PREFERRED STOCK PURCHASE AGREEMENT

 

Exhibit 10.1

PREFERRED STOCK PURCHASE AGREEMENT

This Preferred Stock Purchase Agreement (“ Agreement ”) is entered into and effective as of July 29, 2009 (“ Effective Date ”), by and among Neah Power Systems, Inc., a Nevada corporation (“ Company ”), and Optimus Capital Partners, LLC, a Delaware limited liability company, dba Optimus Energy Capital Partners, LLC (including its designees, successors and assigns, “ Investor ”).

RECITALS

A.           The parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue to Investor, and Investor shall purchase from the Company, from time to time as provided herein, up to $10,000,000.00 of shares of Series B Preferred Stock; and

B.           The offer and sale of the Securities provided for herein are being made without registration under the Act, in reliance upon the provisions of Section 4(2) of the Act, Regulation D promulgated under the Act, and such other exemptions from the registration requirements of the Act as may be available with respect to any or all of the purchases of Securities to be made hereunder.

AGREEMENT

In consideration of the premises, the mutual provisions of this Agreement, and other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, Company and Investor agree as follows:

ARTICLE 1

DEFINITIONS

1.1              Definitions .   In addition to the terms defined elsewhere in this Agreement:  (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Certificate of Designations, and (b) the following terms have the meanings indicated in this Section 1.1 :

“ Act ” means the Securities Act of 1933, as amended.

“ Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Act.  With respect to Investor, without limitation, any Person owning, owned by, or under common ownership with Investor, and any investment fund or managed account that is managed on a discretionary basis by the same investment manager as Investor will  be deemed to be an Affiliate.

“ Agreement ” means this Preferred Stock Purchase Agreement.

“ Automatic Termination ” has the meaning set forth in Section 3.1 .

 

 

“ Change in Control ” has the meaning set forth within the definition of Fundamental Transaction, below.

“ Certificate of Designations ” means the certificate to be filed with the Secretary of State of the State of Nevada, in the form attached hereto as Exhibit B .

“ Closing ” means any one of (i) the Commitment Closing and (ii) each Tranche Closing.

“ Commitment Closing ” has the meaning set forth in Section 2.2(a) .

“ Commitment Fee ” means a non-refundable fee of $500,000.00, payable by Company to Investor, at Company’s election either: (a) in cash, on the first Tranche Closing Date, by offset from proceeds of the first Tranche Amount; or (b) by issuance and delivery of registered and freely tradable shares of Common Stock, delivered on, and valued based upon 82% of the VWAP for the Common Stock on the 5 Trading Days immediately preceding, the earliest of (i) the first Tranche Closing Date, (ii) the six-month anniversary of the Effective Date, and (iii) the date that the Registration Statement becomes effective.

“ Common Shares ” includes the Warrant Shares and any shares of Common Stock issued as the Commitment Fee.

“ Common Stock ” means the common stock, par value $0.001 per share, of the Company, and any replacement or substitute thereof, or any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

“ Company Termination ” has the meaning set forth in Section 3.2 .

“ Delisting Event ” means any time during the term of this Agreement, that the Common Stock is not listed for and actively trading on a Trading Market, or is suspended or delisted with respect to the trading of shares of Common Stock on a Trading Market.

“ Disclosure Schedules ” means the disclosure schedules of the Company delivered concurrently herewith and attached hereto and all disclosures contained in the SEC Reports.

“ DTC ” means The Depository Trust Company, or any successor performing substantially the same function for Company.

“ DWAC Shares ” means all Common Shares or other shares of Common Stock issued or issuable to Investor or any Affiliate, successor or assign of Investor pursuant to any of the Transaction Documents, including without limitation any Warrant Shares, all of which shall be issued in electronic form, freely tradable and without restriction on resale, and timely credited by Company to the specified Deposit/Withdrawal at Custodian (DWAC) account with DTC under its Fast Automated Securities Transfer (FAST) Program or any similar program hereafter adopted by DTC performing substantially the same function, in accordance with irrevocable instructions issued to and countersigned by the Transfer Agent, in the form attached hereto as Exhibit C .

 

 

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Fundamental Transaction ” means and shall be deemed to have occurred at such time upon any of the following events:

(i)           a consolidation, merger or other business combination or event or transaction following which the holders of Common Stock immediately preceding such consolidation, merger, combination or event either (i) no longer hold a majority of the shares of Common Stock or (ii) no longer have the ability to elect a majority the board of directors of the Company (a “ Change in Control ”);

(ii)          the sale or transfer of all or substantially all of the Company’s assets, other than in the ordinary course of business; or

(iii)         a purchase, tender or exchange offer made to the holders of the outstanding shares of Common Stock.

“ GAAP ” means United States generally accepted accounting principles applied on a consistent basis during the periods involved.

“ Indebtedness ” means (a) any liabilities for borrowed money or amounts owed in excess of $100,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of $100,000 due under leases required to be capitalized in accordance with GAAP.

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

“ Lock-Up Agreements ” means an agreement in the form attached as Exhibit D , executed by each of the Company’s officers, directors and beneficial owners of 10% or more of the Common Stock, precluding each such Person from participating in any sale of the Common Stock from the Tranche Notice Date through the Tranche Closing Date.

“ Material Adverse Effect ” includes any material adverse effect on (i) the legality, validity or enforceability of any Transaction Document, (ii) the results of operations, assets, business, prospects or financial condition of the Company and the Subsidiaries, taken as a whole, or (iii) a the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document.

“ Material Agreement ” includes any loan agreement, financing agreement, equity investment agreement or securities instrument to which Company is a party, any agreement or instrument to which Company and Investor or any Affiliate of Investor is a party, and any other material agreement listed, or required to be listed, on any of Company’s reports filed or required to be filed with the SEC, including without limitation Forms 10-K, 10-Q or 8-K.

 

 

“ Maximum Placement ” means $10,000,000.00.

“ Maximum Tranche Amount ” means, subject to any other applicable limitations set forth in this Agreement, the Maximum Placement less the amount of any previously noticed and funded Tranches.

 “ Officer’s Closing Certificate ” means a certificate in customary form reasonably acceptable to the Investor, executed by an authorized officer of the Company.

“ Opinion ” means an opinion from Company’s independent legal counsel, in the form attached as Exhibit E , to be delivered in connection with the Commitment Closing and any Tranche Closing.

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

“ Preferred Shares ” means shares of Series B Preferred Stock of the Company provided for in the Certificate of Designations, to be issued to Investor pursuant to this Agreement.

“ Pricing Period ” means the 5 Trading Days immediately prior to a Tranche Notice Date.

“ Prospectus ” includes each prospectus (within the meaning of the Act) related to the sale or offering of any Common Shares, including without limitation any prospectus contained within the Registration Statement.

“ Registration Statement ” means a valid, current and effective registration statement registering for sale the Common Shares, and except where the context otherwise requires, means the registration statement, as amended, including (i) all documents filed as a part thereof or incorporated by reference therein, and (ii) any information contained or incorporated by reference in a prospectus filed with the SEC in connection with such registration statement, to the extent such information is deemed under the Act to be part of the registration statement.

“ Regulation D ” means Regulation D promulgated under the Act.

“ Required Approval ” means any approval of the Trading Market or the Company’s stockholders required to be obtained by Company prior to issuing the Securities pursuant to any applicable rules of the Trading Market.

“ Required Tranche Documents ” has the meaning set forth in Section 2.3(e) .

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

“ SEC ” means the United States Securities and Exchange Commission.

 

 

“ SEC Reports ” includes all reports required to be filed by the Company under the Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the Effective Date (or such shorter period as the Company was required by law to file such material).

“ Securities ” includes the Warrants, Common Shares and Preferred Shares issuable pursuant to this Agreement.

“ Subsidiary ” means any Person the Company owns or controls, or in which the Company, directly or indirectly, owns a majority of the capital stock or similar interest that would be disclosable pursuant to Regulation S-K, Item 601(b)(21).

“ Termination Date ” means the earlier of (i) the date that is one year after the Effective Date, or (ii) the Tranche Closing Date on which the sum of the aggregate Tranche Purchase Price for all Tranche Shares equals the Maximum Placement.

“ Termination Notice ” has the meaning as set forth in Section 3.2 .

“ Trading Day ” means any day on which the Common Stock is traded on the Trading Market; provided that it shall not include any day on which the Common Stock is (a) scheduled to trade for less than 5 hours, or (b) suspended from trading.

“ Trading Market ” means the OTC Bulletin Board, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the NYSE Amex, or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock, but does not include the Pink Sheets inter-dealer electronic quotation and trading system.

“ Tranche ” has the meaning set forth in Section 2.3 .

“ Tranche Amount ” means the amount of any individual put purchase, as specified by the Company, and shall not exceed the Maximum Tranche Amount.

“ Tranche Closing ” has the meaning set forth in Section 2.3(f) .

“ Tranche Closing Date ” has the meaning set forth in Section 2.3(f) .

“ Tranche Notice ” has the meaning set forth in Section 2.3(b) .

“ Tranche Notice Date ” has the meaning set forth in Section 2.3(b) .

“ Tranche Purchase Price ” has the meaning set forth in Section 2.3(b) , and shall be specified in writing by the Company.

“ Tranche Share Price ” means $10,000.00 per Preferred Share. Company may not put fractional Preferred Shares.

 

 

“ Tranche Shares ” means the Preferred Shares that are purchased by Investor pursuant to a Tranche.  For the Maximum Placement, the Company shall issue 1,000 Preferred Shares to Investor.

“ Transaction Documents ” include this Agreement and the Exhibits hereto and thereto.

“ Transfer Agent ” means Corporate Stock Transfer, Inc., or any successor transfer agent for the Common Stock.

“ VWAP ” means, for any date, the volume-weighted average price, calculated by dividing the aggregate value of Common Stock traded on the Trading Market (price multiplied by number of shares traded) by the total volume (number of shares) of Common Stock traded on the Trading Market for such date, or the nearest preceding Trading Day.

 “ Warrant Shares ” means the shares of Common Stock issuable upon exercise of the Warrants.

“ Warrants ” means the warrants issuable under this Agreement, in the form attached hereto as Exhibit A , to purchase shares of Common Stock equal in value to $13,500,000.00.

ARTICLE 2

PURCHASE AND SALE

2.1              Agreement to Purchase .  Subject to the terms and conditions herein and the satisfaction of the conditions to closing set forth in this ARTICLE 2:

(b)            The Company agrees to issue the Commitment Fee and the Warrants to Investor as provided below.

2.2              Investment Commitment

(b)             Conditions to Investment Commitment . As a condition precedent to the Commitment Closing, all of the following (the “ Conditions to Commitment Closing ”) shall have been satisfied prior to or concurrently with the Company’s execution and delivery of this Agreement:

 

 

 (i)         the following documents shall have been delivered to Investor:  (A) this Agreement, executed by the Company; (B) a Secretary’s Certificate as to (x) the resolutions of the Company’s board of directors authorizing this Agreement and the Transaction Documents, and the transactions contemplated hereby and thereby, (y) a copy of the Company’s current Certificate of Incorporation, and (z) a copy of the Company’s current Bylaws; (C) the Certificate of Designations executed by the Company and accepted by the Secretary of State of Nevada; (D) the Opinion; and (E) a copy of the press release announcing the transactions contemplated by this Agreement and Current Report on Form 8-K describing the transaction contemplated by, and attaching a complete copy of, the Transaction Documents;

 (ii)        other than for losses incurred in the ordinary course of business, there have been no material adverse changes in the Company’s business prospects or financial condition since the date of the last SEC Report filed by the Company, including but not limited to incurring material liabilities;

 (iii)       the representations and warranties of the Company in this Agreement shall be true and correct in all material respects and the Company shall have delivered an Officer’s Closing Certificate to such effect to Investor, signed by an officer of the Company;

 (iv)        Investor shall have received the Commitment Fee and the Warrant;

 (v)         Investor shall have entered into Stock Loan Agreements with lending stockholders of the Company who are parties thereto (each, a “ Lending Stockholder ,” and, collectively, the “ Lending Stockholders ”) in the form attached hereto as Exhibit G (each, a “ Stock Loan Agreement ”), and received the Borrowed Shares (as defined in the Stock Loan Agreement) pursuant thereto; and

 (vi)        any Required Approval has been obtained.

(c)             Investor’s Obligation to Purchase . Subject to the prior satisfaction of all conditions set forth in this Agreement, following the Investor’s receipt of a validly delivered Tranche Notice, the Investor shall be required to purchase from the Company a number of Tranche Shares equal to the permitted Tranche Share Amount, in the manner described below.

2.3              Tranches to Investor

(a)             Procedure to Elect a Tranche . Subject to the Maximum Tranche Amount, the Maximum Placement and the other conditions and limitations set forth in this Agreement, at any time beginning on the Effective Date, the Company may, in its sole and absolute discretion, elect to exercise one or more tranches of puts (each a “ Tranche ”) according to the following procedure, provided that each subsequent Tranche Notice Date (defined below) after the first Tranche Notice Date shall be no sooner than 5 Trading Days following the preceding Tranche Notice Date.

(b)             Delivery of Tranche Notice .  The Company shall deliver an irrevocable written notice (the “ Tranche Notice ”), the form of which is attached hereto as Exhibit F , to Investor stating that the Company shall exercise a Tranche and stating the number of Preferred Shares which the Company will sell to Investor at the Tranche Share Price, and the aggregate purchase price for such Tranche (the “ Tranche Purchase Price ”).  A Tranche Notice must be delivered by the Company to Investor by 4:30 p.m. Eastern time on any Trading Day via facsimile or electronic mail, with confirming copy by overnight carrier, and shall be deemed delivered on the next Trading Day (the “ Tranche Notice Date ”).

 

 

(c)             Issuance of Warrants .  On each Tranche Notice Date, the Company shall issue a replacement Warrant, in the form attached hereto as Exhibit A , amending and replacing a portion of the initial Warrant issued on the Commitment Closing to acquire that portion of Warrant Shares equal in value to 135.0% of the Tranche Purchase Price, at an exercise price equal to the closing bid price for the Common Stock on the Trading Day immediately preceding the Tranche Notice Date.  Each Warrant shall have a term of 5 years from issuance.

(d)             Conditions Precedent to Right to Deliver a Tranche Notice .  The right of the Company to deliver a Tranche Notice is subject to the satisfaction, on the date of delivery of such Tranche Notice, of each of the following conditions:

 (i)         the Common Stock shall be listed for and actively trading on the Trading Market, and to the Company’s knowledge there is no notice of any suspension or delisting with respect the trading of the shares of Common Stock on such market or exchange;

 (ii)        the representations and warranties of the Company set forth in this Agreement are true and correct in all material respects as if made on such date (provided, however, that any information disclosed by the Company in a filing with the SEC after the Effective Date but prior to the date of the Tranche Notice shall be deemed to update the Disclosure Schedules), and no default shall have occurred under this Agreement, or any other agreement with Investor, any Affiliate of Investor, or any other Material Agreement, and the Company shall deliver an Officer’s Closing Certificate to such effect to Investor, signed by an officer of the Company;

 (iii)       other than losses incurred in the ordinary course of business, there have been no material adverse changes in the Company’s business prospects or financial condition since the Commitment Closing, including but not limited to incurring material liabilities;

 (iv)        the Company is not, and will not be as a result of the applicable Tranche, in default of any Material Agreement;

 (v)          there is not then in effect any law, rule or regulation prohibiting or restricting the transactions contemplated by any of the Transaction Documents, or requiring any consent or approval which shall not have been obtained, nor is there any pending or threatened proceeding or investigation which may have the effect of prohibiting or adversely affecting any of the transactions contemplated by this Agreement; no statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or adopted by any court or governmental authority of competent jurisdiction that prohibits the transactions contemplated by this Agreement, and no actions, suits or proceedings shall be in progress, pending or, to the Company’s knowledge threatened, by any person (other than Investor or any Affiliate of Investor), that seek to enjoin or prohibit the transactions contemplated by this Agreement;

 

 

 (vi)        all Common Shares shall have been timely delivered, including all Warrant Shares issuable pursuant to any Exercise Notice delivered to Company prior to the Tranche Notice Date;

 (vii)      all previously-issued and issuable Common Shares are DWAC Shares, are DTC eligible, and can be immediately converted into electronic form without restriction on resale, provided that the foregoing condition shall apply only to Tranche Notices delivered after the earlier of (A) six months from the Effective Date, or (B) the date that the Registration Statement is declared effective;

 (viii)     Company is in compliance with all requirements to maintain listing on the Trading Market;

 (ix)       Company has a current, valid and effective Registration Statement permitting the lawful resale of all previously-issued and issuable Common Shares and all Warrant Shares issuable upon exercise of the Warrant issued in connection with such Tranche, provided that the foregoing condition shall apply only to Tranche Notices delivered after the earlier of (A) six months from the Effective Date, or (B) the date that the Registration Statement is declared effective;

 (x)         Company has a sufficient number of duly authorized shares of Common Stock reserved for issuance in such amount as may be required to fulfill its obligations pursuant to the Transaction Documents and any outstanding agreements with Investor and any Affiliate of Investor, including without limitation all Warrant Shares issuable upon exercise of the Warrant issued in connection with such Tranche;

 (xi)       Company has provided notice of its delivery of the Tranche Notice to all signatories of a Lock-Up Agreement as required under the Lock-Up Agreement;

 (xii)      the aggregate number of Warrant Shares issuable upon exercise of the Warrant issued at that Tranche Notice Date, aggregated with all other shares of Common Stock deemed beneficially owned by the Investor and its Affiliates, would not result in the Investor owning more than 9.99% of all Common Stock outstanding on the Tranche Notice Date, as determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder; and

 (xiii)     pursuant to the terms of the Stock Loan Agreements, Investor shall have Borrowed Shares equal to at least 150% of the Tranche Purchase Price.

(e)             Documents to be Delivered at Tranche Closing . The Closing of any Tranche and Investor’s obligations hereunder shall additionally be conditioned upon the delivery to Investor of each of the following (the “ Required Tranche Documents ”) on or before the applicable Tranche Closing Date:

 (i)         a number of Preferred Shares equal to the Tranche Purchase Price divided by the Tranche Share Price shall have been delivered to Investor or an account specified by Investor for the Tranche Shares;

 

 

(ii)         the following executed documents:  Opinion, Officer’s Certificate and Lock-Up Agreements;

(iii)        a “Use of Proceeds” certificate, signed by an officer of the Company, and setting forth how the Tranche Purchase Price will be applied by the Company;

(iv)         all Warrant Shares shall have been timely delivered in accordance with any Exercise Notice delivered to Company prior to the Tranche Closing Date;

(v)          all documents, instruments and other writings required to be delivered by the Company to Investor on or before the Tranche Closing Date pursuant to any provision of this Agreement or in order to implement and effect the transactions contemplated herein; and

(vi)         payment of a $5,000.00 non-refundable administrative fee to Investor’s counsel, by offset against the Tranche Amount, or wire transfer of immediately available funds.

(f)             Mechanics of Tranche Closing .  Each of the Company and Investor shall deliver all documents, instruments and writings required to be delivered by either of them pursuant to Section 2.3(e) of this Agreement at or prior to each Tranche Closing. Subject to such delivery and the satisfaction of the conditions set forth in Section 2.3(d) as of the Tranche Closing Date, the closing of the purchase by Investor of Preferred Shares shall occur by 5:00 p.m. Eastern time, on the date which is 10 Trading Days following the Tranche Notice Date (each a “ Tranche Closing Date ”) at the offices of Investor; provided, however, that if any Warrant Shares are not timely credited by the Share Delivery Date in accordance with Section 1.1 of any Warrant exercised before the Tranche Closing Date, then the Tranche Closing Date shall be extended one Trading Day for each Trading Day that such delivery is not made.  On or before each Tranche Closing Date, Investor shall deliver to the Company the Tranche Purchase Price to be paid for such Tranche Shares.  The closing (each a “ Tranche Closing ”) for each Tranche shall occur on the date that both (i) the Company has delivered to Investor all Required Tranche Documents, and (ii) Investor has delivered to the Company the Tranche Purchase Price.

(g)             Limitation on Obligations to Purchase and Sell .  Notwithstanding anything herein to the contrary, in the event the closing price of the Common Stock during the 9 Trading Days following the Tranche Notice Date falls below 75.0% of the closing price on the day prior to the Tranche Notice Date:  (i) Investor may, at its option, and without penalty, decline to purchase the applicable Tranche Shares on the Tranche Closing Date, and return to the Company all Warrants issued in connection with such Tranche Notice that remain unexercised; or (ii) Company may, at its option, and without penalty, terminate the Tranche Notice and decline to sell the applicable Tranche Shares on the Tranche Closing Date.

 

 

2.4              Maximum Placement .  Investor shall not be obligated to purchase any additional Tranche Shares once the aggregate Tranche Purchase Price paid by Investor equals the Maximum Placement.

ARTICLE 3

TERMINATION

3.1              Automatic Termination .  This Agreement and the Company’s right to initiate subsequent Tranches to Investor under this Agreement shall terminate permanently (each, an “ Automatic Termination ”) upon the occurrence of any of the following:

(a)            if, at any time, either the Company or any director or executive officer of the Company has engaged in a transaction or conduct related to the Company that has resulted in (i) a SEC enforcement action, or (ii) a civil judgment or criminal conviction for fraud or misrepresentation, or for any other offense that, if prosecuted criminally, would constitute a felony under applicable law;

(b)            on any date after a Delisting Event that lasts for an aggregate of 20   Trading Days during any calendar year;

(c)            if at any time the Company has filed for and/or is subject to any bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors instituted by or against the Company or any subsidiary of the Company;

(d)            the Company is in breach or default of any Material Agreement, which default could have a Material Adverse Effect;

(e)            the Company is in breach or default of this Agreement, any Transaction Document, or any agreement with Investor or any Affiliate of Investor;

(f)            upon the occurrence of a Fundamental Transaction;

(g)            so long as any Preferred Shares are outstanding, the Company effects or publicly announces its intention to create a security senior to the Series B Preferred Stock, or substantially altering the capital structure of the Company in a manner that materially adversely effects the rights or preferences of the Series B Preferred Stock; and

(h)            on the Termination Date.

3.2              Company Termination .  The Company may at any time in its sole discretion terminate (a “ Company Termination ”) this Agreement and its right to initiate future Tranches by providing 30 days advanced written notice (“ Termination Notice ”) to Investor.

3.3              Effect of Termination .  The termination of this Agreement will have no effect on any Common Shares, Preferred Shares, Warrants or DWAC Shares previously issued, delivered or credited, or on any rights of any holder thereof.  Notwithstanding any other provision, all fees paid to Investor or its counsel are non-refundable.

 

 

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

4.1              Representations and Warranties of the Company .  Except as set forth under the corresponding section of the Disclosure Schedules, which shall be deemed a part hereof, the Company hereby represents and warrants to, and as applicable covenants with, Investor as of each Closing:

(a)             Subsidiaries .  All of the direct and indirect subsidiaries of the Company are set forth on Schedule 4.1(a) .  The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary, and all of such directly or indirectly owned capital tock or other equity interests are owned free and clear of any Liens.  All the issued and outstanding shares of capital stock of each Subsidiary are duly authorized, validly issued, fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.  If the Company has no subsidiaries, then references in the Transaction Documents to the Subsidiaries will be disregarded.

(b)             Organization and Qualification .  Each of the Company and the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, as applicable, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in a Material Adverse Effect and no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

(c)             Authorization; Enforcement .  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder or thereunder.  The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby or thereby have been duly authorized by all necessary action on the part of the Company and no further consent or action is required by the Company other than the filing of the Certificate of Designations.  Each of the Transaction Documents has been, or upon delivery will be, duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies.  Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, by-laws or other organizational or charter documents except where such violation could not, individually or in the aggregate, constitute a Material Adverse Effect.

 

 

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

(e)             Filings, Consents and Approvals .  Neither the Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than the filing of the Certificate of Designations and required federal and state securities filings, each of which has been, or (if not yet required to be filed) shall be, timely filed.

(f)             Issuance of the Securities .  The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens.  The Company has reserved from its duly authorized capital stock a number of shares of Common Stock and Preferred Stock for issuance of the Securities at least equal to the number of Securities which could be issued pursuant to the terms of the Transaction Documents.

(g)             Capitalization .  The capitalization of the Company is as described in the Company’s most recently filed SEC Report.  The Company has not issued any capital stock since such filing.  No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents.  Except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or securities convertible into or exercisable for shares of Common Stock.  The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than Investor) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange, or reset price under such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.  No further approval or authorization of any stockholder, the Board of Directors of the Company or others is required for the issuance and sale of the shares of the Securities.  There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

 

 

(h)             SEC Reports; Financial Statements .  The Company has filed all required SEC Reports for the two years preceding the Effective Date (or such shorter period as the Company was required by law to file such material) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Act and the Exchange Act and the rules and regulations of the SEC promulgated thereunder, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the SEC with respect thereto as in effect at the time of filing.  Such financial statements have been prepared in accordance with GAAP, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

(i)             Material Changes .  Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the SEC, (iii) the Company has not altered its method of acco