Exhibit 10.1
Execution Copy
SECURITIES PURCHASE
AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT
(this “ Agreement ”), dated as of June 13,
2008, by and among ISONICS CORPORATION, a California
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 One Million Five
Hundred Thousand Dollars ($1,500,000) of notes in the form attached
hereto as “ Exhibit A ” (the “
Notes ”) and (ii) warrants substantially in the
form attached hereto as “ Exhibit B ” (the
“ Warrants ”), to acquire up to that number of
additional shares of the Company’s common stock, no par value
per share (the “ Common Stock ”) set forth
opposite such Buyer’s name on Schedule I (as exercised, the
“ Warrant Shares ”) of which One Million One
Hundred Seventy-Five Thousand Dollars ($1,175,000) shall be funded
within five (5) business day following the date hereof (the
“ First Closing ”), Fifty Thousand Dollars
($50,000) shall be funded upon the change of the Company’s
transfer agent to Worldwide Stock Transfer (the “ Second
Closing ”) and Two Hundred Seventy Five Thousand Dollars
($275,000) shall be funded at the Company’s request (the
“ Third Closing ”) (individually referred to as
a “ Closing ” collectively referred to as the
“ Closings ”), for a total purchase price of up
to One Million Five Hundred Dollars ($1,500,000), (the “
Purchase Price ”) in the respective amounts set forth
opposite each Buyer(s) name on Schedule I (the “
Subscription Amount ”);
WHEREAS , on June 5, 2006, the Company
issued Secured Convertible Debenture (No. CCP-2) in the amount
of Three Million Dollars ($3,000,000) to YA Global Investments,
L.P. (f/k/a Cornell Capital Partners L.P.) (“ YA
Global ”), a Buyer, and on June 13, 2006, such
Secured Convertible Debenture was amended and restated as Secured
Convertible Debenture (No. CCP-4) (“ Debenture
CCP-4 ”);
WHEREAS , on November 16, 2006, the
Company issued Secured Convertible Debenture (No. CCP-5) in
the amount of Three Million Dollars ($3,000,000) to YA Global
(“ Debenture CCP-5 ”);
WHEREAS , contemporaneously with the
execution and delivery of this Agreement, the Company and YA Global
have agreed to amend and restate Debenture CCP-4 and Debenture
CCP-5 into one note in the amount of Six Million Dollars
($6,000,000) in the form attached hereto as Exhibit A
(such notes, the “ Amendment Notes
”);
WHEREAS , on May 31, 2006, the Company
issued Secured Convertible Debenture (No. CCP-1) in the amount
of Ten Million Dollars ($10,000,000) to YA Global and on
June 13, 2006,
such Secured Convertible Debenture was amended
and restated as Secured Convertible Debenture (No. CCP-3)
(“ Debenture CCP-3 ”);
WHEREAS , on April 11, 2007, the Company
issued Secured Convertible Debenture (No. CCP-2007-1) in the
amount of Two Million Dollars ($2,000,000) to YA Global (“
Debenture CCP-2007-1 ”);
WHEREAS , contemporaneously with the
execution and delivery of this Agreement the Company and YA Global
have agreed to amend Debenture CCP-3 and Debenture CCP-2007-1
pursuant to an amendment in substantially the form attached hereto
as Exhibit Y (the “ Debenture Amendments
”);
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 there under, 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 Notes, the Warrants, and the
Warrants 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 NOTES .
(a)
Purchase of Notes . 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, Notes 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 in
column (5) on Schedule I .
(b)
Closing Dates . The First Closing of the purchase and
sale of the Notes 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
later 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 Notes shall take
place at 4:00 p.m. Eastern Standard Time on the date following
the date on which the Buyers receive written notice that the
conditions to the Second Closing set forth herein and 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 ”) and the Third Closing of the purchase and
sale of the Notes shall take place at 4:00 p.m. Eastern
Standard Time on the date following the date on which the Buyers
receive written notice that the Company wishes to consummate the
Third Closing (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the “ Third Closing Date
”) (collectively referred to a the “ Closing
Dates ”). The Closings shall occur on the
respective Closing Dates at the offices of Yorkville Advisors, LLC,
101 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 Notes 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,
Notes 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 .
Each Buyer is an “ Accredited Investor ” as that
term is defined in Rule 501(a)(3) of Regulation
D.
(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 he deemed material to
making an informed investment decision regarding his 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.
Each Buyer is in a position regarding the Company, which, based
upon employment, family relationship or economic bargaining power,
enabled and enables such Buyer to obtain information from the
Company in order to evaluate the merits and risks of this
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 the Buyer is not an affiliate
of the Company and that such Securities can be sold, assigned or
transferred pursuant to Rule 144 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 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 Warrant Shares pursuant to Rule 144, (iii) if such
Warrant Shares are eligible for sale under Rule 144, 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 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 Warrant Shares, such 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 Warrant Shares 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 Warrant Shares is
not an affirmative statement or representation that such 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 April 30, 2007; (iv) the Company’s Forms 10-Q
for the fiscal quarters ended July 31, 2007, October 31,
2007 and January 31, 2008 and (v) 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)
YA Global, a Buyer
hereunder and the holder of Debentures CCP-3, CCP-4, CCP-5 and
CCP-2007-1 and certain warrants issued in connection therewith,
hereby consents to the transactions contemplated hereby and
represents and warrants that to the best of its knowledge, the
completion of the transactions hereby will not violate, constitute
a default under, or constitute an event that may create a default
under any of such instruments, or create an event that will result
in a dilution adjustment to any of such instruments except as
contemplated in the Debenture Amendments.
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 and validly existing 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 Notes,
the Warrants, the Security Documents, the Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions, the
Amendment Notes and the Debenture Amendments 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, 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
except to the extent that the Company is not eligible to file a
registration statement on Form S-3, and except to the extent
the Company is unable file a registration statement as a result of
management’s inability to issue a management’s
assessment on the Company’s internal control of financial
reporting or reports a material weakness in disclosure controls
resulting from the Company’s inability to install a framework
for such assessment as required by §404 of the Sarbanes-Oxley
Act of 2002 and the rules and regulations thereunder, and
except to the extent that the Company’s independent certified
public accountants issue a report on the Company’s financial
statements including a going concern
qualification or, following a discussion with
the SEC, are unwilling to issue any report on or review of the
Company’s financial statements.
(d)
Capitalization . The authorized capital stock of the
Company consists of 175,000,000 shares of Common Stock and
7,650,000 shares of Preferred Stock, no par value per share
(“ Preferred Stock ”) of which 17,652,987 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 have 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 issuance of the Notes and the
Warrants is duly authorized and free from all taxes, liens and
charges with respect to the issue thereof. Upon exercise in
accordance with the terms of the Warrants, the Warrant Shares when
issued will be validly issued, fully paid and nonassessable, free
from all taxes, liens and charges with respect to the issue
thereof. The Company has reserved from its duly authorized
capital stock the appropriate number of shares of Common Stock as
set forth in this Agreement.
(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 Notes and the Warrants, and reservation for
issuance and issuance of the Warrant Shares) 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 National Association of
Securities Dealers Inc.’s OTC Bulletin Board) 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 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 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 . 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, 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 the light of the circumstances under which
they were made, not misleading. 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)
10b-5
. The SEC Documents
do not include any untrue statements of material fact, nor do they
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 . To the knowledge of the Company, 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 (i) have a
Material Adverse Effect.
(j)
Acknowledgment
Regarding Buyer’s Purchase of the Notes
. 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. 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
. All 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 are not material and do not interfere with
the use made and proposed to be made of such property and buildings
by the Company and its subsidiaries.
(q)
Insurance
. The Company and
each of its subsidiaries is insured by insurers of recognized
financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such
subsidiary has been refused any insurance coverage sought or
applied for and neither the Company nor any such subsidiary has any
reason to believe that it will not be able to renew its existing
insurance
coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not
materially and adversely affect the condition, financial or
otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
(r)
Regulatory
Permits .
The Company and its subsidiaries possess all material certificates,
authorizations and permits issued by the appropriate federal, state
or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to
the
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