Document:

exv10w14

Exhibit 10.14

SERVICES AGREEMENT

     THIS SERVICES AGREEMENT (the “Agreement”) is made and entered into this ___ day of
                     (the “Effective Date”) by and between                     , a                     
limited liability company (the “Company”), and                     , a                     
professional limited liability company (“Services PLLC”).

W I T N E S S E T H:

     WHEREAS, pursuant to that certain Purchase Agreement (the “Purchase Agreement”), dated
as of the date hereof, by and among Aurora Diagnostics, LLC (“Aurora”) and                     ,
Aurora acquired all of the issued and outstanding equity interests of the Company (the
“Acquisition”);

     WHEREAS, the Company’s predecessor,                     , was engaged in the business of providing
pathology services to physicians primarily in the State of                      (the “Business”),
and the physicians employed by Services PLLC desire to continue to provide medical professional
services in the specialty of pathology following the Acquisition on behalf of Services PLLC to the
Company in a manner consistent with applicable law;

     WHEREAS, the Company desires to engage Services PLLC to provide one or more physicians skilled
in pathology to furnish services to the Company as provided in this Agreement;

     WHEREAS, Services PLLC desires and is qualified to provide the services contemplated by this
Agreement to the Company through one or more of its Practice Physicians (as defined in Section
1.4(a)), each of whom will be licensed to practice medicine and prescribe drugs without
restriction in the State of                      and will be experienced in the operation of the Business;
and

     WHEREAS, Services PLLC will provide the services contemplated by this Agreement exclusively to
the Company;

     NOW, THEREFORE, in consideration of the premises set forth above and the mutual covenants and
agreements of the parties set forth in this Agreement, the receipt and sufficiency of which are
acknowledged, the parties agree as follows:

ARTICLE I

ENGAGEMENT AND SERVICES

     1.1 Engagement. The Company hereby engages Services PLLC to provide, and Services
PLLC shall provide and cause the Practice Physicians to provide, services in the practice of
medicine in the specialty of pathology or in such other related fields in which the Company may be
engaged from time to time.

     1.2 Practice Management; Laboratory Director. In furtherance of its commitment under
Section 1.1 and without limiting the scope of services to be provided thereunder, Services
PLLC shall manage the provision of services from the Practice Physicians, including, but not
limited to:

          (a) developing and maintaining appropriate professional standards of the Company, including
the continuation or implementation of quality assurance procedures designed to ensure that patients
of the Company and Services PLLC receive the highest standard of care;

          (b) identifying and pursuing opportunities to expand the Business;

 

 

          (c) recruiting such additional medical service providers as necessary and appropriate;
provided, however, that the prior consent of the Company or its authorized representative shall be
obtained prior to the hiring or discharge of any employee of the Company or Services PLLC,
including any physician providing services to the Company on Services PLLC’s behalf;

          (d) coordinating and administering all leave for the Practice Physicians, including vacation
and continuing education, to ensure that provisions have been made to provide for appropriate
coverage of the Company’s and Services PLLC’s patients, customers and clients;

          (e) engaging in marketing activities designed to promote and develop the Business, as well as
administrative and compliance activities;

          (f) approximately annually or at such other times as may be reasonably requested by the
Company, providing a detailed report on the state of the Business, the Practice Physicians, and the
delivery of services hereunder;

          (g) conduct or provide medical peer review groups associated with the Business;

          (h) performing any other duties or requirements set by Aurora’s Chief Executive Officer or
Chief Operating Officer, all as reasonably directed by the Company or Aurora; and

          (i) providing the services of, and designating one Practice Physician (initially designated as
___________) to serve as, the Laboratory Director of the Company, whose responsibilities
shall be to carry out the responsibilities set forth in 42 CFR § 493.1407 and 42 CFR § 493.1445 and
oversee the delivery of services set forth in Section 1.1 and this Section 1.2.

     1.3 Standards of Practice.

          (a) At all times during the term of this Agreement, Services PLLC shall maintain, and shall
cause the Practice Physicians to maintain and adhere to, the written standards and professional
ethics of the Company and those of the medical profession.

          (b) Notwithstanding anything to the contrary contained herein, (i) the Practice Physicians
shall make any and all decisions pertaining or related to the practice of medicine, (ii) nothing
shall impair the independent medical judgment of any Practice Physician, and (iii) each Practice
Physician shall have final authority over all of such Practice Physician’s medical decisions.

     1.4 Practice Physicians; Qualifications and Licensure.

          (a) For purposes of this Agreement, the term “Practice Physician” means (i) any
physician who is employed by or otherwise affiliated with Services PLLC to provide physician
services to the Company; (ii) any physician performing services on behalf of the Company in
connection with the Business (whether as an employee, partner, member, shareholder, or independent
contractor of Services PLLC); or (iii) any other physician performing services on behalf of
Services PLLC hereunder (as may be approved by the Company).

          (b) Prior to the provision of any services hereunder by any individual Practice Physician,
Services PLLC shall cause such Practice Physician to enter into an employment agreement
with Services PLLC in a form mutually agreed upon by Aurora and Services PLLC. No Practice
Physician shall be retained or discharged by Services PLLC without the express, prior written
consent of Aurora or its authorized representative. In addition, should any event occur that,
under the term of any

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Practice Physician’s employment agreement, results in Services PLLC having
the right to terminate such Practice Physician for cause (as defined in the employment agreement),
Services PLLC shall promptly notify Aurora and act upon such information only with the express
consent of Aurora (which consent may be given orally or in writing).

          (c) Services PLLC shall cause each Practice Physician, at all times during the term of this
Agreement: (i) to be certified by the American Board of Pathology in anatomic and clinical
pathology; (ii) to maintain an unlimited and unrestricted license to practice medicine in the State
of                     ; (iii) to maintain appropriate medical staff membership and privileges at all
medical facilities presently served or serviced by such Practice Physician and use his or her
commercially reasonable efforts to gain and maintain appropriate medical staff membership and
privileges at any additional medical facilities identified by the Company or Aurora; (iv) to comply
with the                      Board of Medicine and the Company’s and Aurora’s continuing medical education
(“CME”) requirements; (v) to carry out the Practice Physicians’ responsibilities on a
professional, ethical and diligent basis in order to serve the best interests of the Company’s and
Services PLLC’s patients, customers and clients; and (vi) to comply with such other requirements as
the Chief Executive Officer or Chief Operating Officer of the Company or Aurora may hereinafter
reasonably require, including without limitation their rules, regulations, policies and procedures,
as in effect and communicated to Services PLLC in writing and as revised from time to time (the
“Rules and Regulations”).

     1.5 Conformity with Laws, Rules, Regulations and Policies. In performing its duties
under this Agreement, Services PLLC shall, and shall cause each Practice Physician to, comply with
(i) all applicable laws, rules and regulations, ordinances and standards of any governmental,
quasi-governmental or private authority having either mandatory or voluntary jurisdiction over
Services PLLC, the Company, any Practice Physician, or any medical facility for which Services PLLC
or any Practice Physician provides services, (ii) the written bylaws, rules and regulations,
policies and procedures of any such medical facility, including, without limitation, the
residential boundary requirements of such hospitals or medical facilities, and (iii) the Rules and
Regulations.

     1.6 Coverage. Services PLLC shall ensure that a sufficient number of Practice
Physicians are available to provide the services contemplated hereby at the offices of the Company
during its hours of operation. Services PLLC and the Company shall confer from time to time in
good faith concerning the appropriate level of physician coverage to provide medical director
services hereunder.

     1.7 Consultation and Cooperation. In connection with the delivery of all services
hereunder, Services PLLC shall, and shall cause the Practice Physicians to, consult in good faith
with the Company and Aurora with respect to any decisions regarding the Business. The Company and
Aurora shall be included in any meetings or discussions among Services PLLC and the Practice
Physicians that are reasonably likely to impact the Business.

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ARTICLE II

TERM AND TERMINATION

     2.1 Initial and Renewal Terms. This Agreement shall become effective as of the
Effective Date and shall remain in full force and effect until 12:00 p.m. midnight on the fiftieth
(50th) anniversary of the Effective Date (the “Initial Term”), unless earlier
terminated as provided in this Article II. This Agreement shall automatically renew for additional
successive terms of five (5) years each (the “Renewal
Terms”), unless either party gives written notice of non-renewal to the other party
not less than ninety (90) days prior to the expiration of the Initial Term or the then-current
Renewal Term, as applicable. If such notice is given, this Agreement shall expire as of the last
day of the Initial Term or the then-current Renewal Term, as applicable.

     2.2 Termination By Agreement. The Company and Services PLLC may agree in a writing
signed by both parties to terminate this Agreement at a time and date stipulated in such writing.

     2.3 Termination by Services PLLC for Cause. At any time after the                     
anniversary of the Effective Date, Services PLLC may terminate this Agreement upon written notice
to the Company, but only in the event of a knowing, material breach by the Company of any of its
obligations hereunder, provided that Services PLLC first provides written notice to the Company
describing the material breach with reasonable particularity and the breach remains uncured for
ninety (90) days after such notice.

     2.4 Termination by the Company for Cause. At any time after the                     
anniversary of the Effective Date, the Company may terminate this Agreement upon written notice to
Services PLLC, but only in the event of (i) a material breach by Services PLLC of any of its
obligations hereunder, provided that the Company first provides written notice to Services PLLC
describing the material breach with reasonable particularity and the breach remains uncured for
ninety (90) days after such notice, or (ii) any act or omission of Services PLLC or any Practice
Physician that the Company or Aurora reasonably believes will result in material detriment to the
operations of the Company or Aurora.

     2.5 Effect of Termination or Expiration. Upon and following the expiration of this
Agreement or its termination for any reason, Services PLLC shall not interfere with any efforts by
the Company or Aurora to contract with any other individual or entity for the provision of services
of the type provided hereunder. Expiration or termination of this Agreement shall not affect any
rights or obligations of the parties accruing hereunder through the date of expiration or
termination, including the Company’s obligation to compensate Services PLLC for services pro-rated
through such date, and such rights and obligations shall survive expiration or termination. In
addition, the provisions of Section 4.2 and Articles VI, VII, and
VIII shall survive expiration or termination of this Agreement.

     2.6 Liquidated Damages. Each of the Company and Services PLLC agree and acknowledge
that this Agreement may not be terminated, even for cause, until the                      anniversary of the
Effective Date. In lieu thereof, each agrees that, in the event of a breach of its obligations
hereunder, the breaching party shall pay to the other party hereto, (i) ___% of actual damages
incurred by the non-breaching party as a direct result of such breach, in the event of any willful,
wanton, or otherwise intentional breach of the breaching party’s obligations hereunder, or (ii) the
greater of (A) actual damages incurred by the non-breaching party as a direct result of such breach
and (B) $                    , in the event of any other material breach.

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ARTICLE III

COMPENSATION

     3.1 Compensation.

          (a) In consideration of the services, covenants, and agreements agreed to be performed by
Services PLLC during the Initial Term and any Renewal Term, the Company shall pay Services PLLC a
fee at the rate of                                          Dollars ($                    ) per year (the “Annual Base
Fee”), payable in substantially equal monthly installments in arrears on or before the
30th day of each month for services rendered during such month. The Company and
Services PLLC shall
meet from time to time, anticipated to be not less than annually, in order to discuss whether
any adjustment to the Annual Base Fee is necessary in order to maintain or grow the Business,
including the possible addition of Practice Physicians following the Effective Date, or to
otherwise reflect the fair market value of the services provided hereunder; provided, however, that
during the first                      years of this Agreement, the Annual Base Fee shall not be less an amount
sufficient to discharge any obligation payable by Services PLLC under the terms of its employment
agreements with Practice Physicians.

          (b) In connection with adjustments to the Annual Base Fee relating to periods beginning on or
after the                      of the Effective Time, the Company shall, prior to establishing the Annual
Base Fee, consult with each of the Owners so long as such individual(s) is employed by the Company
or a successor thereto.

          (c) No adjustment to the Annual Base Fee payable under this Agreement shall be effective
unless set forth in a writing signed by each of Services PLLC and the Company, which writing shall
be deemed an amendment to this Agreement.

     3.2 Reimbursement of Expenses.

          (a) Included in the compensation provided under Section 3.1 hereof are the expenses of
the type described below:

          (i) State and federal payroll taxes or self-employment taxes incurred by Services PLLC
or the Practice Physicians in connection with the employment of the Practice Physicians;

          (ii) Employee benefit plans provided to the Practice Physicians, including health
insurance, 401(k) plans or similar benefit programs;

          (iii) Premiums for professional and general liability insurance obtained by Services
PLLC in accordance with Article V of this Agreement;

          (iv) License fees, medical books and journals, registration fees for continuing medical
education, and membership dues in professional organizations; and

          (v) Any Practice Physician’s necessary travel, room, board and other expenses incurred in
connection with continuing medical education.

          (b) In addition to the compensation provided under Section 3.1 hereof, upon Services
PLLC’s submission of proper documentation, the Company will reimburse Services PLLC for any
Practice Physician’s reasonable business expenses if ordinary and necessary and incurred in
furtherance

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of the business
of the Company, subject to compliance with reimbursement policies from
time to time adopted by the Company or Aurora.

ARTICLE IV

STATUS OF PARTIES

     4.1 Tax Status. The Company and Services PLLC acknowledge and agree that the
relationship created under this Agreement between them is that of independent contractors and that
nothing in this Agreement shall be deemed to render either party the employer or employee of the
other, agent or principal of the other, or joint venturer or partner of the other. The parties
acknowledge and
agree that the Practice Physicians will be engaged by Services PLLC and will under no
circumstances be considered the employees of Aurora, the Company or any of their respective
affiliates. Services PLLC shall be responsible for all withholding, payroll, and similar taxes
related to its engagement of the Practice Physicians, and neither Services PLLC nor the Practice
Physicians shall be entitled to any benefits afforded to the employees of Aurora, the Company or
any of their respective affiliates, except as expressly provided hereunder. Services PLLC agrees
that (i) neither it nor any Practice Physician shall be treated as an employee of the Company for
federal tax purposes; (ii) the Company will not withhold on behalf of Services PLLC any sums for
income tax, unemployment insurance, Social Security, or any other withholding pursuant to any law
or requirement of any governmental body; (iii) all such taxes, payments, and withholdings, if any,
are the sole responsibility of Services PLLC; and (iv) Services PLLC will indemnify and hold the
Company and its affiliates harmless from any and all losses or liabilities arising with respect to
such benefits, taxes, payments, and withholdings, if any. If the United States Internal Revenue
Service (the “IRS”) should question or challenge the worker status of Services PLLC or the
Practice Physicians, then the parties agree that both Services PLLC and the Company and/or Aurora
shall have the right to participate in any discussion or negotiation occurring with the IRS,
irrespective of which party initiated such discussions or negotiations, and each party shall notify
the other in advance of any planned meeting or discussion. In such event, the Company and Services
PLLC shall work together in good faith to make any amendments to this Agreement in order to comply
with any IRS requirements.

     4.2 The Company’s Work Product. All operating procedures, protocols, information
systems, operating data, databases, reports, and other non-public proprietary business systems or
information owned by the Company or its affiliates shall be and remain the exclusive property of
the Company or its affiliates, as appropriate. If Services PLLC or any Practice Physician
modifies, enhances, or alters any such property, such modification, enhancement, or alteration will
be deemed a work-for-hire and shall be the property of the Company or one of its affiliates, as
appropriate. Services PLLC or any Practice Physician making such modification, enhancement or
alteration will execute all documents reasonably requested by the Company to vest fully in the
Company or one of its affiliates title to such modification, enhancement or alteration.

     4.3 Limitations on Authority. Except in the ordinary course of business or with the
prior written consent of the Company, Services PLLC has absolutely no authority to:

          (a) pledge the credit or assets of the Company (or any affiliate of the Company);

          (b) bind the Company (or any affiliate of the Company) under any contract, agreement, note,
mortgage or other instrument (other than routine purchase orders in the ordinary course of business
consistent with the Company’s practices);

          (c) release or discharge any debt due the Company (or any affiliate of the Company); or

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          (d) sell, mortgage, transfer or otherwise dispose of any of the Company’s assets (or any
assets of any affiliate of the Company).

     4.4 Trade Name License. During the Initial Term and any Renewal Term, the Company
hereby grants to Services PLLC a nonexclusive, royalty-free, fully paid up right and license to use
the name “                    ” in connection with the operation of the Business and the provision of
services hereunder. Services PLLC agrees and acknowledges that, promptly upon termination of this
Agreement, such license shall terminate and Services PLLC shall discontinue its use of the name
accordingly.

ARTICLE V

INSURANCE

     5.1 Services PLLC Insurance Coverage. Services PLLC shall purchase and maintain at
its expense, for itself and each of the Practice Physicians, professional and general liability
insurance, with an insurance company reasonably acceptable to the Company, with policy limits of at
least One Million Dollars ($1,000,000) per occurrence and Three Million Dollars ($3,000,000) in the
aggregate, including coverage for acts and omissions in rendering medical services to patients of
the Company or Services PLLC.

     5.2 Evidence of Coverage. Upon the execution of this Agreement and annually
thereafter or on reasonable request, Services PLLC shall provide the Company with certificates of
insurance or other reasonably satisfactory evidence of the insurance required to be maintained
under Section 5.1. Services PLLC shall notify the Company at least sixty (60) days prior
to the voluntary cancellation or termination of any such coverage and immediately upon receipt of
any notice of involuntary cancellation or termination of any such coverage.

     5.3 Tail Coverage. Upon the termination, resignation or other separation from
employment of any Practice Physician, Services PLLC shall consult with the Chief Operating Officer
of Aurora regarding whether to purchase malpractice insurance “tail” coverage, for the period of
the applicable statute of limitations, to provide coverage for the Practice Physician’s
professional acts prior to the date of termination.

ARTICLE VI

CONFIDENTIALITY, NONCOMPETITION

AND NONSOLICITATION COVENANT

     6.1 Non-Competition.

          (a) The parties acknowledge that: (A) the services of Services PLLC and the Practice
Physicians under this Agreement require special expertise and talent in the provision of pathology
services and that Services PLLC and the Practice Physicians will have substantial contact with
customers, suppliers, advertisers and patients of the Company and its affiliates; (B) pursuant to
this Agreement, Services PLLC and the Practice Physicians will be placed in a position of trust and
responsibility and will have access to a substantial amount of Proprietary Information (as defined
below) and that the Company is placing Services PLLC and the Practice Physicians in such position
and giving them access to such information in reliance upon Services PLLC’s and the Practice
Physicians’ agreements set forth in this Article VI; (C) the Company has a legitimate interest in
adequately protecting the goodwill of the Company; and (D) the Practice Physicians are capable of
obtaining gainful, lucrative and desirable employment that does not violate the restrictions
contained in this Agreement. Accordingly, in consideration of the compensation and benefits being
paid and to be paid by the Company to Services PLLC hereunder, Services PLLC agrees that, except
for the services and duties that Services PLLC and

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the Practice Physicians perform for or on behalf
of the Company pursuant to the terms of this Agreement, during the Restricted Period (as defined
below), Services PLLC shall not, and shall use commercially reasonable efforts to cause the
Practice Physicians not to, directly or indirectly:

          (i) engage in the provision of pathology or clinical laboratory services, including,
without limitation, related laboratory testing services, or manage, operate, maintain,
control, serve as an advisor, employee or consultant for, or otherwise provide management,
administrative or consulting services to, a pathology practice (collectively, the
“Services”) within the Restricted Territory (as define below);

          (ii) provide or otherwise facilitate the provision of the Services to or for any person
or Entity, including but not limited to a hospital, ambulatory surgery center, medical group
or physician, that has been a customer or client of the Company during the twenty-four (24)
month period preceding the date hereof (each, a “Customer”); or

          (iii) have any equity interest or other financial interest in any Entity that engages
in the provision of the Services within the Restricted Territory or which provides the
Services to or for any Customer.

          (b) As used in this Agreement, the term “Restricted Period” shall mean, with respect
to Services PLLC, at all times during the Initial Term or any Renewal Term and for a period of two
(2) years following the date of the termination of this Agreement for any reason. With respect to
any Practice Physician, the term “Restricted Period” shall have the meaning set forth in
such Practice Physician’s employment agreement, if any. The term “Entity” shall mean any
corporation, partnership, sole proprietorship, limited liability company, practice, business,
company, or other entity. The term “Restricted Territory” shall mean, as of any
measurement date, those counties in which the Company operates as of the Effective Date, together
with those counties where the Company provided any of the Services during the twelve (12) month
period preceding such measurement date.

     6.2 Non-Solicitation. Services PLLC further agrees that, during the Restricted
Period, Services PLLC will not, and shall cause the Practice Physicians not to, directly or
indirectly, (i) solicit the employment of any employee, agent or consultant of the Company or any
affiliate of the Company or induce any such employee, agent or consultant to terminate its
relationship with such party; (ii) solicit any Customer for the purpose of providing the Services
or on behalf of any Entity providing the Services; (iii) solicit, for the purpose of acquiring, any
prospective acquisition candidate of the Company or any of its affiliates, whether on Services
PLLC’s or any Practice Physician’s own behalf or on behalf of any competitor or potential
competitor, which candidate was involved in a meeting with the Company or any of its affiliates for
purposes relating to acquiring such candidate or for which the Company or any of its affiliates
made an acquisition analysis for purposes relating to acquiring such candidate; (iv) solicit any
payor contracts from any payor of the Company with whom Services PLLC or any Practice Physician had
material contact during the term of this Agreement, or otherwise interfere with the relationship
with any such payor; (v) solicit, induce, influence or otherwise interfere with any referral
sources of the Company or any affiliate of the Company, with whom Services PLLC or any Practice
Physician has had material contact during the term of this Agreement; or (vi) solicit, induce,
influence or interfere with any other person or entity with whom the Company has a business
relationship to discontinue, modify or reduce the extent of such relationship with the Company.

     6.3 Enforcement. Services PLLC acknowledges and agrees that the restrictive covenants
herein are reasonable and valid in time and scope and in all other respects. The covenants set
forth in this Agreement shall be considered and construed as separate and independent covenants.
In recognition of the substantial nature of potential damages that the Company and Aurora would
incur as the result of

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Services PLLC’s breach of this Article VI, Services PLLC further agrees that
the Company shall be entitled to specific performance of this Article VI, and to injunctive and
other equitable relief; without necessity of posting bond; it being understood that the prevailing
party in any action brought by the Company or its affiliates to seek enforcement of the covenants
set forth herein shall be entitled to recover from the losing party all costs in connection with
such action, including without limitation, reasonable attorneys’ fees, expenses and costs incurred
with respect to trials, appeals and collections. Services
PLLC acknowledges that the enforcement of this covenant is not contrary to the public health,
safety, or welfare in that the population in the areas set forth herein is adequately served by
qualified pathologists. Further, Services PLLC acknowledges that the breach of this covenant by
Services PLLC or any Practice Physician will cause irreparable injury to the Company and Aurora.

     6.4 Confidentiality.

          (a) Acknowledgment. Services PLLC acknowledges and agrees that in the course of
rendering services on behalf of the Company and its clients, Services PLLC and the Practice
Physicians will have access to and will become acquainted with confidential and proprietary
information about the professional, business and financial affairs of the Company, its affiliates,
and its and their respective patients, clients and customers, and that Services PLLC and the
Practice Physicians may have contributed to or may in the future contribute to such information.
Services PLLC further recognizes that the Company is engaged in a highly competitive business, and
that the success of the Company in the marketplace and business depends upon its goodwill and
reputation for integrity, quality and dependability. Services PLLC recognizes that in order to
guard the legitimate interests of the Company, it is necessary for the Company to protect all such
confidential and proprietary information, goodwill and reputation.

          (b) Proprietary Information. In the course of Services PLLC’s service to the Company,
Services PLLC and the Practice Physicians will have access to confidential know-how, business
documents or information, marketing data, client lists and trade secrets that are confidential.
Such information shall hereinafter be called “Proprietary Information” and shall include
any and all items enumerated in the preceding sentence that come within the scope of the business
activities of the Company to which Services PLLC and the Practice Physicians have had or may have
access, whether previously existing, now existing or arising hereafter, whether or not conceived or
developed by others or by Services PLLC or any Practice Physician alone or with others during the
term of this Agreement or such Practice Physician’s employment with Services PLLC (as applicable),
and whether or not conceived or developed during regular working hours. “Proprietary Information”
shall not include any information that is in the public domain during the term of this Agreement or
becomes public thereafter, provided such information is not in the public domain as a consequence
of disclosure by Services PLLC or any Practice Physician in violation of this Agreement or his or
her employment agreement. This definition shall not limit any definition or protection of “trade
secrets” or any equivalent term under the Uniform Trade Secrets Act or any other state, local or
federal law.

          (c) Fiduciary Obligations. Services PLLC agrees and acknowledges that the Proprietary
Information is of critical importance to the Company and a violation of this Section 6.4
will seriously and irreparably impair and damage the Company’s business. Services PLLC therefore
agrees, during the term of this Agreement and at all times thereafter, to keep, and to use
commercially reasonable efforts to cause the Practice Physicians to keep, all Proprietary
Information strictly confidential.

          (d) Non-Disclosure. Except as required by law or order of any court or governmental
entity, in connection with the proper performance of Services PLLC’s duties hereunder, or as may be
reasonably necessary for Services PLLC or any Practice Physician to defend itself, himself or
herself in litigation by third parties or governmental or private payor audits, investigations and
claims

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against Services PLLC or any Practice Physician (provided that Services PLLC or such
Practice Physician and their counsel take all reasonable efforts to have such third party, court or
administrative agency maintain the confidentiality of such information), Services PLLC shall not,
and shall cause the Practice Physicians not to, during the term of this Agreement or such Practice
Physician’s employment (as applicable) and for three (3) years thereafter, disclose, directly or
indirectly (except as required by
law), any Proprietary Information to any person other than (a) the Company or Aurora and their
respective affiliates, (b) persons who are authorized employees of the Company or Aurora and their
affiliates and to whom such disclosure is necessary to the conduct of the Company’s business at the
time of such disclosure, (c) such other persons, including prospective investors or lenders, to
whom the Services PLLC has been instructed to make disclosure by the Company’s or Aurora’s Chief
Executive Officer or Chief Operating Officer or (d) Services PLLC’s or any Practice Physician’s
counsel, which counsel shall keep all Proprietary Information confidential. Upon any termination
of this Agreement, or upon request by the Company at another time, Services PLLC shall deliver, and
shall cause all Practice Physicians to deliver, to the Company, all notes, letters, documents,
tapes, discs, recorded data and records which may contain Proprietary Information which are then in
Services PLLC’s or any Practice Physician’s possession or control and shall not retain, use, or
make any copies, summaries or extracts thereof.

     6.5 Reformation. The Company and Services PLLC hereunder agree that it is their
intention that the covenants contained in this Article VI be enforced in accordance with their
terms to the maximum extent possible under applicable law. The Company and Services PLLC further
agree that if any portion of the foregoing covenants are found to be invalid or unenforceable by a
court of competent jurisdiction, the invalid or unreasonable term shall be redefined, or a new
enforceable term provided, such that the intent of the Company and Services PLLC in agreeing to the
provisions of this Agreement will not be impaired and the provision in question shall be
enforceable to the fullest extent of the applicable laws.

ARTICLE VII

CONFIDENTIALITY OF PATIENT RECORDS

     7.1 Patient Records.

          (a) To the extent permitted by applicable law, all medical records, charts, case histories,
x-rays, specimens, tissue samples and lab reports and analyses of or concerning patients of the
Company or Services PLLC (“Medical Records”) received by Services PLLC or any Practice
Physician shall be and remain the Company’s property. During the term of this Agreement and
thereafter, Services PLLC will comply with, and shall cause each Practice Physician to comply with,
all of the Rules and Regulations regarding confidentiality of the Medical Records. Services PLLC,
the Practice Physicians, and their respective counsel shall have the right to copies of such
Medical Records that are necessary for defense of litigation by third parties or governmental or
private payor audits, investigations and claims against them or are required for patients or third
party payors. Services PLLC shall assist the Company in implementing procedures to preserve the
confidentiality of the Medical Records and shall cooperate in compiling data regarding patient
treatment costs and outcomes.

          (b) Neither Services PLLC nor any Practice Physician shall disclose to any third party, except
where permitted or required by law or where such disclosure is expressly approved by the Company in
writing, any patient or medical record information regarding patients of the Company or Services
PLLC, and Services PLLC and the Practice Physicians shall comply with all federal and state laws
and regulations and with the policies of the Company and Aurora regarding the confidentiality of
such information. Each party acknowledges that in receiving or otherwise dealing with any records
or information from the other party about the Company’s or Services PLLC’s patients receiving
treatment for alcohol or drug abuse, each

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party is fully bound by the provisions of the federal
regulations governing Confidentiality of Alcohol and Drug Abuse Patient Records (42 C.F.R. Part 2,
as amended from time to time).

          (c) The Company and Services PLLC agree to comply with the applicable provisions of the
Administrative Simplification section of the Health Insurance Portability and Accountability Act of
1996, as codified at 42 U.S.C. §§1320d through d-8 (“HIPAA”), and the requirements of any
regulations promulgated thereunder including without limitation the federal privacy regulations as
contained in 45 C.F.R. Part 164 (the “Federal Privacy Regulations”) and the federal
security standards as contained in 45 C.F.R. Part 142 (the “Federal Security Regulations”).
The Company and Services PLLC agree not to use or further disclose any protected health
information, as defined in 45 C.F.R. Part 164.504, or individually identifiable health information,
as defined in 42 U.S.C. §1320d (collectively, the “Protected Health Information”),
concerning a patient other than as permitted by this Agreement and the requirements of HIPAA or
regulations promulgated under HIPAA, including without limitation the Federal Privacy Regulations
and the Federal Security Regulations. Services PLLC will assist the Company in implementing
appropriate safeguards to prevent the use or disclosure of a patient’s Protected Health Information
other than as provided for by this Agreement, and Services PLLC will abide by the policies and
procedures and the Notice of Privacy Practices adopted by the Company with respect to the Protected
Health Information of the Company’s and Services PLLC’s patients. Services PLLC will promptly
report to the Company any use or disclosure of any patient’s Protected Health Information not
provided for by this Agreement or in violation of HIPAA, the Federal Privacy Regulations, or the
Federal Security Regulations of which Services PLLC becomes aware. In the event Services PLLC,
with the Company’s approval, contracts with any agents to whom the Company provides a patient’s
Protected Health Information, Services PLLC shall include provisions in such agreements whereby
Services PLLC and such agent agree to the same restrictions and conditions that apply to Services
PLLC with respect to such patient’s Protected Health Information. Notwithstanding the foregoing, no
attorney-client, accountant-client, or other legal privilege shall be deemed waived by the Company,
Services PLLC, or any Practice Physician by virtue of this subsection.

ARTICLE VIII

MISCELLANEOUS

     8.1 Notices. Any notice sent in accordance with the provisions of this Section
8.1 shall be deemed to have been received (even if delivery is refused or unclaimed) on the
date that is: (i) the date of proper posting, if sent by certified U.S. mail or by express U.S.
mail or private overnight courier, or (ii) the date on which sent, if sent by facsimile
transmission, with confirmation and with the original sent by certified U.S. mail, addressed as
follows:

	 	 	 	 	 	 	 

	 

	 	Services PLLC:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	 	 	 

	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	The Company or Aurora:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	 	 	 

	 	 
	 

	 	 	 	 

	 	 

     Any party hereto may change its address specified for notices herein by designating a new
address by notice in accordance with this Section 8.1.

     8.2 Amendments. Subject to Section 8.4, this Agreement may be amended at any
time by mutual agreement of Services PLLC and the Company hereto, but any such amendment shall not
be operative or valid unless the same is reduced to writing and approved by the parties hereto.

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     8.3 Assignability. Neither party may assign any of its rights or obligations under
this Agreement without the prior written consent of the other party; provided however, that the
Company may, without the consent of Services PLLC, assign or transfer this Agreement to an
affiliate of the Company or in connection with a sale of all or substantially all of the assets or
business of Aurora, merger or transfer of a majority of the ownership interests of Aurora.

     8.4 Contract Modifications; Severability.

          (a) Notwithstanding any other provision of this Agreement, if the governmental agencies (or
their representatives) which administer Medicare or Medicaid, or any other government third party
payor program, or any other federal, state or local government or agency passes, issues or
promulgates any law, rule, regulation, standard or interpretation at any time while this Agreement
is in effect which prohibits, restricts, limits or in any way adversely changes the method or
amount of reimbursement, compensation or payment for services rendered by Services PLLC (or the
Practice Physicians) under this Agreement, or which otherwise adversely affects either the
Company’s or Services PLLC’s rights or obligations hereunder, then the parties hereto shall,
promptly upon notice from either party, negotiate in good faith to amend this Agreement (taking
into account any legal and ethical obligations to the Company’s, Services PLLC’s or the Practice
Physicians’ patients) to provide for such reimbursement, compensation or payment for services in a
manner consistent with any prohibition, restriction, limitation and/or which takes into account any
adverse change in reimbursement, compensation or payment for physician services.

          (b) Subject to the provisions of subsection (a) of this Section 8.4, if any provision
of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws in
effect during the term of this Agreement, the legality, validity, or enforceability of the
remaining provisions of this Agreement shall not be affected thereby.

     8.5 Headings. The headings of this Agreement are inserted for convenience only and
are not to be considered in construction of its provisions.

     8.6 Entire Agreement. This Agreement constitutes the full contract and agreement of
the parties with respect to its subject matter, superseding all prior or contemporaneous
agreements, either oral or written. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and all of which together shall constitute one and the
same instrument.

     8.7 Non-Waiver. The failure of either party to exercise any of its rights under this
Agreement for a breach thereof shall not be deemed to be a waiver of such rights or a waiver of any
subsequent breach.

     8.8 Governing Law; Dispute Resolution.

          (a) Notwithstanding the place where this Agreement may be executed by any of the parties
hereto, the parties expressly agree that all terms and conditions of this Agreement shall be
construed under and governed by the laws of the State of                      without giving effect to the
conflicts of laws principles thereof.

          (b) Except for obtaining a temporary restraining order or an injunction in accordance with
Section 8.8(g) below, any claim or controversy under or involving this Agreement shall be
finally settled by binding arbitration under the Commercial Arbitration Rules of the American
Arbitration Association, except as modified herein (the “Rules”).

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          (c) If the parties are unable to resolve a dispute after ninety (90) days of efforts, the
Company, on one hand, and Services PLLC, on the other hand, shall, within ten (10) days of such
ninety (90)-day period, each select one arbitrator in accordance with the Rules. The two named
arbitrators shall then select a third arbitrator within fifteen (15) days of the selection of the
second arbitrator. If the two named arbitrators have not agreed on the third arbitrator within the
time limits specified above, then such appointment shall be made by the American Arbitration
Association in accordance with the Rules upon the written request of the Company or Services PLLC
within fifteen (15) days of such request. The arbitration hearing shall be held, if possible,
within ninety (90) days of the appointment of the third arbitrator, and the award shall be issued,
if possible, within thirty (30) days after the close of the hearing. Any such arbitration shall be
conducted in                      or such other site as is mutually agreed upon by the Company and Services
PLLC.

          (d) Any decision or award of the arbitrators shall be based solely on the terms of this
Agreement, applicable law, and the facts presented by the parties. The parties hereby waive any
rights of application or appeal to any court or tribunal of competent jurisdiction (including
without limitation the courts of the United States and the States of                     ) to the fullest
extent permitted by law in connection with any question of law arising in the course of the
arbitration or with respect to any award made. Notwithstanding the foregoing, by agreeing to
arbitration, the parties do not intend to deprive any court of its jurisdiction to issue a
pre-arbitral injunction, pre-arbitral attachment, or other order in aid of arbitration proceedings
and enforcement of any award. Without prejudice to such provisional remedies as may be available
under the jurisdiction of a court, the arbitrators shall have full authority to grant provisional
remedies and to direct the parties to request that any court modify or vacate any temporary or
preliminary relief issued by such court, and to award damages for the failure of any party to
respect the arbitrators’ order to that effect.

          (e) The decision or award of the arbitrators shall be the sole and exclusive remedy between
the parties regarding any and all issues presented to the arbitrator. The award shall be final and
binding upon the parties, and judgment upon any award may be entered in any court in the States of
                     or any other court of competent subject matter jurisdiction having jurisdiction
thereof. Each party hereby irrevocably consents to the personal jurisdiction of the courts in the
States of                     , solely for purposes of confirmation of, entry of judgment upon, and
enforcement of the arbitral award. Each party further hereby irrevocably waives and covenants not
to assert any defenses in any such proceeding based on any alleged defects in jurisdiction, venue,
or convenience of the forum.

          (f) Each party will, upon the written request of another party, provide the other with copies
of specific documents relevant to the issues raised by any claim or counterclaim. Any dispute
regarding discovery shall be determined by the arbitrator, whose determination shall be binding.

          (g) The parties shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any court having
jurisdiction, this being in addition to any other remedy to which they are entitled at law or in
equity.

          (h) Notwithstanding any other provision of law, and regardless of the prevailing party, each
party agrees to pay its own costs and expenses incurred in connection with any arbitration and
shall split equally the cost of the arbitrators.

     8.9 Third Party Beneficiaries. Services PLLC agrees that the Company’s affiliates
(including Aurora) are express and intended third party beneficiaries of this Agreement.

[Signatures on the Following Page]

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     IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above
written to be effective as provided hereinabove.

	 	 	 	 	 	 	 

	 	 	THE COMPANY:	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	SERVICES PLLC:	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:ex41.htm

Exhibit 4.1

 

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of August 9, 2010, by and between SOLAR ENERGY INITIATIVES, INC., a Delaware corporation, with headquarters located at 818 AIA North - Suite 201, Ponte Vedra, Florida 32082 (the “Company”), and ASHER ENTERPRISES, INC., a Delaware corporation, with its address at 1 Linden Place, Suite 207, Great Neck, NY 11021 (the “Buyer”).

WHEREAS:

A. The Company and the Buyer is executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the rules and regulations as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”);

B. Buyer desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement an 8% convertible note of the Company, in the form attached hereto as Exhibit A, in the aggregate principal amount of $53,000.00 (together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, the “Note”), convertible into shares of common stock, $0.001 par value per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note.

C. The Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of Note as is set forth immediately below its name on the signature pages hereto; and

NOW THEREFORE, the Company and the Buyer severally (and not jointly) hereby agree as follows:

1. Purchase and Sale of Note.

a. Purchase of Note.  On the Closing Date (as defined below), the Company shall issue and sell to the Buyer and the Buyer agrees to purchase from the Company such principal amount of Note as is set forth immediately below the Buyer’s name on the signature pages hereto.

b. Form of Payment.  On the Closing Date (as defined below), (i) the Buyer shall pay the purchase price for the Note to be issued and sold to it at the Closing (as defined below) (the “Purchase Price”) by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Note in the principal amount equal to the Purchase Price as is set forth immediately below the Buyer’s name on the signature pages hereto, and (ii) the Company shall deliver such duly executed on behalf of the Company, to the Buyer, against delivery of such Purchase Price.

c. Closing Date.  Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be 12:00 noon, Eastern Standard Time on August 11, 2010, or such other mutually agreed upon time.  The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties.

2. Buyer’s Representations and Warranties.  The Buyer represents and warrants to the Company that:

a. Investment Purpose.  As of the date hereof, the Buyer is purchasing the Note and the shares of Common Stock issuable upon conversion of or otherwise pursuant to the Note (including, without limitation, such additional shares of Common Stock, if any, as are issuable (i) on account of interest on the Note, (ii) as a result of the events described in Sections 1.3 and 1.4(g) of the Note or (iii) in payment of the Standard Liquidated Damages Amount (as defined in Section 2(f) below) pursuant to this Agreement, such shares of Common Stock being collectively referred to herein as the “Conversion Shares” and, collectively with the Note, the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.

b. Accredited Investor Status.  The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).

 

  

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c. Reliance on Exemptions.  The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.

d. Information.  The Buyer and its advisors, if any, have been, and for so long as the Note remain outstanding will continue to be, furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors.  The Buyer and its advisors, if any, have been, and for so long as the Note remain outstanding will continue to be, afforded the opportunity to ask questions of the Company.  Notwithstanding the foregoing, the Company has not disclosed to the Buyer any material nonpublic information and will not disclose such information unless such information is disclosed to the public prior to or promptly following such disclosure to the Buyer.  Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below.  The Buyer understands that its investment in the Securities involves a significant degree of risk. The Buyer is not aware of any facts that may constitute a breach of any of the Company's representations and warranties made herein.

e. Governmental Review.  The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.

f. Transfer or Re-sale.  The Buyer understands that (i) the sale or re-sale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (a) the Securities are sold pursuant to an effective registration statement under the 1933 Act, (b) the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in comparable transactions to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, (c) the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation S”), and the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case).  Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.  In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, within three (3) business days of delivery of the opinion to the Company, the Company shall pay to the Buyer liquidated damages of five percent (5%) of the outstanding amount of the Note per day plus accrued and unpaid interest on the Note, prorated for partial months, in cash or shares at the option of the Buyer (“Standard Liquidated Damages Amount”).  If the Buyer elects to be pay the Standard Liquidated Damages Amount in shares of Common Stock, such shares shall be issued at the Conversion Price (as defined in the Note) at the time of payment.

g. Legends.  The Buyer understands that the Note and, until such time as the Conversion Shares have been registered under the 1933 Act may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Conversion Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities):

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (c) such holder provides the Company with reasonable assurances that such Security can be sold pursuant to Rule 144 or Regulation S.  The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any.

h. Authorization; Enforcement. This Agreement has been duly and validly authorized.  This Agreement has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms.

 

i. Residency.  The Buyer is a resident of the jurisdiction set forth immediately below the Buyer’s name on the signature pages hereto.

3. Representations and Warranties of the Company.  The Company represents and warrants to the Buyer that:

a. Organization and Qualification.  The Company and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted.  Schedule 3(a) sets forth a list of all of the Subsidiaries of the Company and the jurisdiction in which each is incorporated.  The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect.  “Material Adverse Effect” means any material adverse effect on the business, operations, assets, financial condition or prospects of the Company or its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith.  “Subsidiaries” means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.

 

  

2

  

b. Authorization; Enforcement.  (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Note by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Note and the issuance and reservation for issuance of the Conversion Shares issuable upon conversion or exercise thereof) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required, (iii) this Agreement has been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Agreement and the other documents executed in connection herewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Note, each of such instruments will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms.

 

c. Capitalization.  As of the date hereof, the authorized capital stock of the Company consists of: (i) 100,000,000 shares of Common Stock, $0.001 par value per share, of which 35,405,535 shares are issued and outstanding; and (ii) there are no authorized shares of Preferred Stock; no shares are reserved for issuance pursuant to the Company’s stock option plans, no shares are reserved for issuance pursuant to securities (other than the Note, a prior convertible promissory note in favor of the Buyer dated June 29, 2010 in the amount of $100,000.00 for which 4,918,033 shares of common stock are presently reserved, and a prior convertible promissory note in favor of JDF Capital, Inc. dated July 15, 2010 in the amount of $150,000) exercisable for, or convertible into or exchangeable for shares of Common Stock and 3,341,740 shares are reserved for issuance upon conversion of the Note (subject to adjustment pursuant to the Company’s covenant set forth in Section 4(g) below).  All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable.  No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company.  Except as disclosed in Schedule 3(c), as of the effective date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Note or the Conversion Shares.  The Company has furnished to the Buyer true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate of Incorporation”), the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto.  The Company shall provide the Buyer with a written update of this representation signed by the Company’s Chief Executive on behalf of the Company as of the Closing Date.

d. Issuance of Shares.  The Conversion Shares are duly authorized and reserved for issuance and, upon conversion of the Note in accordance with its respective terms, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.

e. Acknowledgment of Dilution.  The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares upon conversion of the Note.  The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Note in accordance with this Agreement, the Note is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.

f. No Conflicts.  The execution, delivery and performance of this Agreement, the Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, or (iii)  result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect).  Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not be conducted so long as a Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity.  Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement, the Note in accordance with the terms hereof or thereof or to issue and sell the Note in accordance with the terms hereof and to issue the Conversion Shares upon conversion of the Note.  All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof.  The Company is not in violation of the listing requirements of the Over-the-Counter Bulletin Board (the “OTCBB”) and does not reasonably anticipate that the Common Stock will be delisted by the OTCBB in the foreseeable future.  The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

g. SEC Documents; Financial Statements.  The Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”).  The Company has delivered to the Buyer true and complete copies of the SEC Documents, except for such exhibits and incorporated documents.  As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof).  As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved  and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).  Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to April 30, 2010, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company is subject to the reporting requirements of the 1934 Act.

 

  

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h. Absence of Certain Changes.  Since April 30, 2010, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations, prospects or 1934 Act reporting status of the Company or any of its Subsidiaries.

i. Absence of Litigation.  There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such, that could have a Material Adverse Effect.  Schedule 3(i) contains a complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting the Company or any of its Subsidiaries, without regard to whether it would have a Material Adverse Effect.  The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

j. Patents, Copyrights, etc.  The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and copyrights (“Intellectual Property”) necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); there is no claim or action by any person pertaining to, or proceeding pending, or to the Company’s knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); to the best of the Company’s knowledge, the Company’s or its Subsidiaries’ current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing.  The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.

k. No Materially Adverse Contracts, Etc.  Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect.  Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect.

l. Tax Status.  The Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.  The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax.  None of the Company’s tax returns is presently being audited by any taxing authority.

m. Certain Transactions.  Except for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties and other than the grant of stock options disclosed on Schedule 3(c), none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (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 corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

n. Disclosure.  All information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading.  No event or circumstance has occurred or exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purpose that the Company’s reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).

o. Acknowledgment Regarding Buyer’ Purchase of Securities.  The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s length purchasers with respect to this Agreement and the transactions contemplated hereby.  The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by any Buyer or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Buyer’ purchase of the Securities.  The Company further represents to the Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.

p. No Integrated Offering.  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 in any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyer.  The issuance of the Securities to the Buyer will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any shareholder approval provisions applicable to the Company or its securities.

q. No Brokers.  The Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby.

r. Permits; Compliance.  The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits.  Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.  Since April 30, 2010, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.

 

  

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s. Environmental Matters.

(i) There are, to the Company’s knowledge, with respect to the Company or any of its Subsidiaries or any predecessor of the Company, no past or present violations of Environmental Laws (as defined below), releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or similar federal, state, local or foreign laws and neither the Company nor any of its Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the Company’s knowledge, threatened in connection with any of the foregoing.  The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

(ii) Other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the period the property was owned, leased or used by the Company or any of its Subsidiaries, except in the normal course of the Company’s or any of its Subsidiaries’ business.

(iii) There are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries that are not in compliance with applicable law.

 

 

t. Title to Property.  The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(t) or such as would not have a Material Adverse Effect.  Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect.

u. Insurance.  The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged.  Neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.  The Company has provided to Buyer true and correct copies of all policies relating to directors’ and officers’ liability coverage, errors and omissions coverage, and commercial general liability coverage.

v. Internal Accounting Controls.  The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

w. Foreign Corrupt Practices.  Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

x. Solvency.  The Company (after giving effect to the transactions contemplated by this Agreement) is solvent (i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company would not, after giving effect to the transaction contemplated by this Agreement, have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature.  The Company did not receive a qualified opinion from its auditors with respect to its most recent fiscal year end and, after giving effect to the transactions contemplated by this Agreement, does not anticipate or know of any basis upon which its auditors might issue a qualified opinion in respect of its current fiscal year.

y. No Investment Company.  The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be an “investment company” required to be registered under the Investment Company Act of 1940 (an “Investment Company”).  The Company is not controlled by an Investment Company.

z. Breach of Representations and Warranties by the Company.  If the Company breaches any of the representations or warranties set forth in this Section 3, and in addition to any other remedies available to the Buyer pursuant to this Agreement, the Company shall pay to the Buyer the Standard Liquidated Damages Amount in cash or in shares of Common Stock at the option of the Company, until such breach is cured.  If the Company elects to pay the Standard Liquidated Damages Amounts in shares of Common Stock, such shares shall be issued at the Conversion Price at the time of payment.

 

  

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4. COVENANTS.

a. Best Efforts.  The parties shall use their best efforts to satisfy timely each of the conditions described in Section 6 and 7 of this Agreement.

b. Form D; Blue Sky Laws.  The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Buyer promptly after such filing.  The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyer at the applicable closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyer on or prior to the Closing Date.

c. Use of Proceeds.  The Company shall use the proceeds from the sale of the Note in the manner set forth in Schedule 4(d) attached hereto and made a part hereof and shall not, directly or indirectly, use such proceeds for any loan to or investment in any other corporation, partnership, enterprise or other person (except in connection with its currently existing direct or indirect Subsidiaries).

d. Right of First Refusal.  Unless it shall have first delivered to the Buyer, at least seventy two (72) hours prior to the closing of such Future Offering (as defined herein), written notice describing the proposed Future Offering, including the terms and conditions thereof and proposed definitive documentation to be entered into in connection therewith, and providing the Buyer an option during the seventy two (72) hour period following delivery of such notice to purchase the securities being offered in the Future Offering on the same terms as contemplated by such Future Offering (the limitations referred to in this sentence and the preceding sentence are collectively referred to as the “Right of First Refusal”) (and subject to the exceptions described below), the Company will not conduct any equity financing (including debt with an equity component) (“Future Offerings”) during the period beginning on the Closing Date and ending twelve (12) months following the Closing Date.  In the event the terms and conditions of a proposed Future Offering are amended in any respect after delivery of the notice to the Buyer concerning the proposed Future Offering, the Company shall deliver a new notice to the Buyer describing the amended terms and conditions of the proposed Future Offering and the Buyer thereafter shall have an option during the seventy two (72) hour period following delivery of such new notice to purchase its pro rata share of the securities being offered on the same terms as contemplated by such proposed Future Offering, as amended.  The foregoing sentence shall apply to successive amendments to the terms and conditions of any proposed Future Offering.  The Right of First Refusal shall not apply to any transaction involving (i) issuances of securities in a firm commitment underwritten public offering (excluding a continuous offering pursuant to Rule 415 under the 1933 Act) or (ii) issuances of securities as consideration for a merger, consolidation or purchase of assets, or in connection with any strategic partnership or joint venture (the primary purpose of which is not to raise equity capital), or in connection with the disposition or acquisition of a business, product or license by the Company.  The Right of First Refusal also shall not apply to the issuance of securities upon exercise or conversion of the Company’s options, warrants or other convertible securities outstanding as of the date hereof or to the grant of additional options or warrants, or the issuance of additional securities, under any Company stock option or restricted stock plan approved by the shareholders of the Company.  The Right of First Refusal also shall not apply to Future Offerings in excess of $500,000.00.

e. Expenses.  At the Closing, the Company shall reimburse Buyer for expenses incurred by them in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the other agreements to be executed in connection herewith (“Documents”), including, without limitation, reasonable attorneys’ and consultants’ fees and expenses, transfer agent fees, fees for stock quotation services, fees relating to any amendments or modifications of the Documents or any consents or waivers of provisions in the Documents, fees for the preparation of opinions of counsel, escrow fees, and costs of restructuring the transactions contemplated by the Documents.  When possible, the Company must pay these fees directly, otherwise the Company must make immediate payment for reimbursement to the Buyer for all fees and expenses immediately upon written notice by the Buyer or the submission of an invoice by the Buyer Notwithstanding anything herein to the contrary, the Company’s obligation to reimburse Buyer’ expenses shall be $3,000.

f. Financial Information.  The Company agrees to send or make available the following reports to the Buyer until the Buyer transfers, assigns, or sells all of the Securities: (i) within ten (10) days after the filing with the SEC, a copy of its Annual Report on Form 10-K its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K; (ii) within one (1) day after release, copies of all press releases issued by the Company or any of its Subsidiaries; and (iii) contemporaneously with the making available or giving to the shareholders of the Company, copies of any notices or other information the Company makes available or gives to such shareholders.

g. Authorization and Reservation of Shares.  The Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion or exercise of the outstanding Note and issuance of the Conversion Shares in connection therewith (based on the Conversion Price of the Note in effect from time to time) and as otherwise required by the Note.  The Company shall not reduce the number of shares of Common Stock reserved for issuance upon conversion of Note without the consent of the Buyer.  The Company shall at all times maintain the number of shares of Common Stock so reserved for issuance at an amount (“Reserved Amount”) equal to five times the number that is then actually issuable upon full conversion of the Note and Additional Note (based on the Conversion Price of the Note in effect from time to time).  If at any time the number of shares of Common Stock authorized and reserved for issuance (“Authorized and Reserved Shares”) is below the Reserved Amount, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of shareholders to authorize additional shares to meet the Company’s obligations under this Section 4(g), in the case of an insufficient number of authorized shares, obtain shareholder approval of an increase in such authorized number of shares, and voting the management shares of the Company in favor of an increase in the authorized shares of the Company to ensure that the number of authorized shares is sufficient to meet the Reserved Amount.  If the Company fails to obtain such shareholder approval within thirty (30) days following the date on which the number of Reserved Amount exceeds the Authorized and Reserved Shares, the Company shall pay to the Buyer the Standard Liquidated Damages Amount, in cash or in shares of Common Stock at the option of the Buyer.  If the Buyer elects to be paid the Standard Liquidated Damages Amount in shares of Common Stock, such shares shall be issued at the Conversion Price at the time of payment.  In order to ensure that the Company has authorized a sufficient amount of shares to meet the Reserved Amount at all times, the Company must deliver to the Buyer at the end of every month a list detailing (1) the current amount of shares authorized by the Company and reserved for the Buyer; and (2) amount of shares issuable upon conversion of the Note and as payment of interest accrued on the Note for one year.  If the Company fails to provide such list within five (5) business days of the end of each month, the Company shall pay the Standard Liquidated Damages Amount, in cash or in shares of Common Stock at the option of the Buyer, until the list is delivered.  If the Buyer elects to be paid the Standard Liquidated Damages Amount in shares of Common Stock, such shares shall be issued at the Conversion Price at the time of payment.

h. Listing.  The Company shall promptly secure the listing of the Conversion Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and, so long as any Buyer owns any of the Securities, shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time issuable upon conversion of the Note.  The Company will obtain and, so long as any Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the OTCBB or any equivalent replacement exchange, the Nasdaq National Market (“Nasdaq”), the Nasdaq SmallCap Market (“Nasdaq SmallCap”), the New York Stock Exchange (“NYSE”), or the American Stock Exchange (“AMEX”) and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable.  The Company shall promptly provide to the Buyer copies of any notices it receives from the OTCBB and any other exchanges or quotation systems on which the Common Stock is then listed regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.

 

  

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i. Corporate Existence.  So long as a Buyer beneficially owns any Note, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock is listed for trading on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.

j. No Integration.  The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.

k. Breach of Covenants.  If the Company breaches any of the covenants set forth in this Section 4, and in addition to any other remedies available to the Buyer pursuant to this Agreement, the Company shall pay to the Buyer the Standard Liquidated Damages Amount, in cash or in shares of Common Stock at the option of Buyer, until such breach is cured.  If the Buyer elects to pay the Standard Liquidated Damages Amount in shares, such shares shall be issued at the Conversion Price at the time of payment.

l. Failure to Comply with the 1934 Act.  So long as the Buyer beneficially owns the Note, the Company shall comply with the reporting requirements of the 1934 Act; and the Company shall continue to be subject to the reporting requirements of the 1934 Act.

m. Trading Activities.  Neither the Buyer nor their affiliates has an open short position in the common stock of the Company and the Buyer agree that they shall not, and that they will cause their affiliates not to, engage in any short sales of or hedging transactions with respect to the common stock of the Company.

5. Transfer Agent Instructions.  The Company shall issue irrevocable instructions to its transfer agent to issue certificates, registered in the name of the Buyer or its nominee, for the Conversion Shares in such amounts as specified from time to time by the Buyer to the Company upon conversion of the Note in accordance with the terms thereof (the “Irrevocable Transfer Agent Instructions”).  In the event that the Borrower proposes to replace its transfer agent, the Borrower shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower. Prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement.  The Company warrants that: (i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(f) hereof (in the case of the Conversion Shares, prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold), will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for Conversion Shares to be issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement; and (iii) it will not fail to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Conversion Shares issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement.  Nothing in this Section shall affect in any way the Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities.  If a Buyer provides the Company, at the cost of the Company, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) the Buyer provides reasonable assurances that the Securities can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by the Buyer.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer, by vitiating the intent and purpose of the transactions contemplated hereby.  Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Buyer shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.

6. Conditions to the Company’s Obligation to Sell.  The obligation of the Company hereunder to issue and sell the Note to a Buyer at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

 

  

7

  

a. The Buyer shall have executed this Agreement and delivered the same to the Company.

b. The Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above.

c. The representations and warranties of the applicable Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and the applicable Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the applicable Buyer at or prior to the Closing Date.

d. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

7. Conditions to The Buyer’s Obligation to Purchase.  The obligation of the Buyer hereunder to purchase the Note at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions, provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:

a. The Company shall have executed this Agreement and delivered the same to the Buyer.

b. The Company shall have delivered to the Buyer duly executed Note (in such denominations as the Buyer shall request) in accordance with Section 1(b) above.

c. The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to a majority-in-interest of the Buyer, shall have been delivered to and acknowledged in writing by the Company’s Transfer Agent.

d. The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.  The Buyer shall have received a certificate or certificates, executed by the chief executive officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by the Buyer including, but not limited to certificates with respect to the Company’s Certificate of Incorporation, By-laws and Board of Directors’ resolutions relating to the transactions contemplated hereby.

e. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

f. No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not limited to a change in the 1934 Act reporting status of the Company or the failure of the Company to be timely in its 1934 Act reporting obligations.

g. The Conversion Shares shall have been authorized for quotation on the OTCBB and trading in the Common Stock on the OTCBB shall not have been suspended by the SEC or the OTCBB.

h. The Buyer shall have received an officer’s certificate described in Section 3(c) above, dated as of the Closing Date.

  

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8. Governing Law; Miscellaneous.

a. Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws.  Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau.  The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  The Company and Buyer waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.   Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document 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.

b. Counterparts; Signatures by Facsimile.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party.  This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

c. Headings.  The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.

d. Severability.  In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

e. Entire Agreement; Amendments.  This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the majority in interest of the Buyer.

f. Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:

If to the Company, to:

SOLAR ENERGY INITIATIVES, INC.

818 AIA North - Suite 201

Ponte Vedra, Florida 32082

Attn: DAVID FANN, Chief Executive Officer

facsimile: (904) 644-6098

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

Law Offices of Stephen M. Fleming

Attn: Stephen M. Fleming, Esq.

49 Front Street, Suite 206

Rockville Centre, NY 11570

facsimile: (516) 977-1209

If to the Buyer:

ASHER ENTERPRISES, INC.

1 Linden Pl., Suite 207

Great Neck, NY. 11021

Attn: Curt Kramer, President

facsimile: 516-498-9894

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

Naidich Wurman Birnbaum & Maday, LLP

80 Cuttermill Road, Suite 410

Great Neck, NY 11021

Attn: Bernard S. Feldman, Esq.

facsimile: 516-466-3555

Each party shall provide notice to the other party of any change in address.

 

  

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g. Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns.  Neither the Company nor any Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other.  Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its rights hereunder to any person that purchases Securities in a private transaction from a Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.

h. Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

i. Survival.  The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer.  The Company agrees to indemnify and hold harmless each of the Buyer and all their officers, directors, employees and agents for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.

j. Publicity.  The Company, and each of the Buyer shall have the right to review a reasonable period of time before issuance of any press releases, SEC, OTCBB or FINRA filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of each of the Buyer, to make any press release or SEC, OTCBB (or other applicable trading market) or FINRA filings with respect to such transactions as is required by applicable law and regulations (although each of the Buyer shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon).

k. Further Assurances.  Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

l. No Strict Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

m. Remedies.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby.  Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that the Buyer shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.

 

  

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IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.

SOLAR ENERGY INITIATIVES, INC.

By:________________________________

DAVID FANN

Chief Executive Officer

ASHER ENTERPRISES, INC.

By: ________________________________                                                               

Name: Curt Kramer

Title:   President

1 Linden Pl., Suite 207

Great Neck, NY. 11021

 

AGGREGATE SUBSCRIPTION AMOUNT:

 

	Aggregate Principal Amount of Note: 	$53,000.00
	Aggregate Purchase Price:	$53,000.00

 

                                                                                                         

11

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