company as of the date hereof. The Company has not issued any capital stock
since its most recently filed periodic report under the Exchange Act, other than
pursuant to the exercise of employee stock options under the Company’s stock
option plans, the issuance of shares of Common Stock to employees pursuant to
the Company’s employee stock purchase plans and pursuant to the conversion or
exercise of Common Stock Equivalents outstanding as of the date of the most
recently filed periodic report under the Exchange Act. Except as set forth in
Schedule 3.1(g) attached hereto, no Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents. Except as a result
of the purchase and sale of the Shares and except as set forth in Schedule
3.1(g) attached hereto, there are no outstanding options, warrants, scrip rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or Common Stock Equivalents. The
issuance and sale of the Shares will not obligate the Company to issue shares of
Common Stock or other securities to any Person (other than the Purchasers) and
will not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under any of such securities. All
of the outstanding shares of capital stock of the Company are validly issued,
fully paid and nonassessable, have been issued in compliance with all federal
and state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. No further approval or authorization of any stockholder,
the Board of Directors or others is required for the issuance and sale of the
Shares. There are no stockholders agreements, voting agreements or other similar
agreements with respect to the Company’s capital stock to which the Company is a
party or, to the knowledge of the Company, between or among any of the Company’s
stockholders.

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(h)               SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by the Company under the Securities Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof
(or such shorter period as the Company was required by law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Except as provided in the Company’s Form 8-K filed on February 11,
2014, the financial statements of the Company included in the SEC Reports comply
in all material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at the time
of filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise specified
in such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.

(i)                 Material Changes; Undisclosed Events, Liabilities or
Developments. Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in a subsequent SEC
Report filed prior to the date hereof, (i) there has been no event, occurrence
or development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company’s financial
statements pursuant to GAAP or disclosed in filings made with the Commission,
(iii) the Company has not altered its method of accounting, (iv) the Company has
not declared or made any dividend or distribution of cash or other property to
its stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. The Company does not have pending before
the Commission any request for confidential treatment of information. Except for
the issuance of the Shares contemplated by this Agreement or as set forth on
Schedule 3.1(i), no event, liability or development has occurred or exists with
respect to the Company or 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 at the time this
representation is made or deemed made that has not been publicly disclosed at
least 1 Trading Day prior to the date that this representation is made.

(j)                 Litigation. Except as provided in Schedule 3.1(i), there is
no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Shares or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty. There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of
the Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Securities Act.

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(k)               Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company or any such Subsidiary which could reasonably be expected to result
in a Material Adverse Effect. None of the Company’s or its Subsidiaries’
employees is a member of a union that relates to such employee’s relationship
with the Company or such Subsidiary, and neither the Company nor any of its
Subsidiaries is a party to a collective bargaining agreement, and the Company
and its Subsidiaries believe that their relationships with their employees are
good. No executive officer, to the knowledge of the Company, is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of any third party, 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. The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and foreign
laws and regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in
compliance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

(l)                 Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws applicable to its business and all such laws that affect the
environment, except in each case as could not have or reasonably be expected to
result in a Material Adverse Effect.

(m)             Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected to result in a Material
Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any Material Permit.

(n)               Title to Assets. The Company and the Subsidiaries have good
and marketable title in fee simple to all real property owned by them and good
and marketable title in all personal property owned by them that is material to
the business of the Company and the Subsidiaries, in each case free and clear of
all Liens, except for Liens as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries and Liens for the
payment of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with which the Company and the Subsidiaries
are in compliance.

(o)               Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights necessary or
material for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could have a Material Adverse
Effect (collectively, the “Intellectual Property Rights”). Except as provided in
Schedule 3.1(i), neither the Company nor any Subsidiary has received a notice
(written or otherwise) that any of the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person.
To the knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties, except where failure to do so could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

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(p)               Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged. Neither the Company nor any Subsidiary
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
without a significant increase in cost.

(q)               Transactions With Affiliates and Employees. Except as set
forth in the SEC Reports, none of the officers or directors of the Company or
any such Subsidiary and, to the knowledge of the Company, none of the employees
of the Company or any such Subsidiary is presently a party to any transaction
with the Company or any Subsidiary (other than for services as employees,
officers and 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
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $120,000 other than for (i) payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company and
(iii) other employee benefits, including stock option agreements under any stock
option plan of the Company.

(r)                 Certain Fees. Except for the fees paid to Merriman Capital,
Inc., no brokerage or finder’s fees or commissions are or will be payable by the
Company or any such Subsidiary to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by the Transaction Documents. The Purchasers shall
have no obligation with respect to any fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this Section
that may be due in connection with the transactions contemplated by the
Transaction Documents.

(s)                Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Shares by the
Company to the Purchasers as contemplated hereby. The issuance and sale of the
Shares hereunder does not contravene the rules and regulations of the Trading
Market.

(t)                 Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the Shares, will not
be or be an Affiliate of, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act of 1940, as amended.

(u)               Registration Rights. Except as set forth in Schedule 3.1(v)
attached hereto, other than each of the Purchasers, no Person has any right to
cause the Company to effect the registration under the Securities Act of any
securities of the Company.

(v)               Listing and Maintenance Requirements. The Company’s Common
Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its knowledge is likely
to have the effect of, terminating the registration of the Common Stock under
the Exchange Act nor has the Company received any notification that the
Commission is contemplating terminating such registration. The Company has not,
in the 12 months preceding the date hereof, received notice from any Trading
Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with the listing and maintenance requirements of the OTCQB.

9

 

(w)             Disclosure. All disclosure furnished by or on behalf of the
Company to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, 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 therein, in light of the circumstances under which they were
made, not misleading. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not
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 light of the circumstances under which they were made and when made,
not misleading.

(x)               No Integrated Offering. Assuming the accuracy of the
Purchasers’ representations and warranties set forth in Section 3.2, neither the
Company, nor any of its Affiliates, nor 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 cause
this offering of the Shares to be integrated with prior offerings by the Company
for purposes of (i) the Securities Act which would require the registration of
any such securities under the Securities Act, or (ii) any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.

(y)               Tax Status. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any Subsidiary.

(z)                No General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Shares by any
form of general solicitation or general advertising. The Company has offered the
Shares for sale only to the Purchasers and certain other “accredited investors”
within the meaning of Rule 501 under the Securities Act.

(aa)            Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.

(bb)           No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company which could affect the Company’s ability to
perform any of its obligations under any of the Transaction Documents, and the
Company is current with respect to any fees owed to its accountants and lawyers.

(cc)            No Disqualification Events. None of the Company, any of its
predecessors, any affiliated issuer, any director, executive officer, other
officer of the Company participating in the offering contemplated hereby, any
beneficial owner of 20% or more of the Company's outstanding voting equity
securities, calculated on the basis of voting power, nor any promoter (as that
term is defined in Rule 405 under the 1933 Act) connected with the Company in
any capacity at the time of sale (each, an “Issuer Covered Person”) is subject
to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to
(viii) under the 1933 Act (a “Disqualification Event”), except for a
Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has
exercised reasonable care to determine whether any Issuer Covered Person is
subject to a Disqualification Event.

10

 

3.2              Representations and Warranties of the Purchasers

. Each Purchaser, for itself and for no other Purchaser, hereby represents and
warrants as of the date hereof and as of the Closing Date to the Company as
follows:

(a)                Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership power
and authority to enter into and to consummate the transactions contemplated by
the Transaction Documents and otherwise to carry out its obligations hereunder
and thereunder. The execution and delivery of the Transaction Documents and
performance by such Purchaser of the transactions contemplated by the
Transaction Documents have been duly authorized by all necessary corporate or
similar action on the part of such Purchaser. Each Transaction Document to which
it is a party has been duly executed by such Purchaser, and when delivered by
such Purchaser in accordance with the terms hereof, will constitute the valid
and legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms, except (i) as limited by general equitable principles
and applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors’ rights generally,
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.

(b)               Own Account. Such Purchaser understands that the Shares are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Shares as principal for
its own account and not with a view to or for distributing or reselling such
Shares or any part thereof in violation of the Securities Act or any applicable
state securities law, has no present intention of distributing any of such
Shares in violation of the Securities Act or any applicable state securities law
and has no direct or indirect arrangement or understandings with any other
persons to distribute or regarding the distribution of such Shares (this
representation and warranty not limiting such Purchaser’s right to sell the
Shares pursuant to the Registration Statement or otherwise in compliance with
applicable federal and state securities laws) in violation of the Securities Act
or any applicable state securities law. Such Purchaser is acquiring the Shares
hereunder in the ordinary course of its business.

(c)                Purchaser Status. At the time such Purchaser was offered the
Shares, it was, and at the date hereof it is either: (i) an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under
the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act. Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.

(d)               Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Shares, and has so
evaluated the merits and risks of such investment. Such Purchaser is able to
bear the economic risk of an investment in the Shares and, at the present time,
is able to afford a complete loss of such investment.

(e)                General Solicitation. Such Purchaser is not purchasing the
Shares as a result of any advertisement, article, notice or other communication
regarding the Shares published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

11

 

(f)                Short Sales and Confidentiality Prior To The Date Hereof.
Other than consummating the transactions contemplated hereunder, such Purchaser
has not, nor has any Person acting on behalf of or pursuant to any understanding
with such Purchaser, directly or indirectly executed any purchases or sales,
including Short Sales, of the securities of the Company during the period
commencing from the time that such Purchaser first received a term sheet
(written or oral) from the Company or any other Person representing the Company
setting forth the material terms of the transactions contemplated hereunder
until the date hereof (“Discussion Time”). Notwithstanding the foregoing, in the
case of a Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser's assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser's assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Shares covered by this Agreement. Other than to other Persons party
to this Agreement, such Purchaser has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including the
existence and terms of this transaction).

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

4.1              Transfer Restrictions.  

(a)                The Shares may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Shares other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Shares under the Securities Act. As
a condition of transfer, any such transferee shall agree in writing to be bound
by the terms of this Agreement and shall have the rights of a Purchaser under
this Agreement and the Registration Rights Agreement.

(b)               The Purchasers agree to the imprinting, so long as is required
by this Section 4.1, of a legend on any of the Shares in the following form:

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, OR (B) AN OPINION OF COUNSEL TO THE
HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR
ELIGIBLE TO BE 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 Company acknowledges and agrees that a Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Shares to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Shares to the
pledgees or secured parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate Purchaser’s expense,
the Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Shares may reasonably request in connection with a pledge or
transfer of the Shares, including, if the Shares are subject to registration
pursuant to the Registration Rights Agreement, the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) under the Securities Act or
other applicable provision of the Securities Act to appropriately amend the list
of Selling Stockholders thereunder.

12

 

(c)                Removal of Legends. Certificates evidencing the Shares shall
not be required to contain the legend set forth in Section 4.1(b) above or any
other legend (i) while a registration covering the resale of such shares is
effective under the Securities Act, (ii) following any sale of such Shares
pursuant to Rule 144 (assuming the transferor is not an affiliate of the
Company), (iii) if such Shares are eligible to be sold, assigned or transferred
under Rule 144 (provided that a Purchaser provides the Company with reasonable
assurances that such Shares are eligible for sale, assignment or transfer under
Rule 144, which shall not include an opinion of counsel), (iv) in connection
with a sale, assignment or other transfer (other than under Rule 144), provided
that such Purchaser provides the Company with an opinion of counsel to such
Purchaser, in a generally acceptable form, to the effect that such sale,
assignment or transfer of the Shares may be made without registration under the
applicable requirements of the Securities Act or (v) if such legend is not
required under applicable requirements of the Securities Act (including, without
limitation, controlling judicial interpretations and pronouncements issued by
the SEC). If a legend is not required pursuant to the foregoing, the Company
shall no later than three (3) Trading Days following the delivery by a Purchaser
to the Company or the transfer agent (with notice to the Company) of a legended
certificate representing such Shares (endorsed or with stock powers attached,
signatures guaranteed, and otherwise in form necessary to affect the reissuance
and/or transfer, if applicable), together with any other deliveries from such
Purchaser as may be required above in this Section 4.1(c), as directed by such
Purchaser, either: (A) provided that the Company’s transfer agent is
participating in the Depostory Trust Company (“DTC”) Fast Automated Securities
Transfer Program, credit the aggregate number of shares of Common Stock to which
such Purchaser shall be entitled to such Purchaser’s or its designee’s balance
account with DTC through its Deposit/Withdrawal at Custodian system or (B) if
the Company’s transfer agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and deliver at the Company’s expense (via
reputable overnight courier) to such Purchaser, a certificate representing such
Shares that is free from all restrictive and other legends, registered in the
name of such Purchaser or its designee (the date by which such credit is so
required to be made to the balance account of such Purchaser’s or such
Purchaser’s nominee with DTC or such certificate is required to be delivered to
such Purchaser pursuant to the foregoing is referred to herein as the “Required
Delivery Date”). The Company shall be responsible for any transfer agent fees or
DTC fees with respect to any issuance of such Shares or the removal of any
legends with respect to any Shares in accordance herewith.

(d)               Failure to Timely Deliver; Buy-In. If the Company fails to (i)
issue and deliver (or cause to be delivered) to a Purchaser by the Required
Delivery Date a certificate representing the Shares so delivered to the Company
by such Purchaser that is free from all restrictive and other legends or (ii)
credit the balance account of such Purchaser’s or such Purchaser’s nominee with
DTC for such number of such Shares so delivered to the Company, and if on or
after the Required Delivery Date such Purchaser (or any other Person in respect,
or on behalf, of such Purchaser) purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Purchaser of all or any portion of the number of shares of Common Stock, or a
sale of a number of shares of Common Stock equal to all or any portion of the
number of shares of Common Stock, that such Purchaser so anticipated receiving
from the Company without any restrictive legend, then, in addition to all other
remedies available to such Purchaser, the Company shall, within three (3)
Trading Days after such Purchaser’s request and in such Purchaser’s sole
discretion, either (i) pay cash to such Purchaser in an amount equal to such
Purchaser’s total purchase price (including brokerage commissions and other
out-of-pocket expenses, if any) for the shares of Common Stock so purchased
(including brokerage commissions and other out-of-pocket expenses, if any) (the
“Buy-In Price”), at which point the Company’s obligation to so deliver such
certificate or credit such Purchaser’s balance account shall terminate and such
shares shall be cancelled, or (ii) promptly honor its obligation to so deliver
to such Purchaser a certificate or certificates or credit such Purchaser’s DTC
account representing such number of shares of Common Stock that would have been
so delivered if the Company timely complied with its obligations hereunder and
pay cash to such Purchaser in an amount equal to the excess (if any) of the
Buy-In Price over the product of (A) such number of shares of Common Stock (as
the case may be) that the Company was required to deliver to such Purchaser by
the Required Delivery Date multiplied by (B) the lowest closing sale price of
the Common Stock on any Trading Day during the period commencing on the date of
the delivery by such Purchaser to the Company of the applicable shares of Common
Stock and ending on the date of such delivery and payment under this clause
(ii).

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4.2              Furnishing of Information

. Until the time that no Purchaser owns Shares, the Company covenants to timely
file (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after the date
hereof pursuant to the Exchange Act even if the Company is not then subject to
the reporting requirements of the Exchange Act. As long as any Purchaser owns
Shares, if the Company is not required to file reports pursuant to the Exchange
Act, it will prepare and furnish to the Purchasers and make publicly available
in accordance with Rule 144(c) such information as is required for the
Purchasers to sell the Shares under Rule 144. The Company further covenants that
it will take such further action as any holder of Shares may reasonably request,
to the extent required from time to time to enable such Person to sell such
Shares without registration under the Securities Act within the requirements of
the exemption provided by Rule 144.

4.3              Integration

. The Company shall not sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the Shares in
a manner that would require the registration under the Securities Act of the
sale of the Shares to the Purchasers or that would be integrated with the offer
or sale of the Shares to the Purchasers for purposes of the rules and
regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.

4.4              Securities Laws Disclosure; Publicity. The Company shall, by
8:30 a.m. (New York City time) on the Trading Day immediately following the date
hereof, issue a Current Report on Form 8-K, disclosing the material terms of the
transactions contemplated hereby, and filing the Transaction Documents as
exhibits thereto. From and after the issuance of the filing of such Current
Report on Form 8-K, the Company shall have disclosed all material, non-public
information (if any) regarding the Company or any of its Subsidiaries delivered
to any of the Purchasers by the Company or any of its Subsidiaries, or any of
their respective officers, directors, employees or agents in connection with the
transactions contemplated by the Transaction Documents. The Company and each
Purchaser shall consult with each other in issuing any other press releases with
respect to the transactions contemplated hereby, and neither the Company nor any
Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of any Purchaser, or without the prior consent of each Purchaser, with
respect to any press release of the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except (i) as required by federal securities law in connection with
(A) any registration statement contemplated by the Registration Rights Agreement
and (B) the filing of final Transaction Documents (including signature pages
thereto) with the Commission and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under this clause
(ii).

4.5              Non-Public Information. Except with respect to the material
terms and conditions of the transactions contemplated by the Transaction
Documents, the Company covenants and agrees that neither it nor any other Person
acting on its behalf will provide any Purchaser or its agents or counsel with
any information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company.

14

 

4.6              Use of Proceeds. The Company shall use the net proceeds from
the sale of the Shares hereunder (i) to consummate the transactions with Vicis
Capital Master Fund as set forth on Schedule 4.6 attached hereto and (ii) for
working capital purposes and shall not use such proceeds for the satisfaction of
any portion of the Company’s debt (other than payment of trade payables in the
ordinary course of the Company’s business and prior practices).

4.7              Reservation of Common Stock. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement.

4.8              Listing of Common Stock.(a) The Company hereby agrees to use
best efforts to maintain the listing of the Common Stock on a Trading Market,
and as soon as reasonably practicable following the Closing (but not later than
the earlier of the Effective Date and the first anniversary of the Closing Date)
to list all of the Shares on such Trading Market. The Company further agrees, if
the Company applies to have the Common Stock traded on any other Trading Market,
it will include in such application all of the Shares, and will take such other
action as is necessary to cause all of the Shares to be listed on such other
Trading Market as promptly as possible. The Company will take all action
reasonably necessary to continue the listing and trading of its Common Stock on
a Trading Market and will comply in all respects with the Company’s reporting,
filing and other obligations under the bylaws or rules of the Trading Market.

4.9              Equal Treatment of Purchasers. No consideration shall be
offered or paid to any Person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same consideration
is also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended for the Company to treat the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Shares or otherwise.

4.10          Short Sales and Confidentiality After The Date Hereof. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
neither it nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period commencing
at the Discussion Time and ending at the time that the transactions contemplated
by this Agreement are first publicly announced as described in Section 4.4. 
Each Purchaser, severally and not jointly with the other Purchasers, covenants
that until such time as the transactions contemplated by this Agreement are
publicly disclosed by the Company as described in Section 4.4, such Purchaser
will maintain the confidentiality of the existence and terms of this transaction
and the information included in the Disclosure Schedules.  Notwithstanding the
foregoing, no Purchaser makes any representation, warranty or covenant hereby
that it will not engage in Short Sales in the securities of the Company after
the time that the transactions contemplated by this Agreement are first publicly
announced as described in Section 4.4. 

4.11          Delivery of Shares After Closing. The Company shall deliver, or
cause to be delivered, the respective Shares purchased by each Purchaser to such
Purchaser within 3 Trading Days of the Closing Date.

4.12          Form D; Blue Sky Filings. The Company agrees to timely file a Form
D with respect to the Shares as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Shares for, sale to the Purchasers at
the Closing under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of such actions promptly upon request
of any Purchaser.

ARTICLE V.
MISCELLANEOUS

5.1              Termination.  This Agreement may be terminated by any
Purchaser, as to such Purchaser’s obligations hereunder only and without any
effect whatsoever on the obligations between the Company and the other
Purchasers, by written notice to the other parties, if the Closing has not been
consummated on or before March 31, 2014; provided, however, that no such
termination will affect the right of any party to sue for any breach by the
other party (or parties).

15

 

5.2              Fees and Expenses. Except as expressly set forth in the
Transaction Documents to the contrary, and except with respect to a $5,000 legal
retainer payable by the Company to Purchaser’s counsel, the law firm of
Greenberg Traurig, LLP, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all Transfer
Agent fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Shares to the Purchasers.

5.3              Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

5.4              Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto prior to 5:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number set forth on the signature pages attached hereto on a
day that is not a Trading Day or later than 5:30 p.m. (New York City time) on
any Trading Day, (c) the 2nd Trading Day following the date of mailing, if sent
by U.S. nationally recognized overnight courier service, or (d) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as set forth on the signature pages
attached hereto.

5.5              Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and the Purchasers of at least 51% of the Shares still
held by the Purchasers or, in the case of a waiver, by the party against whom
enforcement of any such waived provision is sought; provided that in no event
shall any amendment adversely affect a Purchaser's rights and obligations
hereunder in a manner different from any other Purchaser without such
Purchaser's prior written consent. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right.

5.6              Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

5.7              Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of each Purchaser (other than by
merger). Any Purchaser may assign any or all of its rights under this Agreement
to any Person to whom such Purchaser assigns or transfers any Shares, provided
such transferee agrees in writing to be bound, with respect to the transferred
Shares, by the provisions of the Transaction Documents that apply to the
“Purchasers.”

5.8              No Third-Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.8.

16

 

5.9              Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
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 improper or is an
inconvenient venue for such proceeding. 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 via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for 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 other manner permitted by law. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys’ fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.

5.10          Survival. The representations and warranties contained herein
shall survive the Closing and the delivery of the Shares.

5.11          Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature page were an original
thereof.

5.12          Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

5.13          Replacement of Shares. If any certificate or instrument evidencing
any Shares is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction. The applicant
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs (including customary indemnity) associated with the
issuance of such replacement Shares.

5.14          Independent Nature of Purchasers’ Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation, the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. Other than the Investor Agreement, the Company has elected to provide
all Purchasers with the same terms and Transaction Documents for the convenience
of the Company and not because it was required or requested to do so by the
Purchasers.

17

 

5.15          Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such right
may be exercised on the next succeeding Business Day.

5.16          Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.

5.17          Waiver of Jury Trial. In any action, suit or proceeding in any
jurisdiction brought by any party against any other party, the parties each
knowingly and intentionally, to the greatest extent permitted by applicable law,
hereby absolutely, unconditionally, irrevocably and expressly waives forever
trial by jury.

 

(Signature Pages Follow)

18

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

OptimizeRx Corp.

 

 

Address for Notice:

400 Water Street, Suite 200, Rochester, MI 48307

By:__________________________________________

Name:

Title:

 

Fax:

248-453-5529

With a copy to (which shall not constitute notice):

 

Cane Clark, LLP

3273 E. Warm Springs, Rd.

Las Vegas, NV 89120

Fax: (702) 944-7100

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

19

 

[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

Name of Purchaser: ________________________________________________________

Signature of Authorized Signatory of Purchaser:
__________________________________

Name of Authorized Signatory:
____________________________________________________

Title of Authorized Signatory:
_____________________________________________________

Email Address of Purchaser:________________________________________________

Fax Number of Purchaser: ________________________________________________

Address for Notice of Purchaser:

 

 

 

 

Address for Delivery of Shares for Purchaser (if not same as address for
notice):

 

 

 

 

 

Subscription Amount: $_________________

 

Shares: _________________

 

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

 

 

20

 

Schedule 3.1(a)

 

OptimizeRx Corporation, a Michigan corporation

21

 

Schedule 3.1(g)

 

The following table sets forth, as of February 7, 2014, the beneficial ownership
of our common and preferred stock by each executive officer and director, by
each person known by us to beneficially own more than 5% of the our common stock
and by the executive officers and directors as a group. Unless otherwise noted,
the address of each beneficial owner is located at 400 Water Street, Ste. 200,
Rochester, MI 48307.

 

Title of class Name and address of beneficial owner (1) Amount of beneficial
ownership Percent of class (2) Common David Lester(3) 483,348 2% Common David
Harrell(4) 3,538,750 17% Common Terence J. Hamilton(5) 974,500 4% Total of All
Directors and Executive Officers: 4,996,598 23%       More Than 5% Beneficial
Owners:    

Common/

Preferred

Vicis Capital Master Fund(6)

 

16,386,350 55%

 

(1) As used in this table, "beneficial ownership" means the sole or shared power
to vote, or to direct the voting of, a security, or the sole or shared
investment power with respect to a security (i.e., the power to dispose of, or
to direct the disposition of, a security). In addition, for purposes of this
table, a person is deemed, as of any date, to have "beneficial ownership" of any
security that such person has the right to acquire within 60 days after such
date. (2) The percent of class is based on 20,663,884 voting shares as of
February 7, 2014, comprised of 15,163,874 shares of the Company’s common stock
issued and outstanding as of February 7, 2014, 35 shares of the Company’s Series
A Convertible Preferred Stock issued and outstanding as of February 7, 2014,
which has the power to vote 3,500,000 shares, and 30 shares of the Company’s
Series B Convertible Preferred Stock issued and outstanding as of June 14, 2013,
which has the power to vote 2,000,010 shares. (3) Includes 428,348 shares held
in his name, and options to purchase 55,000 shares of common stock at $1.00 per
share. (4) Includes 3,136,250 shares held in his name, options to purchase
402,500 shares of common stock at prices ranging from of $1.00 to $1.81 per
share. (5) Includes 697,000 shares held in his name and options to purchase
277,500 shares of common stock at a price of $1.00 per share. (6) Includes
886,370 shares of common stock held in its name, 35 shares of the Company’s
Series A Convertible Preferred Stock, which has the power to vote 3,500,000
shares, 30 shares of the Company’s Series B Convertible Preferred Stock, which
has the power to vote 2,000,010 shares, and warrants to purchase 10,000,000
shares of common stock at strike prices ranging from $2.00 to $3.00 per share.

 

22

 

Schedule 3.1(g) cont.

 

The Company has the following warrants and options outstanding: 

 

Number Type Exercise Price($) Total ($) 9,000,000(1) Warrants 1.50 13,500,000  
      100,000 Warrants 2.00 200,000         1,000,000 Warrants 2.25 2,250,000  
      1,000,000(1) Warrants 3.00 3,000,000         10,000 Options 1.85 18,500  
      250,000 Options 0.35 87,500         100,000 Warrants 0.35 35,000        
200,000 Options 1.81 362,000         25,000 Options 1.12 28,000         430,000
Options 1.00 430,000         200,000 Options 0.73 146,000         50,000
Warrants 0.89 44,500         25,000 Options 1.58 39,500                        
12,390,000     20,141,000               Weighted Average Price $1.625585149

 

(1)These warrants are held by Vicis Capital Master Fund. Upon repurchase by the
Company, the outstanding options and warrants to purchase 12,390,000 shares of
the Company’s stock will be reduced to 2,390,000 shares of the Company’s stock.

 

23

 

Schedule 3.1(g) cont.

 

Vicis Capital Master Fund

 

The following agreements qualify the representations made in Section 3.1(g) of
the Agreement. The following agreements are exhibits to the Form 8-K filed by
the Company on September 21, 2011 with the Commission.

 

Termination Agreement and Release, dated September 16, 2011

Securities Purchase Agreement, dated September 16, 2011

Amended and Restated Guarantee Agreement, dated September 16, 2011

Second Amended and Restated Registration Rights Agreement, dated September 16,
2011

Third Amended and Restated Security Agreement, dated September 16, 2011

Third Amended and Restated Guarantor Security Agreement, dated September 16,
2011

 

The following agreements are exhibits to the Form 8-K filed by the Company on
June 11, 2010 with the Commission.

 

Certificate of Designation – Series B Preferred Stock

Warrant, dated June 4, 2010

Securities Purchase Agreement, dated June 4, 2010

Registration Rights Agreement, dated June 4, 2010

Amended & Restated Security Agreement, dated June 4, 2010

Guaranty Agreement, dated June 4, 2010

Amended & Restated Guarantor Security Agreement, June 4, 2010

 

The following agreements are exhibits to the Form S-1 filed by the Company on
November 12, 2008 with the Commission.

 

Certificate of Designation, filed on September 5, 2008

Securities Purchase Agreement, dated September 8, 2008

Form of Series A Warrant

Registration Rights Agreement, dated September 8, 2008

Security Agreement, dated September 8, 2008

Guaranty Agreement, dated September 8, 2008

Guarantor Security Agreement, dated September 8, 2008

 

24

 

Schedule 3.1(i)

 

Risk Factors

 

Risks Relating to Business and Financial Condition

 

Because we have historically experienced losses and only recently experienced
profits, if we are unable to achieve profitability, our financial condition and
company could suffer.

 

Since the inception of our business we have historically incurred losses. We
have only recently experienced profits and increased revenues. Our ability to
maintain profitability depends on our ability to generate sales through our
technology platform and advertising model while maintaining reasonable expense
levels. In particular, although we intend to increase significantly our spending
on marketing, these efforts may not be effective in promoting delivery. If we do
not achieve sustainable profitability, we may not be able to continue our
operations.

 

Because we have recently learned that our financial statements have errors
regarding revenue share expenses, our results of operations may be different
than disclosed in our financial statements.

 

We recently announced a needed adjustment to the accounting policy so that
revenue share expenses are properly accrued each quarter and at the end of the
year, versus when they are paid. The method of recording revenue share payments
previously aligned with our contractual terms with our platform partners --
which generally required payment 30 days after we received the fees from our
sponsored manufacturers in the following quarter. Therefore, for year-end 2012
and each quarter of 2013, there will be a journal entry needed to record the
revenue share amounts due on an accrual basis rather than recording these as an
expense when they are paid. We will likely disclosure the restated numbers for
these periods in subsequent filings. As such, the financial numbers will be
adjusted in our ongoing SEC filings and the results of operations may differ
from what we have disclosed.

 

We depend on certain key sales and technology personnel for our success and
currently need to expand our staff.

 

Our success depends on the continued availability and contributions of members
of our sales, and technology team and other key personnel. As such, our success
depends in large measure on the continued service of these individuals in their
respective positions. Furthermore, recruiting and retaining qualified personnel
to expand the number of customers for which we manage delivery for will be
critical to our success. The loss of members of our sales or technology team or
our inability to attract or retain other qualified personnel could significantly
weaken our team, harm our ability to compete effectively and harm our long-term
business prospects.

 

Our failure to obtain retain or attract additional customers could prevent us
from successfully executing our business plan.

 

We currently work with many leading pharmaceutical companies, including Pfizer,
Lilly and Novartis. Our failure to retain existing customers or expand
additional customers could harmfully impact our business.

 

We may be unable to support our technology to further scale our operations
successfully.

 

Our plan is to grow rapidly through further integration of our technology in
electronic platforms. Our growth will place significant demands on our
management and technology development, as well as our financial, administrative
and other resources. We cannot guarantee that any of the systems, procedures and
controls we put in place will be adequate to support the commercialization of
our operations. Our operating results will depend substantially on the ability
of our officers and key employees to manage changing business conditions and to
implement and improve our financial, administrative and other resources. If we
are unable to respond to and manage changing business conditions, or the scale
of our products, services and operations, then the quality of our services, our
ability to retain key personnel and our business could be harmed.

 

If we are unable to maintain our contracts with electronic prescription
platforms, our business will suffer.

 

We are reliant upon our contracts with leading electronic prescribing platforms,
including Allscripts and DrFirst. We will need to maintain these relationships
as well as diversify them. The inability to do so could adversely impact the
Company’s business.

25

 

 

Developing and implementing new and updated applications, features and services
for our public and private portals may be more difficult than expected, may take
longer and cost more than expected and may not result in sufficient increases in
revenue to justify the costs

 

Attracting and retaining users of our public portals and clients for our private
portals requires us to continue to improve the technology underlying those
portals and to continue to develop new and updated applications, features and
services for those portals. If we are unable to do so on a timely basis or if we
are unable to implement new applications, features and services without
disruption to our existing ones, we may lose potential users and clients.

 

We rely on a combination of internal development, strategic relationships,
licensing and acquisitions to develop our portals and related applications,
features and services. Our development and/or implementation of new
technologies, applications, features and services may cost more than expected,
may take longer than originally expected, may require more testing than
originally anticipated and may require the acquisition of additional personnel
and other resources. There can be no assurance that the revenue opportunities
from any new or updated technologies, applications, features or services will
justify the amounts spent.

 

If we are unable to adhere to the regulatory and competitive climate in which we
operate, we could be materially and negatively impacted.

 

Do to the labyrinth of regulations in healthcare space, state and federal, as
well as political sensitivity of healthcare delivery the proposed business model
could be negatively impacted or fail.

 

The markets in which we operate are intensely competitive, continually evolving
and, in some cases, subject to rapid change.

 

•  Our public portals face competition from numerous other companies, both in
attracting users and in generating revenue from advertisers and sponsors. We
compete for users with online services and Web sites that provide savings on
medications and healthcare products, including both commercial sites and
not-for-profit sites. We compete for advertisers and sponsors with:
health-related web sites; general purpose consumer web sites that offer
specialized health sub-channels; other high-traffic web sites that include both
healthcare-related and non-healthcare-related content and services; search
engines that provide specialized health search; and advertising networks that
aggregate traffic from multiple sites. •  Our private portals compete with:
providers of healthcare decision-support tools and online health management
applications; wellness and disease management vendors; and health information
services and health management offerings of healthcare benefits companies and
their affiliates. •  Our Publishing and Other Services segment’s products and
services compete with numerous other offline publications, some of which have
better access to traditional distribution channels than we have, and also
compete with online information sources.

 

Many of our competitors have greater financial, technical, product development,
marketing and other resources than we do. These organizations may be better
known than we are and have more customers or users than we do. We cannot provide
assurance that we will be able to compete successfully against these
organizations or any alliances they have formed or may form. Since there are no
substantial barriers to entry into the markets in which our public portals
participate, we expect that competitors will continue to enter these markets.

 

Developments in the healthcare industry could adversely affect our business

 

Most of our revenue is derived from the healthcare industry and could be
affected by changes affecting healthcare spending. We are particularly dependent
on pharmaceutical, biotechnology and medical device companies for our
advertising and sponsorship revenue.

 

General reductions in expenditures by healthcare industry participants could
result from, among other things:

 

•  government regulation or private initiatives that affect the manner in which
healthcare providers interact with patients, payers or other healthcare industry
participants, including changes in pricing or means of delivery of healthcare
products and services; •  consolidation of healthcare industry participants; • 
reductions in governmental funding for healthcare; and •  adverse changes in
business or economic conditions affecting healthcare payers or providers,
pharmaceutical, biotechnology or medical device companies or other healthcare
industry participants.

 

26

 

Even if general expenditures by industry participants remain the same or
increase, developments in the healthcare industry may result in reduced spending
in some or all of the specific market segments that we serve or are planning to
serve. For example, use of our products and services could be affected by:

 

•  changes in the design of health insurance plans; •  a decrease in the number
of new drugs or medical devices coming to market; and •  decreases in marketing
expenditures by pharmaceutical or medical device companies, including as a
result of governmental regulation or private initiatives that discourage or
prohibit advertising or sponsorship activities by pharmaceutical or medical
device companies.

 

In addition, our customers’ expectations regarding pending or potential industry
developments may also affect their budgeting processes and spending plans with
respect to products and services of the types we provide.

 

The healthcare industry has changed significantly in recent years and we expect
that significant changes will continue to occur. However, the timing and impact
of developments in the healthcare industry are difficult to predict. We cannot
assure you that the markets for our products and services will continue to exist
at current levels or that we will have adequate technical, financial and
marketing resources to react to changes in those markets.

 

Because we are embroiled in various lawsuits with uncertain consequences, the
outcome of potential judgments may negatively affect our financial condition and
results of operations

 

We are involved in the following lawsuits.

 

On February 6, 2013, we filed a Complaint for Patent Infringement against
Physicians Interactive Inc., Physicians Interactive Holdings,Inc. and
Skyscape.com, in which we allege that one or more of those entities has
infringed on United States Patent No. 8,341,015. As of September 30, 2013, the
defendants responded denying the assertions made in our Complaint, and the
matter is currently being litigated in federal court in Detroit, Michigan.

 

We recently learned of an action in New Jersey brought by Milton J. Wilpon and
the Milton Wilpon 2000 Trust. Last November 2013, we were served notice that we
would be added as an additional party to the case titled Mitlon Wilson et al. v.
Continental Capital Corporation, C-289-06, in the Superior Court of New Jersey.
There is an existing default judgment of roughly $700,000 plus fees and costs.
We are uncertain of the substance of the allegations lodged against the existing
defendants and now perhaps us, as we are likely now a party to the action. We
intend to investigate and, if necessary, vigorously defend the matter. We hope
to have more information in subsequent SEC filings.

 

These lawsuits are ongoing, uncertain and involve a substantial degree of risk.
If we are unable to successfully defend these actions, our financial condition
and results of operations will suffer.

 

Risks Relating to Our Securities

If we are unable to receive subscriptions for $6,000,000, we will not be able to
exercise our option and buy out Vicis.

The shares are being offered by the Company on a "best efforts" basis. We
reserve the right to enter into agreements with one or more broker-dealers to
sell the shares, with such broker-dealers receiving sales commissions of up to
10% of the price of the shares and other forms of compensation, including
warrants. We can provide no assurance that this offering will be completely sold
out. Our main purpose in this offering is to repurchase the securities held by
Vicis so we have a better capital structure. If less than $6,000,000 is
available to us, we will not be able to exercise our option and buy out Vicis.

27

 

 

If a market for our common stock does not develop, shareholders may be unable to
sell their shares.

 

Our common stock is publicly traded under the symbol “OPRX” on the OTCQB
operated by OTC Markets Group, Inc, an electronic inter-dealer quotation medium
for equity securities. We do not currently have an active trading market. There
can be no assurance that an active and liquid trading market will develop or, if
developed, that it will be sustained.

 

Because we will be subject to the “Penny Stock” rules once our shares are quoted
on the over-the-counter bulletin board, the level of trading activity in our
stock may be reduced.

The Securities and Exchange Commission has adopted regulations which generally
define "penny stock" to be any listed, trading equity security that has a market
price less than $5.00 per share or an exercise price of less than $5.00 per
share, subject to certain exemptions. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer must also provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer’s account. In addition,
the penny stock rules generally require that prior to a transaction in a penny
stock, the broker-dealer make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules which may increase the
difficulty Purchasers may experience in attempting to liquidate such securities.

 

Risks Relating to an Investment in Our Securities

We will have broad discretion in applying the net proceeds of this offering and
may not use those proceeds in ways that will enhance the market value of our
securities.

We have significant flexibility in applying the net proceeds we will receive in
this offering. We will use the proceeds that we receive from the sale of the
shares in this offering to mainly further our interest in the company. A large
portion of the proceeds are expected to retire the holdings of Vicis Capital
Master Fund. This use of proceeds is mainly designed to improve our capital
structure and avoid the dividends we are required to pay the shareholder. As
part of your investment decision, you will not be able to assess or direct how
we apply these net proceeds. If we do not apply these funds effectively, we may
lose significant business opportunities. Furthermore, our stock price could
decline if the market does not view our use of the net proceeds from this
offering favorably.

 

Our future capital needs could result in dilution of your investment.

Our Board of Directors may determine from time to time that there is a need to
obtain additional capital through the issuance of additional shares of our
common stock or other securities. We may sell a substantial number of additional
shares of our common stock in connection with a private placement or public
offering of shares of our common stock (or other series or class of capital
stock to be designated in the future). Investors in subsequent offerings may
also have rights, preferences and privileges senior to our current stockholders
which may adversely impact our current stockholders. We could also issue common
stock to certain parties, such as vendors and service providers, as payment for
products and services, which would dilute your interest in the Company and may
dilute the net tangible book value per share of our common stock. Sales of a
substantial number of shares of our common stock under any of the circumstances
described above could also adversely affect the market price for our common
stock and make it more difficult for you to sell shares of stock you acquire in
this offering at times and prices that you feel are appropriate.

 

The securities laws may restrict transferability of the securities sold in the
offering.

The shares have not been registered under the Securities Act or registered or
qualified under any state or foreign securities laws. Such securities are being
issued based upon our reliance upon an exemption from registration under the
Securities Act for an offer and sale of securities that does not involve a
public offering. Unless such securities are so registered, they may not be
offered or sold except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act and applicable
state or foreign securities laws. Purchasers subscribing for shares of Shares
will first be required to make representations and covenants concerning these
transfer restrictions which are necessary to satisfy the requirements of the
exemption from registration being relied upon by us for the issuance. The
certificates representing shares of the Common Stock will bear a legend
indicating that they are so restricted.

 

You must make an independent investment analysis in connection with this
offering.

No independent legal, accounting or business advisors have been appointed to
represent the interests of prospective Purchasers in connection with this
offering. Neither the Company nor any of its officers, directors, employees or
agents makes any representation or expresses any opinion with respect to the
merits of an investment in shares offered hereby, including, and without
limitation, the Company’s proposed value or the value of shares of common stock
or preferred stock.

 

The Company provided financial projections based on assumptions made by
management that may or not be accurate as events unfold. Each prospective
Purchaser is therefore encouraged to engage independent accountants, appraisers,
attorneys and other advisors to (i) conduct due diligence review as the
prospective investor may deem necessary and advisable, and (ii) provide advice
with respect to the merits of an investment in the shares offered hereby and
applicable risk factors as a prospective investor may deem necessary and
advisable to rely upon. The Company will fully cooperate with any prospective
Purchaser who desires to conduct an independent analysis, so long as it
determines, in its sole discretion, that cooperation is not unduly burdensome.

 

Because Purchasers in this Offering may be considered underwriters, they may be
subject to unfavorable laws that may apply to their detriment.

 

Purchasers purchasing shares in the offering with a view to selling or otherwise
distributing those securities may be considered to be underwriters, subjecting
such Purchasers to potential liability tinder Section 11 of the Securities Act.
Further, if deemed an underwriter a Purchaser could not rely on Rule 144 of the
Securities Act to sell or otherwise distribute the securities purchased in the
offering.

 

28

 

 

Schedule 3.1(v)

 

See the agreements listed under the heading “Vicis Capital Master Fund” in
Schedule 3.1(g).

29

 

Schedule 4.6

 

The Company estimates that its net proceeds from the sale of Shares in this
Offering will be approximately $9,000,000, if $10,000,000 is sold, after
deducting estimated expenses associated with the Offering (including a 10% fee
to broker-dealers). We intend to use the net proceeds of this Offering as
follows:

 

Net Proceeds $9,000,000 Retire Preferred Stock(1) $6,000,000 Working Capital
$3,000,000 Total $9,000,000

(1)The Company intends on acquiring the 35 outstanding shares of Series A
Convertible Preferred Stock and 30 outstanding shares of Series B Preferred
Stock from Vicis Master Capital Fund (“Vicis”). On January 10, 2013, the Company
entered into a Securities Redemption Option Agreement with Vicis that provides
it with an option to purchase all of the outstanding shares and derivative
securities held by Vicis for total payment of nine million dollars ($9,000,000).
The shares and derivative securities include the Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock, Common Stock, and warrants to
purchase shares of Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock held by Vicis. A copy of the Securities Redemption Option
Agreement is attached as Exhibit 10.1 to the Form 8-K that the Company filed
with the Commission on January 11, 2013 and is incorporated herein by reference.
On January 2, 2014, the Company executed Amendment No. 1 to Securities
Redemption Option Agreement with Vicis to, among other things, extend the term
of our option to March 31, 2014 and reduce the price of the option from nine
million dollars ($9,000,000) to six million dollars ($6,000,000).

 

Except as provided above, the Company cannot specify with certainty the
particular uses for the net proceeds to be received upon completion of this
Offering and, at the date hereof, cannot accurately predict the amounts that it
may spend for any particular purpose. The amounts of the Company’s actual
expenditures will be influenced by several factors, including the timing and
extent of its expansion opportunities, the amount of cash used by our operations
and the occurrence of unforeseen opportunities and events. Management will have
broad discretion in determining the uses of the net proceeds of this Offering.

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Exhibit A

 

Registration Rights Agreement

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Exhibit B

 

FORM OF LEGAL OPINION

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