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EXHIBIT 10.1
SECURITIES PURCHASE
AGREEMENT
THIS SECURITIES PURCHASE
AGREEMENT (this “ Agreement
”), dated as of May 30, 2008, by and among TELKONET, INC., a Utah
corporation (the “ Company
”), and the Buyers listed on Schedule I attached
hereto (individually, a “ Buyer ”
or collectively “ Buyers
”).
WITNESSETH
WHEREAS , the Company and the Buyer(s) are executing and
delivering this Agreement in reliance upon an exemption from
securities registration pursuant to Section 4(2) and/or
Rule 506 of Regulation D (“ Regulation D
”) as promulgated by the U.S. Securities and Exchange
Commission (the “ SEC ”)
under the Securities Act of 1933, as amended (the “
Securities Act
”);
WHEREAS , the parties desire that, upon the terms and
subject to the conditions contained herein, the Company shall issue
and sell to the Buyer(s), as provided herein, and the Buyer(s)
shall purchase (i) up to Three Million Five Hundred Thousand
Dollars ($3,500,000) of secured convertible debentures in the form
attached hereto as “ Exhibit A
” (the “ Convertible
Debentures ”), which shall be convertible into shares
of the Company’s common stock, par value $0.001 (the “
Common
Stock ”) (as converted, the “ Conversion
Shares ”), and (ii) warrants substantially in the form
attached hereto as “ Exhibit B
” (the “ Warrants
”), to acquire up to that number of additional shares of
Common Stock set forth opposite such Buyer’s name on Schedule
I (as exercised, the “ Warrant Shares
”) of which One Million Five Hundred Thousand Dollars
($1,500,000) shall be funded within five (5) business days
following the date hereof (the “ First Closing
”); One Million Dollars ($1,000,000) shall be funded within
five business days of satisfaction of each of the conditions set
forth in Sections 6(b) and 7(b) hereof (the “
Second
Closing ”); and One Million Dollars ($1,000,000) shall
be funded within five business days of satisfaction of each of the
conditions set forth in Sections 6(c) and 7(c) hereof (the “
Third
Closing ”) (individually referred to as a “
Closing
” collectively referred to as the “ Closings
”), for a total purchase price of up to Three Million Five
Hundred Thousand Dollars ($3,500,000) (the “ Purchase Price
”), in the respective amounts set forth opposite each
Buyer(s) name on Schedule I (the “ Subscription
Amount ”);
WHEREAS , contemporaneously with the execution and delivery
of this Agreement, the parties hereto are executing and delivering
a Registration Rights Agreement (the “ Registration Rights
Agreement ”) pursuant to which the Company has agreed
to provide certain registration rights under the Securities Act and
the rules and regulations promulgated thereunder, and applicable
state securities laws;
WHEREAS , contemporaneously with the execution and delivery
of this Agreement, (i) the Buyer, the Company, and each subsidiary
of the Company are executing and delivering a Security Agreement
(all such security agreements shall be referred to as the “
Security
Agreement ”) pursuant to which the Company and its
wholly owned subsidiaries agree to provide the Buyer a security
interest in Pledged Property (as this term is defined in the
Security Agreement), and (ii) each subsidiary of the Company is
executing and delivering a Guaranty dated the date hereof (the
“ Guaranty
” and collectively with the Security Agreement, the “
Security
Documents ”) in favor of the Buyer;
WHEREAS , contemporaneously with the execution and delivery
of this Agreement, the parties hereto are executing and delivering
Irrevocable Transfer Agent Instructions (the “ Irrevocable Transfer
Agent Instructions ”); and
WHEREAS , the Convertible Debentures, the Conversion Shares,
the Warrants, and the Warrant Shares collectively are referred to
herein as the “ Securities
”).
NOW, THEREFORE , in consideration of the mutual covenants
and other agreements contained in this Agreement, the Company and
the Buyer(s) hereby agree as follows:
1.
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES .
(a)
Purchase of Convertible Debentures . Subject to
the satisfaction (or waiver) of the terms and conditions of this
Agreement, each Buyer agrees, severally and not jointly, to
purchase at each Closing and the Company agrees to sell and issue
to each Buyer, severally and not jointly, at each Closing,
Convertible Debentures in amounts corresponding with the
Subscription Amount set forth opposite each Buyer’s name on
Schedule I hereto and the Warrants to acquire up that number of
Warrant Shares as set forth opposite such Buyer’s name on
Schedule I .
(b)
Closing Dates . The First Closing of the purchase
and sale of the Convertible Debentures and Warrants shall take
place at 10:00 a.m. Eastern Standard Time on the fifth (5
th
) business day following the date hereof, subject to notification
of satisfaction of the conditions to the First Closing set forth
herein and in Sections 6 and 7 below (or such other date as is
mutually agreed to by the Company and the Buyer(s)) (the “
First
Closing Date ”). The Second Closing of the
purchase and sale of the Convertible Debentures shall take place at
4:00 p.m. Eastern Standard Time on the business day immediately
following the date the conditions to the Second Closing set forth
in Sections 6 and 7 below have been satisfied (or such later date
as is mutually agreed to by the Company and the Buyer(s)) (the
“ Second Closing
Date ”). The Third Closing of the purchase
and sale of the Convertible Debentures shall take place at 4:00
p.m. Eastern Standard Time on the business day immediately
following the date the conditions to the Third Closing set forth in
Sections 6 and 7 below have been satisfied (or such later date as
is mutually agreed to by the Company and the Buyer(s)) (the “
Third
Closing Date ,” together with the First Closing Date
and the Second Closing Date, the “ Closing Dates
”). The Closings shall occur on the respective
Closing Dates at the offices of Yorkville Advisors, LLC, 3700
Hudson Street, Suite 3700, Jersey City, New Jersey 07302 (or such
other place as is mutually agreed to by the Company and the
Buyer(s)).
(c)
Form of Payment . Subject to the satisfaction of
the terms and conditions of this Agreement, on each Closing Date,
(i) the Buyers shall deliver to the Company such aggregate proceeds
for the Convertible Debentures and Warrants to be issued and sold
to such Buyer at such Closing, minus the fees to be paid directly
from the proceeds of such Closing as set forth herein, and
(ii) the Company shall deliver to each Buyer, Convertible
Debentures and Warrants which such Buyer is purchasing at such
Closing in amounts indicated opposite such Buyer’s name on
Schedule I, duly executed on behalf of the Company.
2.
BUYER’S REPRESENTATIONS AND WARRANTIES .
Each
Buyer represents and warrants, severally and not jointly,
that:
(a)
Investment Purpose . Each Buyer is acquiring the
Securities for its own account for investment only and not with a
view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by
making the representations herein, such Buyer reserves the right to
dispose of the Securities at any time in accordance with or
pursuant to an effective registration statement covering such
Securities or an available exemption under the Securities
Act. Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person to
distribute any of the Securities.
(b)
Accredited Investor Status . At the time each
Buyer was offered the Securities it was, and at the date hereof,
and on each date it exercises the Warrants and converts the
Convertible Debentures it will be, an “ Accredited
Investor ” as that term is defined in Rule 501(a)(3)
of Regulation D. Such Buyer is not a registered
broker-dealer under Section 15 of the Exchange Act.
(c)
Reliance on Exemptions . Each Buyer understands
that the Securities are being offered and sold to it in reliance on
specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is
relying in part upon the truth and accuracy of, and such
Buyer’s compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set
forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the
Securities.
(d)
Information . Each Buyer and its advisors (and
his or, its counsel), if any, have been furnished with all
materials relating to the business, finances and operations of the
Company and information such Buyer and/or its advisors, if any,
deemed material to making an informed investment decision regarding
the purchase of the Securities, which have been requested by such
Buyer. Each Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and its
management. Neither such inquiries nor any other due
diligence investigations conducted by such Buyer or its advisors,
if any, or its representatives shall modify, amend or affect such
Buyer’s right to rely on the Company’s representations
and warranties contained in Section 3 below. Each Buyer
understands that its investment in the Securities involves a high
degree of risk and represents that it is able to bear the economic
risk of an investment in the Securities and, as of the date of this
Agreement, is able to afford a complete loss of such
investment. Each Buyer, either alone or together with
its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of an investment in the securities
and has so evaluated the merits and risks of such
investment. Each Buyer has sought such accounting, legal
and tax advice, as it has considered necessary to make an informed
investment decision with respect to its acquisition of the
Securities.
(e)
No Governmental Review . Each Buyer understands
that no United States federal or state agency or any other
government or governmental agency has passed on or made any
recommendation or endorsement of the Securities, or the fairness or
suitability of the investment in the Securities, nor have such
authorities passed upon or endorsed the merits of the offering of
the Securities.
(f)
Transfer or Resale . Each Buyer understands that
except as provided in the Registration Rights Agreement: (i) the
Securities have not been and are not being registered under the
Securities Act or any state securities laws, and may not be offered
for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to
the effect that such Securities to be sold, assigned or transferred
may be sold, assigned or transferred pursuant to an exemption from
such registration requirements, or (C) such Buyer provides the
Company with reasonable assurances (in the form of seller and
broker representation letters) that such Securities can be sold,
assigned or transferred pursuant to Rule 144, Rule 144(k), or Rule
144A promulgated under the Securities Act, as amended (or a
successor rule thereto) (collectively, “ Rule 144
”), in each case following the applicable holding period set
forth therein; (ii) any sale of the Securities made in reliance on
Rule 144 may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the
person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may
require compliance with some other exemption under the Securities
Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to
register the Securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any
exemption thereunder.
(g)
Legends . Each Buyer agrees to the imprinting, so
long as is required by this Section 2(g), of a restrictive legend
in substantially the following form:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH
A VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS.
Certificates
evidencing the Conversion Shares or Warrant Shares shall not
contain any legend (including the legend set forth above), (i)
while a registration statement (including the Registration
Statement) covering the resale of such security is effective
under the Securities Act, (ii) following any sale of such
Conversion Shares or Warrant Shares pursuant to Rule 144,
(iii) if such Conversion Shares or Warrant Shares are eligible
for sale under Rule 144(k), or (iv) if such legend is not
required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued
by the staff of the SEC). The Company shall cause
its counsel to issue a legal opinion to the Company’s
transfer agent
promptly
after the effective date (the “ Effective
Date ”) of a Registration Statement if required
by the Company’s transfer agent to effect the removal of
the legend hereunder. If all or any portion of the
Convertible Debentures or Warrants are exercised by a Buyer
that is not an Affiliate of the Company (a “ Non-Affiliated
Buyer ”) at a time when there is an effective
registration statement to cover the resale of the Conversion
Shares or the Warrant Shares, such Conversion Shares or
Warrant Shares shall be issued free of all
legends. The Company agrees that following the
Effective Date or at such time as such legend is no longer
required under this Section 2(g), it will, no later than three
(3) Trading Days following the delivery by a Non-Affiliated
Buyer to the Company or the Company’s transfer agent of
a certificate representing Conversion Shares or Warrant
Shares, as the case may be, issued with a restrictive legend
(such third Trading Day, the “ Legend Removal
Date ”), deliver or cause to be delivered to such
Non-Affiliated Buyer a certificate representing such shares
that is free from all restrictive and other
legends. The Company may not make any notation on
its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in
this Section. Each Buyer acknowledges that the
Company’s agreement hereunder to remove all legends from
Conversion Shares or Warrant Shares is not an affirmative
statement or representation that such Conversion Shares or
Warrant Shares are freely tradable. Each Buyer,
severally and not jointly with the other Buyers, agrees that
the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 3(g) is
predicated upon the Company’s reliance that the Buyer
will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom,
and that if Securities are sold pursuant to a Registration
Statement, they will be sold in compliance with the plan of
distribution set forth therein.
(h)
Authorization, Enforcement . This Agreement has
been duly and validly authorized, executed and delivered on behalf
of such Buyer and is a valid and binding agreement of such Buyer
enforceable in accordance with its terms, except as such
enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights
and remedies.
(i)
Receipt of Documents . Each Buyer and his or its
counsel has received and read in their entirety: (i)
this Agreement and each representation, warranty and covenant set
forth herein and the Transaction Documents (as defined herein);
(ii) all due diligence and other information necessary to verify
the accuracy and completeness of such representations, warranties
and covenants; (iii) the Company’s Form 10-K for the fiscal
year ended December 31, 2007, and (iv) answers to all questions
each Buyer submitted to the Company regarding an investment in the
Company; and each Buyer has relied on the information contained
therein and has not been furnished any other documents, literature,
memorandum or prospectus.
(j)
Due Formation of Corporate and Other Buyers . If
the Buyer(s) is a corporation, trust, partnership or other entity
that is not an individual person, it has been formed and validly
exists and has not been organized for the specific purpose of
purchasing the Securities and is not prohibited from doing
so.
(k)
No Legal Advice From the Company . Each Buyer
acknowledges, that it had the opportunity to review this Agreement
and the transactions contemplated by this Agreement with his or its
own legal counsel and investment and tax advisors. Each
Buyer is relying solely on such counsel and advisors and not on any
statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with
respect to this investment, the transactions contemplated by this
Agreement or the securities laws of any jurisdiction.
(l)
No Conflicts . The execution, delivery and
performance by such Buyer of this Agreement and the Registration
Rights Agreement and the consummation by such Buyer of the
transactions contemplated hereby and thereby will not (i) result in
a violation of the organizational documents of such Buyer, or (ii)
conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration
or cancellation of, any agreement, indenture or instrument to which
such Buyer is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree applicable
to such Buyer, except in the case of clauses (ii) and (iii) above,
for such conflicts, defaults, rights or violations which would not,
individually or in the aggregate, reasonably be expected to have a
material adverse effect on the ability of such Buyer to perform its
obligations hereunder.
(m)
Limited Ownership . The purchase by Buyers of the
Securities issuable to them at the Closing will not result in such
Buyers (in the aggregate or together with other persons with whom
such Buyers have identified, or will have identified, themselves as
part of a “group” in a public filing made with the SEC
involving the Company’s securities) acquiring, or obtaining
the right to acquire, in excess of 19.99% of the outstanding shares
of Common Stock or the voting power of the Company on a post
transaction basis that assumes that the Closings shall have
occurred. No Buyer presently intends to, alone or together with
others, make a public filing with the SEC to disclose that it has
(or that it together with such other persons have) acquired, or
obtained the right to acquire, as a result of the Closings (when
added to any other securities of the Company that it or they then
own or have the right to acquire), in excess of 19.99% of the
outstanding shares of Common Stock or the voting power of the
Company on a post transaction basis that assumes that the Closings
shall have occurred.
3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY .
Except
as set forth under the corresponding section of the Disclosure
Schedules which Disclosure Schedules shall be deemed a part
hereof and to qualify any representation or warranty otherwise
made herein to the extent of such disclosure, the Company
hereby makes the representations and warranties set forth
below to each Buyer:
(a)
Subsidiaries . All of the direct and indirect
subsidiaries of the Company are set forth on Schedule 3(a)
. The Company owns, directly or indirectly, all of the
capital stock or other equity interests of each subsidiary free and
clear of any liens, and all the issued and outstanding shares of
capital stock of each subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.
(b)
Organization and Qualification . The Company and
its subsidiaries are corporations duly organized, validly existing
and in good standing under the laws of the jurisdiction in which
they are incorporated, and have the requisite corporate power to
own their properties and to carry on their business as now being
conducted. Each of the Company and its subsidiaries is
duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the
business conducted by it makes such qualification necessary, except
to the extent that the failure to be so qualified or be in good
standing would not have or reasonably be expected to result in (i)
a material adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material adverse
effect on the results of operations, assets, business or condition
(financial or otherwise) of the Company and the subsidiaries, taken
as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a
timely basis its obligations under any Transaction Document (any of
(i), (ii) or (iii), a “ Material Adverse
Effect ”) and no proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to
revoke, limit or curtail such power and authority or
qualification.
(c)
Authorization, Enforcement, Compliance with Other
Instruments . (i) The Company has the
requisite corporate power and authority to enter into and perform
its obligations under this Agreement, the Convertible Debentures,
the Warrants, the Security Documents, the Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions, and each of
the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement
(collectively the “ Transaction
Documents ”) and to issue the Securities in accordance
with the terms hereof and thereof, (ii) the execution and delivery
of the Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby, including,
without limitation, the issuance of the Securities, the reservation
for issuance and the issuance of the Conversion Shares, and the
reservation for issuance and the issuance of the Warrant Shares,
have been duly authorized by the Company’s Board of Directors
and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (iii) the Transaction
Documents have been duly executed and delivered by the Company,
(iv) the Transaction Documents constitute the valid and binding
obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of
creditors’ rights and remedies. The authorized
officer of the Company executing the Transaction Documents knows of
no reason why the Company cannot file the Registration Statement as
required under the Registration Rights Agreement or perform any of
the Company’s other obligations under the Transaction
Documents.
(d)
Capitalization . The authorized capital stock of
the Company consists of 100,000,000 shares of Common Stock and
15,000,000 shares of Preferred Stock, par value $0.001 (“
Preferred
Stock ”) of which 77,885,880 shares of Common Stock
and zero shares of Preferred Stock are issued and
outstanding. 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. Except as
disclosed in Schedule 3(d): (i) none of the Company's capital stock
is subject to preemptive rights or any other similar rights or any
liens or encumbrances suffered or permitted by the Company; (ii)
there are no outstanding options, warrants,
scrip,
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into,
or exercisable or exchangeable for, any capital stock of the
Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional capital
stock of the Company or any of its subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital
stock of the Company or any of its subsidiaries; (iii) there are no
outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing
indebtedness of the Company or any of its subsidiaries or by which
the Company or any of its subsidiaries is or may become bound; (iv)
there are no financing statements securing obligations in any
material amounts, either singly or in the aggregate, filed in
connection with the Company or any of its subsidiaries; (v) there
are no outstanding securities or instruments of the Company or any
of its subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings
or arrangements by which the Company or any of its subsidiaries is
or may become bound to redeem a security of the Company or any of
its subsidiaries; (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities; (vii) the Company does
not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement; and (viii) the Company
and its subsidiaries have no liabilities or obligations required to
be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the
Company's or its subsidiaries' respective businesses and which,
individually or in the aggregate, do not or would not result in a
Material Adverse Effect. The Company has furnished to
the Buyers true, correct and complete copies of the Company's
Certificate of Incorporation, as amended and as in effect on the
date hereof (the “ Certificate of
Incorporation ”), and the Company's Bylaws, as amended
and as in effect on the date hereof (the “ Bylaws
”), and the terms of all securities convertible into, or
exercisable or exchangeable for, shares of Common Stock and the
material rights of the holders thereof in respect
thereto. 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
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.
(e)
Issuance of Securities . The Convertible
Debentures and the Warrants when issued in accordance with this
Agreement will be duly authorized and free from all taxes, liens
and charges with respect to the issue thereof. The
issuance of the Conversion Shares and the Warrant Shares, upon
conversion in accordance with the terms of the Convertible
Debentures or exercise in accordance with the Warrants, as the case
may be, will be validly issued, fully paid and nonassessable, free
from all taxes, liens and charges with respect to the issue
thereof.
(f)
No Conflicts . The execution, delivery and
performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby
and thereby (including, without limitation, the issuance of the
Convertible Debentures and the Warrants, and reservation for
issuance and issuance of the Conversion Shares and the Warrant
Shares in accordance with the terms of this Agreement) will not (i)
result in a violation of any certificate of incorporation,
certificate
of
formation, any certificate of designations or other
constituent documents of the Company or any of its
subsidiaries, any capital stock of the Company or any of its
subsidiaries or bylaws of the Company or any of its
subsidiaries or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would
become a default) in any respect under, or give to others any
rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture or instrument to which the
Company or any of its subsidiaries is a party, or (iii) result
in a violation of any law, rule, regulation, order, judgment
or decree (including foreign, federal and state securities
laws and regulations and the rules and regulations of the
American Stock Exchange (AMEX)) 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 in the case of each of clauses (ii) and (iii), such as
could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse
Effect. The business of the Company and its
subsidiaries is not being conducted, and shall not be
conducted in violation of any material law, ordinance, or
regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required
under the Securities Act, any applicable state securities laws
and the rules and regulations of the AMEX, the Company is not
required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement in accordance
with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the
date hereof. The Company and its subsidiaries are
unaware of any facts or circumstance, which might give rise to
any of the foregoing.
(g)
SEC Documents; Financial Statements . Except as
set forth in Schedule 3(g), the Company has filed all reports,
schedules, forms, statements and other documents required to be
filed by it with the SEC under the Securities Exchange Act of 1934,
as amended (the “ Exchange Act
”), for the two years preceding the date hereof (or such
shorter period as the Company was required by law or regulation to
file such material) (all of the foregoing filed prior to the date
hereof or amended after the date hereof and all exhibits included
therein and financial statements and schedules thereto and
documents incorporated by reference therein, being hereinafter
referred to as the “ SEC Documents
”) on timely basis or has received a valid extension of such
time of filing and has filed any such SEC Document prior to the
expiration of any such extension. The Company has
delivered to the Buyers or their representatives, or made available
through the SEC’s website at http://www.sec.gov, true and
complete copies of the SEC Documents. As of their
respective dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to the
SEC Documents. 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 generally accepted accounting
principles, consistently applied, during the periods involved
(except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may
be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the
dates thereof and the results of its operations and cash flows for
the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). No
other information provided by or on behalf of the Company to the
Buyers which is not included in the SEC Documents, including,
without limitation, information referred to in Section 2(i) of this
Agreement, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstance under which
they are or were made and not misleading.
(h)
10(b)-5 . The SEC Documents do not, and did not
at the time of their filing, include any untrue statements of
material fact, nor do they, nor did they at the time of their
filing, omit to state any material fact required to be stated
therein necessary to make the statements made, in light of the
circumstances under which they were made, not
misleading.
(i)
Absence of Litigation . Except as set forth in
Schedule 3(i), there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government
agency, self-regulatory organization or body pending against or
affecting the Company, the Common Stock or any of the
Company’s subsidiaries, wherein an unfavorable decision,
ruling or finding would result in a Material Adverse
Effect.
(j)
Acknowledgment Regarding Buyer’s Purchase of the Convertible
Debentures . The Company acknowledges and agrees
that each Buyer is acting solely in the capacity of an arm’s
length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further
acknowledges that each Buyer is not 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 advice given by each Buyer or any of their respective
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to such
Buyer’s purchase of the Securities. The Company
further represents to each Buyer that the Company’s decision
to enter into this Agreement has been based solely on the
independent evaluation by the Company and its
representatives.
(k)
No General Solicitation . Neither the Company,
nor any of its affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the
Securities Act) in connection with the offer or sale of the
Securities.
(l)
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 of any
security or solicited any offers to buy any security, under
circumstances that would require registration of the Securities
under the Securities Act or cause this offering of the Securities
to be integrated with prior offerings by the Company for purposes
of the Securities Act.
(m)
Employee Relations . Neither the Company nor any
of its subsidiaries is involved in any labor dispute or, to the
knowledge of the Company or any of its subsidiaries, is any such
dispute threatened. None of the Company’s or its
subsidiaries’ employees is a member of a union and the
Company and its subsidiaries believe that their relations with
their employees are good.
(n)
Intellectual Property Rights . The Company and
its subsidiaries own or possess adequate rights or licenses to use
all trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses
as now conducted, except as would not result in a Material Adverse
Effect. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights,
inventions, licenses, service names, service marks, service mark
registrations, trade secret or other similar rights of others, and,
to the knowledge of the Company there is no claim, action or
proceeding being made or brought against, or to the Company’s
knowledge, being threatened against, the Company or its
subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service
marks, service mark registrations, trade secret or other
infringement; and the Company and its subsidiaries are unaware of
any facts or circumstances which might give rise to any of the
foregoing.
(o)
Environmental Laws . The Company and its
subsidiaries are (i) in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
(“ Environmental
Laws ”), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit,
license or approval.
(p)
Title .
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